The Not So Great Recovery

Antti Veilahti

University of Turku

Tackling Inequalities in Time of Austerity, Turku 15.9.–16.9.2016

— Social Expenditure and the Making of the European Crisis

What Crisis?

¤  The standard narrative: ¤  Subprime mortgages ¤  Lehman Brothers ¤  CDS (credit default swaps)

¤  ‘The Great Recovery’? ¤  Global recession ended in 2009, with 5.3 % growth already in 2010

¤  Unemployment rates fell almost everywhere else

—just not in Europe (cf. Appelbaum, 2011)

Acting the crisis

¤  The ‘financial crisis’ viewed as a generic cause behind contemporary economic stagnation

¤  Actually it involves various actors: ¤  the inert ‘multi-layered government’ of the EU ¤  national political rhetoric ¤  the EU and the IMF have forced some governments to make

cuts far beyond their own willingness ¤  cultural divisions between Nordic and Southern countries ¤  history of recurring sovereign default, with France defaulting at

least eight times, Spain six times and 'Greece [finding] itself virtually in continual default' until few decades ago (Reinhart and Rogoff 2009, xxx)

‘Greece is the black sheep of Europe. That's its virtue. Good thing there are black sheep like Greece to mix things up, to refuse a certain Germano-French standardization, etc. So, continue being black sheep and we'll get along just fine. . .’

Félix Guattari

Questions

¤  It is a viable argument that uncertainty following the collapse of Lehman Brothers’, resulted in economic ‘frictions’ (Hall, 2010)

¤  But were they sustained beyond what is necessary?

¤  PhD thesis (Goldsmiths, University of London)

‘Financial’ Crises in Europe— Multilevel Analysis of Youth, Employment and the Economy of Wellbeing From 2007 To 2012 (http://research.gold.ac.uk/18875/) ¤  Did unemployment result as a direct consequence of the withdrawal

of capital in Europe? ¤  To what extent the ‘frictions’ are instead due to crisis-thinking itself,

resulting in economically adverse behavior?

Two Modes of Crisis Consciousness

Institutional crisis awareness: Qualitative changes to work present also in Sweden, the Neatherlands, Germany and Finland Quantitative problems like unemployment and bond rates in Greece, Portugal, Ireland, Spain etc.

‘Never let a good crisis go to waste’

Winston Churchill

What is the role of policy?

¤  What role does policy play in enacting the consequences of the crisis?

¤  Compare the cuts to social spending with the effects of non-social public investment

¤  Based on multilevel analysis on unemployment, deprivation and subjective representations of wellbeing ¤  European quality of life survey (Eurofound)

¤  National data (e.g., Eurostat)

Government expenditure

¤  It is argued that higher taxes should have a negative effect on private consumption, innovation and investment (e.g. Martti Hetemäki, Permanent State Secretary, Ministry of Finance 2013–) ¤  Raising taxes is not conceived as a proper way to tackle

fiscal imbalances, that is, as an investment

¤  Overall tax rate during the crisis however decreased

> there is at least some ‘room’ to decide regarding the level of public investment

Does type of matter?

¤  Crisis has resulted in cuts to social benefits

¤  In actuality, the rise of the total government expenditure is only explained by non-social expenditure

¤  Traditional Keynesian stimulation focuses on the direct promotion of employment instead of social security ¤  Study the effects of the change in non-social expenditure

¤  Contrast them with the level of social expenditure

Social expenditure (excluding health or pensions)

¤  Have not created negative incentives and lowered employment ¤  Actually makes young adults more likely to be employed

¤  The feeling of being left out of society more rare

¤  Higher personal satisfaction

¤  Social expenditure predicts higher awareness of social tensions

Change in non-social expenditure

¤  Many of the effects opposite to those of social expenditure:

¤  Higher long-term unemployment increased ¤  Higher youth unemployment (short and long term) ¤  Deprivation ¤  Lower awareness of social tensions

¤  Makes the allocation of jobs less efficient ¤  More people looked down because of job

Contingency and control

¤  27 countries and 13 national level predictors

¤  Enhance the reliability of the analysis by comparing the so-called random effects: ¤  Measures the level of unexplained variation between

countries

¤  Compare models with and without a single predictor

¤  The analysis is based on 1600 models altogetherAllows us to understand the role of intermediating factors

¤  Allows us to understand the role of intermediating factors

Effects of public expenditure Non-social expenditure Social expenditure

Youth unemployment

Lower youth unemployment

Deprivation of the young Young making ends meet

Less social tensions among the young

Looked down because of job Lower deprivation among the young

Lower happiness

Political participation

Cuts to unemployment benefits

Higher youth uneployment

Effects on ‘the Subject’

An inter-generational question?

1.  Due to the benefits of social investment, lowering taxes and expenditure does not result in more efficient economies

2.  The decision between social and non-social investment is, above all, an inter-generational question

¤  cutting benefits results in higher demand for jobs, undermining the prospects of youth

3.  Promoting employment directly results in less than efficient allocation of jobs

Some methodological notes

¤  In the case of social expenditure I considered the overall level, because this reflects also the immediate changes in social expenditure whose demand has been higher during the crisis

¤  Expenditure on health and pensions excluded (they do not respond to the immediate demands induced by the crisis)

¤  Changes in the random effects were also analysed for the change in specific social spending categories