Thursday, July 23, 2015

Bloomberg — Finns Told Pay Cuts Only Way to Rescue Economy From Failure

Ain't neoliberalism great?
One of Germany’s staunchest allies in backing euro-zone austerity is about to feel some of the pain the policy brings with it.
Finnish Prime Minister Juha Sipila will this month battle unions to reduce the cost of labor. Without the measure, he says Finland will need a 1.5 billion euro ($1.6 billion) austerity package to meet budget goals.
“Reducing labor costs is the first big challenge on the path of Finnish economic revival,” Aktia chief economist Anssi Rantala said in an interview.… 
Raine Tiessalo


Matt Franko said...

Might as well see China's current 3 rations of dog brain soup per day and raise them 1 ration down to 2 rations of dog brain soup per day and call....

Unknown said...

“Reducing labor costs is the first big challenge on the path of Finnish economic revival,”

Yes, Cutting off the nose to spite the face, is a proven cure.

Tom Hickey said...

Might as well see China's current 3 rations of dog brain soup per day and raise them 1 ration down to 2 rations of dog brain soup per day and call....

China's rising middle class will create opportunities the world has never seen before

Unknown said...

Ah Yes Tom,

Assume that growth rate today will continue forever. Fit an exponential curve, and show the results. Spin a fairy tale at the same time. THat is what I see in the story you linked to. I hope you posted the link with an unstated irony

Tom Hickey said...

That is true and until trends change in China, I will assume it remains intact. This is indeed the government growth plan and they are committed to it. The plan is to urbanize quickly, which they have been doing already and mechanize agriculture, free up peasants from that type of labor and inducting them into the middle class.

Of course, no one can say now how it will go, but China's development record so far is impressive. I have Chinese friends and American friends that live and work in China. Some have married there and intend to make China their home.

The Chinese are already hiring US management expertise and are intent on developing it themselves. They are clear about where they are going and how to get there and are assembling the resources.

Look at China as a giant startup that only got off the ground under Deng Xiaoping, which is now Dengism is being upgraded by Xi Jinpin.

Growth is unlikely to be linear and there are emerging challenges to confront but overall I am bullish on China and its leadership. Even if its growth rate declines to a more normal 3-4%, China would still become the elephant of the global economy far surpassing the US and at least equally the combined West. The West has already matured and is now struggling to maintain itself, while China is still a relatively poor developing country with huge potential before it runs out of room to expand economically and becomes mature.

A lot of the criticism is from a Western point of view and in terms of a Western context that the West projects on China. Same with Russia and most of the rest of the world. The US even projects the American way on the UK and continental Europe, much to their annoyance.

The context is different in different countries and they deal with that, not what others project on them or would like to see happening. The Chinese world, the Russian world, the Persian world, the Indian world, etc. are historical contexts with history that imposes a vector and momentum of change on the present.

A driving force in China is to regain its position as "the Middle Kingdom," that is., the global center, and it is a popular force based on history and a sense of destiny, not all that different from American exceptionalism. the Chinese are justly proud of their civilization.

Of course, India has a similar potential and China and India will both be elephants in the 21st century. They are only baby elephants now, but still pretty big in comparison.

Peter Pan said...

You can't tell hundreds of millions of Chinese who have not yet joined the middle class that they never will. That would be bad for business.

Tom Hickey said...

The thing is that in China the direction is from poor to rich.

Hundreds of millions have already been lifted from the poverty of their parents and grandparents generations into relative riches and hundreds of thousands have become rich and a few have accumulated untold riches. In the developed world it is the other way, excepting the top.

Moreover the Chinese government has set this as a priority, whereas in the West the priority is making the rich richer because "trickle down."

In addition, Chinese leaders have prioritized doing this as quickly as they deem safe, and they have shown themselves willing to use the levers of power to do so. They realize that the best way to keep the CCP in power is by making everyone better off as quickly as they can.

When equities corrected suddenly, the government stepped in to bail out "retail" and in doing so they made the big players eat some of their previous gains.

Anonymous said...

Socialize the gains and privatize the losses?

Tom Hickey said...

Right. Such a novel idea. Imagine what things would be like now if the US government had approached the bursting of the housing bubble that way.

Unknown said...


I have a problem, when the graph shows an increase in per capita PPP increasing 6 fold over a fifteen year period. Raising it from $900 to $5000 PPP is a lot easier than raising it from $5000 to $30000. Even the raising it from $900 to $5000 took China much longer than 15 years. That is because the increase from $900 to $5000 is covering basic needs, and is not very resource intensive. However, the increase from $5000 to $30000 is very resource intensive and very intrusive environmentally.

Ryan Harris said...

I know you hate Bloomberg, Tom, but you've got to read this one article:

The centrally planned town, a model of Manhattan has been everyone's favorite example of central planning failure because it has been empty for a few years, but they are now making it the center of their free trade zone and have leased it out completely, and are building more buildings to meet demand. Their development model is just incredible.

It highlights how the service economy and consumers continue to do great as the economy transitions. Look at Apple's results in China, amazing stuff, Iphone sales are soaring. As they phase out the construction and industry, Catepillar complains that tractors aren't selling but I just don't see how the western liberal countries can ever compete or keep up with the productivity gains and increases in standards of living that the Chinese are experiencing. The US simply doesn't have the educational opportunities, economic opportunities, modern transport systems, rapidly evolving health care systems... pretty much on every economic measure that matters, probably even the responsiveness of the political system to citizens demands is better in China now. People here are oblivious. The problem is that there is no way to take power away from the two party government in Washington and reform it. They have locked the media, the educational system, they have 14 layers of security and the two party election system disables voters from having any real impact on the course of governance... the country is a dysfunctional political wasteland.

Tom Hickey said...

However, the increase from $5000 to $30000 is very resource intensive and very intrusive environmentally.

The PBOC just keystroked 31B in capital, not even fig-leaf loans, into companies building the New Silk Road project. See the Asia Times link I put up today.

The Chinese have figured it out. Meanwhile, the US is "running out of money."

There is now a project in the works to cover the Gobi desert with solar panels.

China starts construction of largest solar power plant in Gobi desert

Tom Hickey said...

Good article, Ryan. Critics laugh but there is method in this madness.

I saw it happen in the Sixties in Taiwan. I flew from Kaoshung in the south to Taipei in the north in about '65. There was a single runway, an outhouse and a noodle stand. That was it. The plane was an old WWII DC-3 with rope seats in the carry space. The airport in Taipei was state of the art, through.

I made the same flight the next year from Kaoshung to Taipei. When I arrived at the airport my jaw dropped. I was amazed to find a completely modern airport and I flew in a state of the art aircraft with all the trimmings.

Ryan Harris said...

The data is out there. Asian centrally planned economies have grown GDP-per capita at about 3.9% annually while the liberal western model grows at about 2% over the long term. Most Asian countries, like China, Singapore, Taiwan, Japan have by-passed the so called Lewisian turning point and middle income traps that mire economies using the western economic model. The western economists have some explaining to do.

Ignacio said...

The most laughable critique is about "civil liberties" and the right to protest. In the West you are free to protest as long as you don't threat the status quo, and the elites are free to ignore your protests and do what they want, ignoring also your vote (like in Greece).

What an hoax.