Transcript Trade union repsonse to the challenges of the crisis in the Baltics

Trade union repsonse to the
challenges of the crisis in the
Baltics
Trade Union regional workshop,
Vilnius 8-10 June 2009
Charles 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 neoliberalism
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%
13.1%
12.5%
13.3%
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 neoliberalism
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 30
Source: 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
‘Catch-up’ estimates - a ‘best-case’ scenario
Source (Yves Jorens,Enlargement: a common European social model?, Social Europe after Enlargement,Ghent 13, 14 May 2004)
“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 bailout
1 March 2009, 23:46 CET http://www.eubusiness.com/newseu/1235932327.78
Barroso - Topolanek
• (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.
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 workforce
April 2008-February 2009
13.7%
13.7
4.4
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-imffor-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-868ab1fdef5a086e
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-onyear 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