The video recording of the event can be accessed through this link.
On February 22, 2023, The University of Helsinki and the Faculty of Social Sciences, together with the Global Politics and Communication (GPC) master’s programme hosted an event on the economic debate in Finland and the possible alternatives to austerity. The event was open to all and was held in Think Corner in the city centre of Helsinki.
The event was divided into two parts, the first of which was held in English and included reflections by the keynote speaker, Financial Times economic analyst Martin Sandbu. This part was moderated by Global Politics and Communication Programme Director, Adj. Professor S.M. Amadae, and included comments and questions from the panellists.
The second part of the event was held in Finnish and it zoomed into the nature of the Finnish economic debate. It was moderated by Vice-Dean Hanna Wass from the Faculty of Social Sciences at the University of Helsinki. The panellists included Yle's economic journalist Anna Karismo, post-doctoral researcher Timo Harjuniemi from the University of Helsinki, and Professor Of Practice Vesa Vihriälä from the University of Helsinki. Unfortunately, Leena Mörttinen, Permanent Under-Secretary for International and Financial Market Affairs, Ministry of Finance, was not able to join the panel.
Martin Sandbu, joining the event virtually from the UK, began by reflecting on the current state of the world. Sandbu described the past fifteen years as a combination of a series of acute crises, including the debt crisis, the pandemic, the war in Ukraine, and the energy crisis, and of slow-burning crises such as climate change as well as the crises of economic belonging, and geopolitical distrust. He set out to describe how our thinking of economics and economic policies and decision-making has been transformed by these experiences.
--We need green investment, investment in the digital economy, and re-engineering of the energy system.--
For Sandbu, this situation of ongoing acute and slow-burning crises has led to “soul searching” within the economic profession and the policy-making class, leading to new ways of thinking and theorising. This can be seen in the new ways of understanding inequality and its effects on the economy, as well as how globalisation and regionalisation are approached. Climate change has also led to a shift in understanding the green transition as having economic possibilities in the long run.
In Europe, the conventional responses, based on austerity, to the debt crisis were often counterproductive. The new ways of thinking have been further encouraged by for example the rise in inequality and the fact that the dreaded consequences of the unconventional macroeconomic policies implemented during the pandemic have not come about as employment rates and growth alike have risen at a record pace in many countries in the post-Covid era. While some may argue that the current inflation is a consequence of those policies, others will link it to supply-side issues and the ambitions of the Russian state.
Sandbu reminded the audience that in order to tackle the challenges faced by the world today, enormous amounts of investment are required. We need green investment, investment in the digital economy, and re-engineering of the energy system. The debate lies in how much of the investment should be public, and how much should be private. However, central banks have taken a conventional route in tackling the current inflation by raising interest rates. This also affects the availability of investment from the private sector, placing a higher burden on public budgets.
Sandbu ended his presentation by concluding that in order to achieve the green transition and growth, there is a need for more state involvement within the increasing need for investment. How governments can actively participate in guiding the economy as well as the necessity of cooperation among European countries in order to deal with the current crises should also be considered.
Sandbu’s keynote speech on the topic was followed by a round of questions from the panellists. These questions addressed how debt fits into the debate on public investment, and how to achieve more European cooperation in the context of the necessary transformations of the economy. Questions also related to the idea of the global order moving towards a regime wherein fiscal and monetary policies are based on politics, rather than a technocratic, rules-based order and improving the quality of public finance in the European context.
“Debt shouldn't become an unquestioned fetish.”
Sandbu stated that when debt is taken on, as well as when cutting deficits is considered necessary, the question of what we want to achieve with these actions should always be kept in mind. Additionally, it is important to consider the connection between debt and economic growth, since typically we grow out of debt. In this sense, “debt shouldn't become an unquestioned fetish”, wherein a certain debt level is considered good by itself but rather it should be examined from different angles.
--Rather than focusing on the size of the deficit, it may be more beneficial for countries to focus the political debate on the quality of public finances.--
Sandbu compared the ideas of Keynes, written in the context of the war in the 1940s, to the global economy today. In many ways, he argued, the situation is similar because resources need to be rapidly shifted from one industry to another. Particularly some current national consumption trends need to be shifted to investment. For Keynes, a way to do this is through public borrowing. In this context, Sandbu stated that rather than focusing on the size of the deficit, it may be more beneficial for countries to focus the political debate on the quality of public finances.
Lastly, Sandbu considered that in order to achieve more cooperation within Europe, it is important to have more political dialogue on what countries want to achieve. It is also necessary to recognize that there are new contradictions to be solved in the current global context: a country can be a geopolitical hawk or a fiscal hawk, but not both. Moreover, at the European level, the “regime of regulations” requires modification as the dichotomy between political discretion and fixed rules should be abandoned.
--The population has come to accept that the structures of the welfare state can be achieved and maintained primarily through budget cuts in the public sector.—
The second part of the panel zoomed in on the Finnish economic debate, framing it particularly in the context of the upcoming parliamentary elections. The panel discussion was opened by Hanna Wass who stated that the pre-election economic debate in Finland has been dominated by discussions on the level of public debt and how it should be tackled, labour market reforms, and the size of the public sector.
Professor of Practice Vesa Vihriälä stated that questions on how to approach the balancing of budgets, to what extent they should be improved, whether the situation is critical or not at a given time, and the role of the government in regulating the markets are historical debates in Finland that go back at least to the early 1990s depression.
According to Vihriälä, in the past fifteen years, economic growth in Finland has been weak compared to the cost of its public sector, particularly when compared to other Nordic countries. Finland faces a structural budget deficit and its debt ratio is twice as large as that of our Nordic neighbours. This raises the question of how to finance the largely accepted Nordic welfare state model, and in this context the historical political tensions resurface and are actualised.
Wass stated that in Finland, the solution offered to the structural budget deficits tends to always be austerity. Therefore, the second part of the discussion sought to focus on how the discourses of austerity have come to dominate the Finnish economic debate so strongly. Wass cited an editorial by Elomäki and Ylöstalo who argue that in Finland, the experts on economics are a tight web of contacts, who share a similar view of the situation and its solutions. Moreover, the media and politicians tend to harness the emotions and fears of the population. In this sense, Finnish people have come to accept that the structures of the welfare state can be achieved and maintained primarily through budget cuts in the public sector.
--The discourses on austerity have tended to go unquestioned by the media because they have been the prevalent economic theory.--
Yle's economic journalist Anna Karismo disagreed with the claim that the media plays a central role in presenting austerity as the only option to saving the welfare state. The journalist stated that other means, such as taxation, are also widely discussed in the media. However, she admitted that the discourses on austerity have tended to go unquestioned by the media because they have been the prevalent economic theory. Karismo considered that this may be changing, although a credible alternative economic theory has yet to emerge in Finland.
Post-doctoral researcher Timo Harjuniemi was asked about the central elements of the Finnish debate on taxation. He argued that historically taxation has been used to pay for large reconstruction projects and omitting taxation from the larger economic debate seems rather odd. While he admitted that there is some public debate on taxation, the central role of the Ministry of Finance as an agenda setter has contributed to budget consolidation becoming the central area of debate. Harjuniemi stated that the conservative nature of the Finnish economic debate can be traced back to the prominent role of the Ministry of Finance. The Ministry's rise to influence has its roots in the Finnish depression of the 1990s. There has been a wide consensus among all major political parties regarding economic thinking. However, Harjuniemi stated that this appears to be changing as factions of the Social Democratic Party have for example challenged the stance of the Ministry of Finance in recent years.
Wass asked whether the Finnish debate on debt is behind the times since in the rest of Europe austerity is out of fashion. She further asked if the tendency to focus on public debt hinders the ability of Finland to make important investments.
Vihriälä clarified that the discussion on debt is relevant. While agreeing with comments made by Sandbu on the idea that a specific level of debt may not be important, the constant increase in the debt ratio should be stopped before it becomes unsustainable. This can be done either through austerity or growth in the tax base or by reducing the expenditure pressures. For Vihriälä, the debate should focus on how these measures are applied and in what proportion.
--“The role of bureaucrats becomes problematic in the political context when experts, instead of politicians, dictate the available economic options.--
The Finnish economic debate was also compared to the broader European debates and the possibility of a recession in Sweden. Moreover, the role of the Ministry of Finance was a recurring topic in the discussion. Wass argued that in the context of the elections, The Ministry of Finance has once again had a prominent role in the economic debate. She questions whether the role of bureaucrats becomes problematic in the political context when experts dictate the available economic options without working together with the elected politicians. If the decisions are made outside electoral politics, the issue of accountability surfaces. Moreover, it may decrease the interest of people to vote, if the important decisions are in fact made outside the parliament.
--The role of the Ministry of Finance was strengthened in the context of the 1990s Finnish depression when the ministers of the Esko Aho administration were afraid to decide which cuts should be undertaken.--
As a response to this, Karismo again reminded the audience that the role of the Ministry of Finance was strengthened in the context of the 1990s Finnish depression when the ministers of the Esko Aho administration were afraid to decide which cuts should be undertaken. She denied that the media unquestioningly accepts the information provided by the Ministry of Finance, stating that a second opinion is always presented.
--It is often convenient for Ministries to hide behind the Ministry of Finance.--
Vihriälä also reflected on the role of the Ministry of Finance, stating that its status is logical considering that all ministries will always propose a budget increase to their own needs. It is necessary to have an entity that decides how the money will be allocated and it is often convenient for Ministries to hide behind the Ministry of Finance. He also stated that the role of the Ministry of Finance as an expert in the economy is legitimate, however, they should refrain from voicing their opinions on which policy tools should be applied.
--More technocratic progressivism could spice up the debate by bringing out new thinking and proposals.--
Harjuniemi considered that while in the Finnish context there is a tendency towards technocracy in the economic debate, the sense of having no alternatives also indicates a lack of progressivism, often associated with technocrats. He stated that more technocratic progressivism could spice up the debates by bringing out new thinking and proposals. He analysed that the lack of such technocracy may be due to restricted resources, which do not allow for in-depth macroeconomic policy analyses or the elaboration of policy papers, common to many other countries.
The discussion concluded with each panellist bringing forth their visions of what kind of economic debate they wish to hear in the remaining 50 days before the elections on April 2, 2023. Karismo stated that instead of debating what we should not spend money on, we should rather discuss what the money will be spent on. Moreover, she pondered how the protectionist tendencies of subsidising national industries and companies in China and the US will affect our economic debate that tends to be centred on austerity.
Vihriälä responded by saying that protectionist tendencies do not change the reality of budget constraints, however, in this context, Europe will be forced to respond. As for the type of debate that he wishes to hear in the last stretch before the elections, he urged the media to challenge parties and experts on how realistic their proposed economic policies are and what their consequences will be.
Harjuniemi stated that the Finnish economic debate should be more strongly connected to European and global developments, such as geopolitical tensions and changes in industrial policies. The debate should consider how Finland should position itself in relation to these shifts.