The Financial Times recently published an interesting, though garbled, story about Finland’s economic woes. Ignore the numbers, which as best I can tell are all wrong (is this becoming an F.T. trademark?); more crucially, someone seems to be confused about the difference between wages and unit labor costs.
If you look at the numbers on The Conference Board’s website, you’ll find that Finland has indeed seen a rapid rise in unit labor costs, but not because of a wage explosion – it’s all about collapsing manufacturing productivity.
But the broader story here is that we’re increasingly seeing that the problems of the euro extend well beyond the troubles of Southern European debtors. Economic performance has also been very bad in some Northern nations with good credit ratings and low borrowing costs – including Finland, the Netherlands and Denmark (which isn’t on the euro but shadows it).
What’s going on?
Well, in the case of Finland we’re seeing the classic problems of asymmetric shocks in a currency area that isn’t optimal. Finland’s two main export sectors, forest products and Nokia products, have tanked. This creates the need for a sharp fall in relative wages to make up for the lost markets, but because Finland doesn’t have its own currency anymore, this adjustment must take the form of a slow, grinding internal devaluation (which is, by the way, why the garbled discussion of wages turns the F.T. story into nonsense).
The problems of the euro, in other words, weren’t caused by an outbreak of fiscal irresponsibility that won’t recur if the Greeks can be brought to heel. The problems weren’t even, in a deep sense, the result of big capital flows that won’t come back again. The whole single currency project was flawed from the start, and will keep generating new crises even if Europe somehow gets through this one.
The Finnish Disease
It’s worth emphasizing just how bad Finland’s performance has been. For Finns, the great depression they remember is the slump that happened at the beginning of the 1990s, which was driven by a combination of a bursting housing bubble and the collapse of the Soviet Union next door.
The result was a very nasty slump and a delayed recovery. But this time, although the slump in per capita gross domestic product hasn’t been quite as deep, it has been far more persistent.
Why can’t Finland recover this time? Debt isn’t a problem; the country’s borrowing costs are very low. It’s all about the euro straitjacket. In 1990, the country could and did devalue, achieving a rapid gain in competitiveness. But this time there is no quick way to adjust to adverse shocks.
This shouldn’t come as a surprise – it’s the core of the classic Milton Friedman argument for flexible exchange rates, and in turn for the trade-off at the center of optimum currency area theory. The trouble in Finland is indicative of what everyone expected to go wrong with the euro.
The trouble in Greece, meanwhile, represents a whole additional level of hurt, which nobody saw coming. But it’s important to realize that even countries that didn’t borrow a lot, didn’t experience large capital inflows and basically did nothing wrong by the official criteria, are nonetheless suffering in a major way.
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.