Global Economy in Turmoil
A Speech Given at the Publication Event of the Book Taxes, Debt and Crony Capitalism on 25.5.2018.
Good morning – and thanks to Matti Viren for the previous presentation and Matti Putkonen who’s organized this discussion as well as Simo Grönroos, editor of this book, ”Taxes, Debt and Crony Capitalism” and Dr. Heikki Koskenkylä who has been invaluable in his assistance.
In reviewing the book and its analysis of economic development, I would like to start with an international perspective on some of the major trends in economic development – and then return to the scene in Finland.
Many professional economists and commentators point to the present situation as one of considerable confusion. We are confronted, concurrently, with such issues as political instability, a return to world power struggles, financial crises, currency volatility, Brexit, complicated operational conditions, inability to forecast reliably, the refugee crisis that began in 2015 (something which Finland was totally unprepared for). Maybe one factoid gives a hint to the breadth and depth of the range of ’problems’ — it is said there is a world-wide shortage of 70 million teachers!
There are, however, bright spots as well – it is not all ’gloom and doom.’ Technology is being developed at a very rapid pace. Perhaps the biggest breakthroughs in this century will be in the biological field – the advance in genetic knowledge is indeed exciting.
With respect to mega-trends, we should look at the developing scene with regard to the positions of East and West – a picture which comes down, often, to looking at the United States and China. There is nothing new in these countries scrapping – the US has accused China, for years, of manipulating its currency to keep its exchange rate low. But the situation has been heating up considerably in recent months. China – as the US’s biggest lender has been complaining about US fiscal policy and its inconsistent economic policies. The US is claiming that it is losing hundreds of billions a year because of theft of intellectual property and other actions with negative effects for the US. China has now agreed to import more agricultural products and coal for energy production – with the aim of cutting the trade imbalance.
China has experienced extraordinary dynamic growth during the last 40 years. Chinese progress has been chronically underestimated – particularly by the West. Focuses in this development have been the middle class consumer (upwards of 100 million in China) and attention to the formation of private corporations. There is, presently, a decided targeting of providing for the domestic market. There is, also, a definite increase in the disparity of incomes – the number of billionaires is higher than in the USA – the number of millionaires has been more than a million for quite some time.
This growth has been the result of rapid urbanization – certainly the largest ’migration’ in human history. Some 350 million people are forecasted to have moved to the cities in the period 2010-2025. It is estimated that China’s urban population will exceed one billion by the year 2030.
E-commerce has seen very swift development – the poorer regions have had very significant growth as the technical possibilities have allowed them to leap-frog over previous obstacles. Delivery logistics work very well – often within hours.
Chinese companies have also experienced rapid growth through importing technology and methods from the West. This has been so successful that they are now focusing on their own internal development and are no longer putting out the ’red carpet’ for foreign corporations. Research and development within the Chinese community is thriving and they are coming up with their own results. Chinese universities are already world-class in the subjects of cyber -technology and artificial intelligence. No one should miscalculate when it comes to estimating the abilities of China to innovate. There is now a desire for many ’overseas Chinese’ to return ’home’ – quite a difference in attitude from years past.
One important factor in China’s economy has been the international recognition of the Chinese monetary currency – the Renminbi (RMB) – also called the Yuan (CNY) in the West. China has also led in the initiation of a new investment bank – the Asian Infrastructure Investment Bank (AIIB) – with 80 members, including Finland – but, interestingly, not including the USA. Its purpose is to spur development in Asia, Africa and South America. Another big project begun by China is the Belt and Road Initiative (BRI) – a modern reincarnation of the ancient, historical ’Silk Road.’ The resulting connection with Europe will be indeed momentous, as it comes to fruition. All these point to a very significant increase in the level of Chinese influence throughout the world.
Something now noticed is that the West has been slow – and indeed late – in reacting to the growth in these Chinese advancements. Questions of security have been raised as there has been little control over Chinese investment in strategic and vital industries and institutions. Much reform is said to be needed with respect to oversight by Western governments.
There have been significant changes in ’how things work’ and ’who wins’ during this recent economic recovery. It seems that India and China are making the most progress and the question is not just industrial and economic gains. Rather there is appearing a transformation to more authoritarian approaches to production and development – democratic institutions seem to be sacrificed. Matti Putkonen, our ’workman’ in the Finns Party, touches on this in the book. The ’blue-eyed’ goal of ’world betterment’ has, perhaps, been mis-thought.
The second economic mega-trend I’d like to present is the one where there is a decided difference – in financial terms – between the amount of capital investment and the ’real’ economy. When we look at the recent financial crisis we see one reason being the overly-low interest rates (a 5,000 year low!) that led to excessive debt. ’Solutions’ have led to increased worth of corporations, share value, etc. But high-level debt has remained – what is the answer? The ’recovery’ has now gone on for 10 years – a period which is as long as or longer than the historical record of ’cycles.’ What if we are hit by a new crisis with interest rates already low and bank reserves fairly plentiful? The basic point is that those close to the capital markets – the financial elite – have done wonderfully but the ordinary wage-earner has not seen any increases in their well-being – definite imbalance.
Let me know tell of several issues which I believe to be important for Finland. The Finns Party has rightly been critical of taxpayer funds being sent out of the country – be they excessive European Union membership dues or costs related to immigration. However, attention must also be given to domestic problems – we must address various matters that affect the well-being and interests of our own citizens. Drastic government cuts have been made in education as well as youth employment programs and appropriations for the police have been cut in spite of community security having been deteriorating. At the same time, corporations continue to get subsidies regardless of how well they are doing otherwise. Amounts being spent on these subsidies match the estimates of fighter jets for defence or simply balancing the budget. Other abuses are, unfortunately, easy to find. There is the housing cost subsidy which works to transfer taxpayer money to property owners – there is the high price of moving refugees around the country, etc.
Another clear problem is the amount of ’Crony Capitalism’ which is indeed flourishing as the book points out. The distortion to the free market and proper competition with all their supposed advantages is, unfortunately, eliminated.
Finland has been acclaimed for high levels and standards of education but there are problems appearing. Young men seem to be especially vulnerable to difficulties. The inadequacy of vocational training possibilities is a definite issue.
The situation with immigrants and refugees in the education system are causing concern. Adjusting and integrating into the Finnish culture – and, in particular, the school system is not proving to be easy. Even the question of positive motivation is problematic. Discipline is often lacking – and respect for female teachers can present issues. This situation, of course, causes serious disruption for everyone else in the schools.
Because of the dynamic change in the work environment – including the work to be actually done – there is a critical need for the reform of adult education. Developing an excellent agenda and program should be a high priority matter for the next Finnish government. A real challenge here is that a habit of life-long learning and development of own skills is less likely to occur for the less-trained population – even if the need is obvious.
Education and training which are aimed at encouraging innovation and product development are needed – and these needs should be met sooner than later!
There is also the problem of the process of immigration and refugee asylum. A person crossing the Finnish border is given the right to make their appeal for refugee status to officials in Finland. This request is handled but can take months and months and many complicated legal steps. And even when the decision is to decline the asylum status and deportation orders issued, the actual deportation can be long in coming.
Many of these problems would be eliminated if there was less subjectivity in the acceptance of the border crossing in the first place – this would not affect acute cases. This is now a challenge and a question of organization – and not a legal problem.
Sakari Puisto is Ph.D. and political consultant