Trade union repsonse to the challenges of the crisis in the

BalticsTrade Union regional workshop,

Vilnius 8-10 June 2009Charles Woolfson

1. Current context of the crisis

Three questions that matter

• Where are we today?

• How did we get here?

• What have we learned?

The social contours of neo-liberalism

UNDP Human Development Index• In the United Nations Development Programme

(UNDP) Human Development Index: Lithuania ranks at 43, Estonia ranks at 44, and Latvia ranks at 45 out of 177 countries

• HDI - living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrolment at the primary, secondary and tertiary level) and having a decent standard of living (measured by purchasing power parity, PPP, income).

• At ranking 43, 44 and 45 – the three Baltic States are ‘High Human Development Countries’.

Gini Index of income inequality 1987/9-1997/9

Inequality of income distribution (income quintile share ratio)

Expenditure on social protection as % GDP

32.9%

13.3%

12.5%

13.1%

Total expenditure on social protection

Male life expectancy at birth

Total deaths due to ischaemic heart disease (SDR per 1000)

Deaths due to chronic liver disease - males (SDR per 100,000)

Fatal accidents at work Index of the number of fatal accidents at work per 100 thousand

persons in employment (1998=100)

Deaths due to homicide assault – males(SDR per 100,000)

Deaths due to suicide (SDR per 100,000) males

Male life expectancy Lithuania 2003-2006

Life expectancy at 50 years of age (years): highest average age is 73.6 in Denmark, and the lowest 59.0 in Estonia. Source: Jagger et al the Lancet, 17 November 2008

Life expectancy at 50 years of age (years)

Relation between income inequality and life expectancy

source: http://ec.europa.eu/employment_social/social_situation/docs/sso2005_healthlc_report.pdf

Lithuania - Population projection (millions) to 2050 (Eurostat)

The economic contours of neo-liberalism

Eastern Europe overtakes East Asia on ‘Ease-of-Doing-Business’

• WASHINGTON, D.C., September 26, 2007 – Thanks to reforms of business regulation, more businesses are starting up, finds Doing Business 2008

• Countries in Eastern Europe and the former Soviet Union reformed the most in 2006/07 — along with a large group of emerging markets, including China and India.

• Baltic States EE, LV, LT in the top 30Source: http://www.doingbusiness.org/documents/Press_Releases_08/DB_08_Global_English.doc

Bertelsmann Transformation Index (BTI) 2008

• Lithuania’s economic miracle continues unabated. With one of the highest growth rates in Europe and a marked decrease in unemployment, the country now enjoys the benefits of reforms implemented during the 1990s.

• EU accession in 2004 further bolstered the country’s continuing economic miracle.

Source http://www.bertelsmann-transformation-index.de/fileadmin/pdf/Gutachten_BTI_2008/ECSE/Lithuania.pdf

The ‘Baltic Tigers’ GDP Growth Rates 2006

Labour productivity per person employed

Complex exports share in total exports (%) (Source: Bohle and Greskovits, 2007)

The amount of FDI in the industrial sector per employee in 2002 (1,000

EURO)

Corporate taxes in the selected countries, 2004: 11 lowest rates of

taxation (percent)

Source: UNCTAD 2004, World Investment Report 2003, Geneva 78

Source (Yves Jorens,Enlargement: a common European social model?, Social Europe after Enlargement,Ghent 13, 14 May 2004)

‘Catch-up’ estimates - a ‘best-case’ scenario

“A trend that can't go on forever, won't”

Herbert Stein

Source: Fitch, Fitch, “The Baltic States: Risks Rising in the Trailblazers of Emerging Europe”, 2007 from Rainer Kattel Financial Fragility in the Baltic States

Loans to non-financial enterprises and households

Source: Bank of Lithuania, Financial Stability Review, 2006 from Rainer Kattel Financial Fragility in the Baltic States

Global Property Guide, 2007

Michael Hudson (2008) ‘Fading Baltic miracle’ The International Economy, Winter 2008

• Instead of promoting industrial investment and rising living standards, post-Soviet policy has permitted political operators, Red directors, and outright criminals to obtain and sell off assets in the public domain or collateralize them for foreign loans. The flat tax on labor has been set so high as to make it uncompetitive, while the property tax is so low as to spur a real estate bubble. The experiment seems doomed to collapse as a result of trade and debt dependency, extending credit to make quick capital gains, not to increase self-sufficiency and labor productivity.

The ‘Hard Landing’ scenario

No way out

Contagion in the Baltics• Brown Brothers Harriman & Co. (Feb 2009)

warned that Latvia’s weakening economy might force the government to ease its policy of managing the lats, spurring all three Baltic currencies to break their pegs by mid-year producing a fall of anything up to 50 percent to the euro.

• “Latvia stands out as the weakest of the three because its external debt is very high and it’s got a big current-account deficit,” said Win Thin, New York-based senior currency strategist at the oldest privately-owned U.S. bank. “The contagion between the three is so strong that if Latvia broke the others wouldn’t be able to resist.”

Swedish financial vulnerability in Baltic States

‘Back-draft’

‘EU leaders fear social crisis and job losses’

(European Voice 12.2.2009)• The EU's leadership is increasingly concerned about the social fall-out from the economic crisis and the stresses that it might put on the EU.

• Barroso said that the social aspects of the crisis were “our first concern now”.

• A spokesman for the Commission said that the special jobs summit in May would provide an opportunity for a “second look” at the social dimensions of the crisis.

• EU emergency informal summit weekend 1 March 2009 preceded by CEE meeting

EU rejects eastern Europe bailout1 March 2009, 23:46 CET

http://www.eubusiness.com/news-eu/1235932327.78

• (BRUSSELS) - EU leaders ruled out on Sunday a regional bailout plan for eastern Europe despite a Hungarian warning of a "new iron curtain“, while rejecting protectionism as a response to the economic crisis.

• The European leaders promised to extend a helping hand to any EU country needing help but stopped short, at an emergency summit in Brussels, of agreeing on a region-wide package to help eastern Europe cope with the turmoil.

Barroso - Topolanek

Unemployment rate changes to February 2009 (EU Employment situation and social outlook April 2009, Monthly Monitor)

EUROPEAN COMMISSION, Employment, Social Affairs and Equal Opportunities DG

Unemployment rate % of workforceApril 2008-February 2009

4.413.7

13.7%

Statistics Lithuania: http://www.stat.gov.lt/en/news/view/?id=7328

Changes in GDP, against the respective period of the previous year

First quarter 2009

Statistics Lithuania http://www.stat.gov.lt/en/news/view/?id=7320

Lithuania should apply to IMF for loan without delay - SEB analyst

• March 24, 2009 Lithuania should apply to the International Monetary Fund (IMF) for a loan as soon as possible, Gitanas Nauseda, adviser to president of SEB bank

• According to the latest forecasts by SEB Bank, Lithuania’s gross domestic product (GDP) might decline by some 9% this year. However, the plunge might be sharper and reach up to 15 %.

• Source: http://irzikevicius.wordpress.com/2009/03/24/lithuania-should-apply-to-imf-

for-loan-without-delay-gdp-may-plunge-up-to-15-pct-analyst/

Lithuania S&P Credit rating downgrade, 25 March 2009

S&P said in a statement it downgraded Lithuania to BBB/A-3 from BBB+/A-2

"The S&P downgrade suggests to us that the government will inevitably be forced to follow the likes of Latvia, Hungary, Serbia, Bosnia, Ukraine and Romania, in the region in seeking an IMF/EU bailout," Timothy Ash, analyst, Royal Bank of Scotland in London

http://www.balticbusinessnews.com/Default2.aspx?ArticleID=189f9b43-e561-427a-868a-b1fdef5a086e

The Economist, ‘No panic, just gloom’ 14 May 2009

• The biggest worry now is the Baltic three, which are seeing the sharpest falls in GDP. Estonia’s first-quarter figures showed a year-on-year decline of 15.6%. The fall in Latvia was a stunning 18% and in Lithuania 12.6%.

• Monetary policy cannot counteract this, since all three are pegged to the euro. And fiscal policy offers no respite.

• Politicians are pushing through spending cuts, not only to reassure external lenders, but also to meet the Maastricht deficit target of 3% of GDP so as to adopt the euro soon (by 2011, Estonia hopes).

Conclusion: What have we learned?

1. Baltics heading for meltdown even before the current global crisis due to the neo-liberal policies pursued by elites and governments

2. Baltics do not have the economic resources to recover once, or if, the global crisis of capitalism is ended

3. Baltics will not have the human resources to recover once the global crisis is over

4. Need for a fundamental critical re-analysis of the previous social and economic assumptions about the benefits of an unregulated free market capitalist economic development