CAN ECONOMIC RECESSION BE AVOIDED?
- (Prov 22:3) A prudent man foresees the evil, and hides himself: but
the simple pass on, and are punished.
This writing is about economic depression, how it could be avoided, and (if
not avoided) how its negative impact could be reduced. This is not always possible,
however, as we can see in several countries that are so dependent upon foreign
trade and other activities that they cannot influence their own futures.
Something can still be done. An economic depression will always cause more
poverty and alienation, and even reducing some of these ill effects will be helpful.
of getting into debt
- (Rom 13:8) Owe no man any thing, but to love one another: for he that loves another has
fulfilled the law.
People tend to take on too-large loans when the times are good and the
stock exchange rates are on the rise. This is done both by people (who buy
too-expensive homes, for example) and governments. People tend to believe that
the financial situation will remain the same or improve so they do not prepare
themselves for the worst. They do not try to pay back some or all of their
debts when times are good. For example, the State will not increase its tax
rate to keep its budget in balance and prevent indebtedness. This is usually
because decision-makers want to stay in favour with people.
Preventing indebtedness is one
of the most important factors in the prevention of an economic depression. During
the economic recession of the early 1990s, the countries that had accumulated
the most debt in the late 1980s suffered most. Finland was one of those
countries. Countries that had not accumulated a lot of debt had it much easier
during the depression.
in advance and monitoring loans
- (Ps 37:21) The wicked borrows, and pays not
again: but the righteous shows mercy, and gives.
- (Luke 14:28,29) For which of you, intending
to build a tower, sits not down first, and counts the cost, whether he have
sufficient to finish it?
29 Lest haply, after he has laid the foundation, and
is not able to finish it, all that behold it begin to mock him,
One reason why economic recessions occur is that people fail to check
their debtors' personal information or solvency; loans are given to anyone
without any collateral regardless of whether or not they will be able to pay
the loan back. This is what happened in the United States during the real
estate crisis a couple of years ago, and during the economic recession in
Finland in the early 1990s. Leo Meller describes the loan offers that people received
in the 1980s right before the economic crisis in Finland:
I wrote above about the liquidity in Finland,
i.e. the money that is available. The loans offered to ordinary people seem
very extreme in Finland and in the other Western countries. Here are some
Uusi Suomi described in its financial section on 22 October 1987 (please note
the date: around the large stock exchange crash): Kansallis-Osake Pankki, (Bank
KOP) offers lifetime mortgages. KOP offers a housing loan that is valid until
you die. You do not have to start paying back the loan during your loan-time.
The fixed interest always remains the same for a period of five years. The loan
can also be transferred to another person approved by the bank. You do not have
to start paying back the loan during your loan-time. You will have to pay back
the entire sum when the loan period expires. The loan period may be even until
the time the customer probably dies. In practice, loan periods are usually
between 20 to 40 years. (...)"
cover picture and headline of magazine Suomen Kuvalehti on the next day showed
an empty studio in Helsinki and stated, "Take a loan of FIM 300,000 – pay
back FIM 777,750".
about the loans banks offer to their customers? I have received marketing
letters from Sweden and Switzerland, all of them offering me loans, even
without actual collateral. It seems that financial institutions are offering
true discount loans: take a loan, take a loan from us, no matter how – just
Bank whose slogan is "Providing Opportunities" sent me an
expensive-looking four-colour brochure whose cover promised "Flexible
credit! Up to FIM 100,000 – available right away!" The inner pages of the
brochure included the following promise, for example: "You can use your
flexible credit where you like".
Another brochure of Yhdyspankki Bank promised the following:
"Freedom to choose! What would you like? We can give you a loan right
away... Come and tell us what you want."
up in a hotel room in Turku on Tuesday, 15 September 1987. I had preached the
previous evening about the money-making companies wanting to tie up Finns to
huge debts with financial restraints. It was quite tragicomic when I saw on the
front page of the local newspaper, Turun Sanomat, an advertisement. The heading
was: "Good morning Turku! Here is your loan!" There was also a loan
application form, printed right there on the newspaper – just grab a pen and
apply for a loan. The text at the bottom said: "We will give you FIM
5,000–50,000 without any negotiations. You don't even have to be our customer!
Just return this form to any of our offices!"
could resist such marketing of a loan?
application form on the front page of a newspaper! (1)
There is a simple way we can avoid errors like those described above:
borrowers should already have a sufficiently large amount of money in their
savings, and banks should study the financial status of their potential customers
in more detail. These two steps can easily be forgotten when housing prices and
stock exchange rates are going up and the interest rate is low.
with borrowed money
- (James 4:13-16) Go to now, you that say, To
day or to morrow we will go into such a city, and continue there a year, and
buy and sell, and get gain:
14 Whereas you know not what shall be on the morrow.
For what is your life? It is even a vapor, that appears for a little time, and
then vanishes away.
15 For that you ought to say, If the Lord will, we
shall live, and do this, or that.
16 But now you rejoice in your
boastings: all such rejoicing is evil.
Speculating with borrowed money is one of the major causes of financial
instability. In the past (before the 1929 stock market crash) people took on
larger and larger loans to buy stocks. That caused stock prices to go up but
when they came back down, many people were in trouble. Charles Mitchell, chairman
of the New York National City Bank at the time, was not able to anticipate
this. This is what he stated two days before that crash:
The industrial situation of the United States is
absolutely sound, and our credit situation is in no way critical... The interest
given by all the public to brokers' loans is always exaggerated... The markets
generally are now in a healthy condition. The last six weeks have done an
immense amount of good by shaking down prices... I know of nothing wrong with
the stock market or with the underlying business and credit structure. (2)
What we can learn from this is that we should not start speculating with
borrowed money, and that no loans should be granted to people who plan to do
so. This has been one of the main causes of economic crises in the past 100
C. Korten writes:
Gambling with borrowed money is a bad idea under
any circumstances. When it is done on a scale that threatens the integrity of
national financial systems, there is a compelling rationale for strong public
measures to eliminate it. Appropriate measures include prohibiting banks from
accepting financial assets as loan collateral and from lending to hedge funds
and other financial institutions for the purpose of buying stocks or
derivatives. Buying stocks on credit should be similarly prohibited. (3)
Solvency of banks is one of the
most important factors in preventing an economic recession. If banks are
solvent, many problems will be avoided. At least, the advice below should be
taken into account.
Be careful when granting
loans, as mentioned earlier. During the banking crisis of the early 1990s in
Finland, the most conservative banks – those who had paid the most attention to
risk management –came out the best. They did lose some of their market share at
first but then came out of the crisis in better condition. The total cost of the
economic crisis to Finnish society was around FIM 50 billion (more than EUR 8
Focusing on basic banking is important. This
means avoiding any stock or real estate speculation with customers' money. One
of the reasons why the SKOP Bank had so much trouble in Finland in the early
1990s was that the bank had been involved in property and stock investments.
When prices came down, the bank went bankrupt.
A statement given by the former president of
the SKOP Bank to the Finnish Parliament in the autumn of 1986 clearly explains
this. He describes the situation a couple of years before the crash. His
prediction came true:
We may end up with a deep
financial depression, very bad unemployment and plenty of bankruptcies in a
couple of years.
- The sloppy fiscal policy
will at first increase the prices of real property but not even the real estate
business can continue forever. If there is a depression and/or the interest
rate rises, the property value will decrease.
- The most dangerous recent
event is that financial institutions have started to fund the stock exchange
with credit and trade stock themselves, which is the most dangerous approach
and dubious on many levels when the banks are both owners and sponsors at the
same time. Morals and ethics will be
hard to find when even people holding a trusted position in a bank practice
stock trading to make themselves richer using information obtained from their
employer on whose behalf they make decisions.
We may end up in ruin. (...) The entire national economy will be
Solvency of banks can be developed
by making sure that they have more cash at hand. Even a reserve of 100% has
Hundred Percent Reserve Requirement on Demand Deposits. As far back as in
1948, Henry C. Simmon, founder of the conservative University of Chicago school
of economic monetarism, argued for a 100 percent reserve requirement on demand
deposits to limit banks' ability to create money and to improve the government’s
possibilities to control money flows. Many economists have since called for a
similar measure. The reserve
requirement in the United States currently averages less than 10 percent.
Phased in over several years to allow the financial system to adjust, this
action would deflate the borrowing pyramid and help restore the connection
between the creation of money and the creation of wealth. (5)
- (Ex 22:25) If you lend money to any of my
people that is poor by you, you shall not be to him as an usurer, neither shall
you lay on him usury.
- (Lev 25:35-37) And if your brother be waxen
poor, and fallen in decay with you; then you shall relieve him: yes, though he
be a stranger, or a sojourner; that he may live with you.
36 Take you no usury of him, or increase: but fear
your God; that your brother may live with you.
37 You shall not give him your money on usury, nor
lend him your victuals for increase.
The verses above warn us about usury. The interest rate should either be
reasonable or not be charged.
This is also one of the major
reasons causing economic recessions. If companies are highly indebted when interest
rates suddenly rise, it is like a death sentence for them. This is what
happened in Finland twenty years ago and later in Asia. Tens of thousands of
large and small companies became bankrupt in Finland alone, increasing the
unemployment rate. Furthermore, private persons had trouble coping with their
debt. If the interest rate had remained low and usury had not been practiced,
the negative impact would have been much less severe. The quote below is about
the economic recession in Asia.
Companies highly involved in debt are
particularly sensitive to interest rate increases, especially to the extremely
high levels urged by the IMF. At very
high interest rate levels, a company highly involved in debt goes bankrupt
quickly. Even if it does not go bankrupt, its net worth vanishes quickly as it
is forced to pay huge amounts to creditors.
IMF recognized that the underlying problems in East Asia were weak financial
institutions and companies highly involved in debt; yet it pushed high interest
rate policy that actually exacerbated those problems. The consequences were
precisely as predicted: The high interest rates increased the number of firms in
distress, and thereby increased the number of banks facing credit losses. This
weakened the banks further. The increased distress in the corporate and
financial sectors exacerbated the downturn, which was caused by the strict
money and finance policy by reducing the total demand. The IMF had succeeded
simultaneously to reduce the total demand and the supply. (6)
Regulation of the financial
market. One of the most important lessons from America’s Crash of 1929 and the resulting
Great Depression of the 1930s is that financial markets must be regulated. President
Franklin D. Roosevelt’s administration recognised this after the Crash and
initiated measures that would allow the federal government to intervene in financial
markets. Those financial reforms helped restore trust in the markets.
It is noteworthy that when there have been financial crises in recent
decades we have forgotten the importance of regulation and the lesson from the
Great Depression of the1930s. Some capital investment groups have demanded complete
deregulation of investor controls, which has caused a catastrophe. People have
not learned from previous mistakes and acted to ensure sufficient control. Many
severe economic recessions have been caused as a result.
Fears of this vicious circle have induced
governments throughout the world to strengthen their financial systems through
prudent regulation. Repeatedly, the supporters of free markets have resisted
these regulations. When their voices have been heeded the consequences have been
disastrous. It happened like this in Chile in 1982-83, as Chilean gross
national product fell by 13.7 percent and one in five workers was unemployed,
or in the United States in the Reagan era, where, as we noted earlier,
deregulation led to the savings-and-loan crisis, costing American taxpayers
more than $200 billion. (7)
Several examples prove the importance of regulation. These examples show
what will happen if investors are given too much freedom:
- The savings and loan association crisis in the United States was
caused by deregulation of banking, interest rate generation and crediting. This
promoted eager competition between banks and led to huge credit losses.
- Finland followed in the footsteps of the US and deregulated banking in
the mid-1980s. Before that, the interest rates were similar in all banks and
banks only competed with each other in offering more free services and having a
more comprehensive office network. Deregulation allowed them to compete with
cheap loans, too. Furthermore, long-term borrowing from abroad was allowed to companies,
even though domestic funding was also available. This led to a severe banking
crisis that cost around 50 to 70 billion Finnish marks (8–12 billion euro) and
to 200,000–300,000 people becoming unemployed.
- The Asian crisis in the 1990s was caused by the countries being forced
to liberate their capital markets even though they did not require foreign
capital. Nobel laureate Joseph E. Stiglitz proves that this was the most
important single factor contributing to the financial crisis.
International bankers and politicians were
confident that this was the dawn of a new era. The IMF and the U.S. Treasury
believed, or at least argued, that full capital account liberalization would
help the region of East Asia to grow even faster. The countries in East Asia
had no need for additional capital because of their high savings rate, but
still capital account liberalization was pushed on these countries in the late
eighties and early nineties. I believe that capital account liberalization was the single most important factor leading to
the crisis. I have come to this conclusion not just by carefully looking at
what happened in the region, but by looking at what happened in the almost one
hundred other economic crises of the last quarter century. Because economic
crises have become more frequent (and deeper), there is now a wealth of data
through which one can analyse the factors contributing to crises. (8)
- The real estate crisis a couple of years back in the United States was
caused by insufficient control of housing loans. Previously, banks were forced
to be cautious when granting housing loans because the lender was always the
creditor. However, new procedures and derivatives changed the practices so that
creditors were no longer in direct contact with the debtor. This led to credit
losses in the billions because control was overlooked.
Bonuses and intervening with
risk-taking. The previous chapter was about regulation of the financial market. This
chapter continues along the same lines.
One of the key dangers for the
economy is caused by investment banks and the bonuses they give to their
employees. Bonuses encourage people to take more risks because their personal
liability is low. Bonuses are also considered to be one of the major underlying
causes of the financial crisis. A newspaper article from 17 March 2011 explains
the situation as follows:
Banks still give out top bonuses
Large investment banks in the United States and
United Kingdom continue to reward their executives with huge bonuses, as if the
financial crisis never occurred. (...) The financial crisis that started in
2008 led to extensive global discussion on the need to limit the bonuses
available to bankers. No major change occurred, however: bankers still continue
to earn unbelievable sums.
continue to give out bonuses as if there was no crisis at all, especially in
New York and London. (...)
bonus culture is considered one of the underlying reasons behind the financial
crisis. The larger the profit a banker made, the larger his or her bonuses
were, even though the personal risks taken on by the banker were low. This
encouraged people to take on more risks. (Helsingin Sanomat 17 March 2011)
How can we address this problem of bonuses and risk-taking? One way we
might create change is by introducing strict taxation – such as 90% – of all
bonuses because the risks taken when trying to obtain bonuses create a major
hazard for the national economy. Since a single person can be responsible for
up to tens of billions of euros in assets and the person may receive a large
reward for performance of these assets as the broker, the income obtained in
this manner should be strictly taxed.
Another alternative would be to
change the bonus system in such a manner that bonuses would not only be
cancelled if the company is unprofitable but the brokers would be liable to repay
any losses from previously earned profits. This would cause them to take on
clearly fewer risks than before.
The first proposal aims at restoring the
symmetry of incentives by making the broker bonus system fully balanced – i.e.,
a system where negative values are also possible. Losses from risks previously
taken should not just cancel the bonuses but make them negative. This would
mean that the brokers would have to pay for their current losses from their
previous profits in the same relation.
objection will probably be that the most "competent" brokers would
then go into exile because of salary offers from competing banks which are not
bound by the balanced hiring obligation. Let them go! The social benefits
offered by these so-called "brains" is highly controversial. It is
not a problem as such if only the "mediocre" brokers who are not
desired by banks abroad remain here. (...) (9)
One means of intervening in this problem ofrisk-taking is to ban derivatives.
They were not used in the previous decades and they are not necessary now.
Banks should focus on basic banking – granting credit – instead of creating
products whose risks are almost impossible to anticipate. The key reason for
the financial crisis was that people were unaware of the risks.
The financial sector managed just fine for
decades without the two most toxic innovations, derivative products and
securitization. Now they are considered so indispensable that life without them
cannot even be imagined. One should not be startled by such squeals from the
practiced their profession of banking up until the early 1990s: they granted
credits and retained them in their accounts until their maturation. It would be
highly audacious to claim that this caused the banks to fare badly. We propose
that banks take this tiny step backwards and stop claiming that nothing would
be possible without the securitization tool.
Deterioration of the quality of credits granted in the beginning of the
chain, their volume becoming rampant and tragic illusions of the true risks of
securitization products: these are more than enough justification for simply
banning these most detrimental "financial innovations". (10)
Speculation is one of the
modern traits. People speculate with stock, currencies, foodstuffs, raw
materials, etc. Around 90% of the global assets were spent on trade or
long-term investments in the 1970s and only 10% went to speculation, but the
figures are opposite now (Member of the European Parliament Eija-Riitta Korhola
stated in her blog that "if the GDP
of the global economy is around 50 billion US dollars, it means that 1,144
billion is being invested in financial speculation.") This means that
instead of making long-term investments or investments that would create jobs,
people use assets in investments aiming at fast profit. Such fast asset
transfers – currency speculation, for instance – are one of the key reasons why
the economy is unstable. This can be seen in the fact that, for example, the
countries that deregulated their capital markets the most suffered the most
during the Asian financial crisis, whereas the economies of India and China
that relied on capital restrictions experienced a growth rate of five to eight
per cent in the same time period. This was a major difference.
How can we intervene in the
negative impact of speculation? Experts have given a variety of alternatives,
one of which is the so-called Tobin tax suggested by Nobel laureate economist
James Tobin. This small Tobin tax would be placed on spot conversions from one
currency into another. This kind of tax would reduce short-term speculation and
exploitation of fluctuations in currency prices.
Another alternative is levying
a progressive tax on short-term capital gains. This could be done in the
following manner, for example: since the average stock market investment period
is only one to two weeks (!), the tax would make long-term investments more
attractive. This would reduce the stock market fluctuation that is detrimental
to companies and the society in general.
Graduated Surtax on Short-Term Capital Gains. A surtax on
short-term capital gains would make many forms of speculation unprofitable,
stabilize financial markets, and lengthen investment perspectives without
penalizing long-term productive investment. If the assets have been in
possession of a seller less than a week, the surtax might be as high as 80
percent on the otherwise untaxed portion; if a week but less than six months
then the tax might be 50 percent; from six months to three years the tax might
be 35 percent; and if the assets are in the possession of the same owner more
than three years the selling tax would be 10 percent. This surtax would place
ordinary work first and would reduce gains obtained by moving money. (11)
- (2 Cor 8:13-15) For I mean not that other
men be eased, and you burdened:
14 But by an equality, that now at this time your
abundance may be a supply for their want, that their abundance also may be a
supply for your want: that there may be equality:
15 As it is written, He that had gathered much had
nothing over; and he that had gathered little had no lack.
The seeds of the US stock market crash in 1929 were sown much earlier.
One of the greatest underlying reasons for the crash was the government’s reduction
of taxes in 1921, 1924, 1926 and 1928. Those tax reductions favoured large
corporations and wealthy people, in particular. This caused the difference in
people's wealth by 1929 to grow wider than ever before. It has been estimated
that 59% of all the wealth in the United States was held by just 1% of all
What can we learn from this? We
should learn, at least, that we should not recklessly reduce taxes because we
may have to pay for it later. We should try to pay back our debt when the times
are good because it is easier. In bad times it is much harder.
On the other hand, we should
keep the differences between people's wealth in check. In the 1930s the US
Government applied a policy that levelled out the wealth and created a strong middle
class. England also switched to a similar operations model, and the economic
policy aiming at levelling out people's income benefited the State.
In contrast to their experience during this
early period of "economic expansion", conditions for ordinary people
in Britain improved from 1914, the year World War I began, through the end of
World War II, including the years between the wars, when there was no overall
growth in Britain's national income. As explained by Douthwaite, the wars made
it politically necessary to control the forces of capitalism. The government
introduced heavy taxes on top incomes and controlled wages. Although it held
wage increases below the level of inflation, more people were employed, and
their work was steady. As a consequence, the real purchasing power of most
wage-earner households improved. Furthermore, when the government taxed wage
increases, it frequently authorized the same absolute increase for everyone.
Thus the raises for unskilled workers were proportionately higher than for
schooled workers. The overall result was a massive transfer of income from the
rich to the poor.
World War I, returning of military personnel to working life was facilitated by
reducing the work week from 54 hours to 46 – 48 hours. Because of this,
unemployment stayed low and wages high. Those without jobs were protected by
the national employment insurance scheme introduced in 1911. Paid for by the
substantial taxes on high incomes, it systematically transferred income from
wealthier taxpayers to those most in need.
War II resulted in much the same consequence for the poor. The benefit came not
from the growth in output that accompanied the war effort but from a
combination of many factors. These were a high demand for labour, the erosion
of wage differentials, government’s control of profits, and the implementation
of a highly progressive tax structure. Income equality increased dramatically,
and the enforced saving that resulted from rationing left an enormous pent-up
demand following the war, easing the transition to a peacetime economy.
Similar development was experienced in the United States. The depression
of the 1930s and World War II galvanized the politicians to take measures that
resulted in a significant redistribution of income. These measures led to the
building of the strong middle class that came to be seen as the hallmark of
America's economic strength and prosperity. (12)
Re-arranging debts. Reducing the
interest rate or temporarily suspending the repayment of loans (for a year or
two, for example) could help many countries. In some (developing countries) the
expenses to repay debt are up to three times the assets they are investing in
healthcare and social services; even so, these countries could fully recover if
the interest rate were reduced or the repayment of loans were temporarily
frozen. The high interest rate has also caused thousands of companies to become
bankrupt and thus has increased the number of poor people. The strict financial
policy that is favoured by many creditors usually only causes more misery, but
lowering the interest rate and restructuring loans could be more effective measures.
Might these measures be used to address the Europe’s current financial crisis, in
which Greece, Portugal and Ireland are in trouble? Additional loans would
probably not assist these states because their debt would only increase. Nobel
laureate Joseph E. Stiglitz wrote about this. In his book Globalization and Its
Discontents, he mentions interrupted debt management as one of the available
Almost everyone involved in
development, even those in the Washington Establishment, now agrees that rapid
capital market liberalization without simultaneous regulation can be dangerous.
They agree too that the excessive tightness in fiscal policy in the Asian
crisis of 1997 was a mistake. As Bolivia moved into a recession in 2001, caused
in part by the global economic slowdown, there were some intimations that a
country would not be forced to follow the traditional path of austerity and
have to cut governmental spending. Instead, as of January 2002, it looks like Bolivia
will be allowed to stimulate its economy, helping it to overcome the recession,
using revenues that it is about to receive from its newly discovered natural
gas reserves. In the aftermath of the Argentina debacle, the IMF has recognized
the failings of big bailout packages and has begun to discuss the use of
temporary suspension in the repayment of loans and alignments through
bankruptcy, the kinds of alternatives that I and others have been advocating
for years. Two other victories are debt forgiveness and the concessions brought
about by the work of the Jubilee movement. Thanks to those concessions a new
development round of trade negotiations could begin at Doha. (13)
- (Matt 20:1) For the kingdom of heaven is
like to a man that is an householder, which went out early in the morning to
hire laborers into his vineyard.
Keeping the employment rate as high as possible should be one of the key
objectives. If the unemployment rate decreases, society's expenses and poverty will
decrease. On the other hand, if the unemployment rate rises and people have
less money to spend then society’s costs increase, tax revenues decrease and
poverty and indebtedness increase. Crime may also be one consequence of a high
unemployment rate, particularly in countries where unemployment benefits are
not very good.
Is there any way to prevent
unemployment or to stop the unemployment rate from climbing? We will now study
this subject and consider some responses proposed by experts.
Put people first. One of the characteristics of modern society is an
obsession on financial efficiency. The goal is maximising profit, which is not
completely wrong since no company can operate for a long time if it is
One should ask, however, if we
have gone too far with our obsession on efficiency. Many companies make their
employees redundant when they are doing well and making profits because they
want their balance sheets to look even better and make their shareholders
happy. Company income and the benefits of rich shareholders are considered more
important than employees and their future. Executives who are not personally
familiar with their employees (those of large, global corporations) often act
in this way. It is difficult for them to be interested in the well-being of
people who seem to be very far from them. Figures and a good balance sheet are
more important to them.
Thus, we should try to retain
as many jobs as possible. People should only be made redundant when it is
absolutely necessary, not when such drastic measures are not needed. The
culture in Japan, for example, is such that employees are, if possible,
retained in a single company up until they retire. High employment is far more
beneficial for the Japanese society than is higher share value.
characteristic of modern society is privatization. Even though polls confirm
time and time again that people want to preserve public services (healthcare
and education), some parties aim to privatize everything because they believe
it is more efficient and will be cheaper for society.
We should look at the bigger
picture, however. Privatization may be wise sometimes but its disadvantages often
outweigh its benefits. This is because of the following:
- It has been noted that if a country-state maintains high-quality healthcare
and social services, the country will not be less competitive. Nordic countries
provide a variety of services funded by tax revenues, but on a global scale
they remain very competitive.
- Privatization almost always increases the unemployment rate, and this becomes
more expensive for society. The incomes of public sector employees would enter the
national economy in the same way as the incomes of private sector employees,
but if many people become unemployed then society would be subject to greater stress.
The government would have to pay more unemployment benefits while receiving less
tax revenue, and there would be less money flowing through the national
The neoliberal thinking almost bans
simultaneous consideration of a variety of social objectives or several social
sectors. For example, the Finnish municipality of Pernaja laid off twelve
employees of its school cafeteria because it could save a meagre sum of around
20,000 Finnish marks – buying food from a larger, commercial unit was a little
cheaper. However, twelve new unemployed people will cost around one million
Finnish marks to the State of Finland in the course of twelve months, and thus
this solution that reflects the very idea of the EU competition legislation is
senseless when studied from the national economy perspective. Still, the people
who made the decision stated in a TV interview that we could not take care of
our public administration if such issues should be taken into account when
making decisions. They had clearly fully internalised the neoliberal logic.
- Services provided with tax money may seem expensive if just the share paid
by the State is taken into account. However, if we were to demolish the
State-funded healthcare system in order to reduce the tax rate then people
would actually have to pay more. They would have to pay more, and might also need
more benefits in order to make ends meet.
One piece of evidence showing
that privatization is not efficient is the healthcare system in the United
States. When comparing costs to results, the US healthcare system has been
deemed the worst and most inefficient in the entire world. The system is the
most expensive and worst at producing positive results than the healthcare
systems of all other OECD countries.
Healthcare is a good example. The United States
healthcare system costs clearly more than the Finnish system, even if one were
to study only the part funded with state tax revenue. If the funds invested by
people in their own healthcare are included in the calculation, one can see
that the US invests 15% of the GNP compared to Finland's 7% in its healthcare
system. In terms of dollars, the US invests a little over three times more money in
healthcare per resident than Finland. (15)
- Increased unemployment due to privatization or for any other reason
will always cause social problems, which may mean anything ranging from crime
and social unrest to urban violence. Diseases usually associated with the poor
such as tuberculosis may also become more common.
What the points listed above mean
in practice is that saving money in one place may increase costs elsewhere.
Endless privatization and pursuit of efficiency may seem like a good solution
in the short term but the final result may be worse when other costs are taken
into account. We should always consider overall efficiency.
The lower unemployment also had profound social
consequences – issues to which the IMF paid little attention anywhere. Millions
of workers who had been excluded from the labour force were brought in,
reducing poverty and people living on welfare at an unprecedented pace. This in
turn reduced the crime rate. All Americans benefited. The low unemployment
rate, in turn, encouraged individuals to take risks, to accept jobs without job
security; and that willingness to take risks has proven an essential ingredient
in America's success in the so-called New Economy. (16)
Banks and companies. One reason why
unemployment started to increase during the Finnish economic recession of the
early 1990s was that banks were very inflexible when dealing with companies.
When banks got a promise that the central government would compensate all
credit losses they took advantage of this. For this reason, thousands of
companies that were in relatively good condition – although indebted – went
bankrupt. Most of those bankruptcies could have been avoided by drawing up debt
repayment schedules, temporarily postponing amortizations and posing stricter
terms on the banks. It is always more difficult to establish a new company than
aiding an already existing one.
The depression and the banking crisis in Finland
in the 1990s drove tens of thousands of small and medium-sized enterprises to
bankruptcy. The large Finnish banks caused completely unnecessary bankruptcies
of thousands of enterprises that had difficulties in coping with their debts:
it was safest for the banks to allow the indebted companies to go bankrupt
because this meant that the bank would get back the entire bad debt from the
State; there was no top limit for the central Government guarantee. If the
banks had tried to assist the enterprises to cope with the depression by
negotiating with them on more flexible repayment schedules, the banks' own profit
margin could have become smaller and the banks did not consider this a viable
alternative because of the increased competition in the Finnish and global
Cooperative model. One way to maintain
employment is to apply a cooperative approach whereby employees are also owners
of their company. This approach is effective in eradicating the difference
between the employees and employer. This is often an efficient approach because
employees can participate in business planning and carry their share of the
liability. Employment can be maintained by reducing the number of hours worked
instead of laying off people when an economic downswing occurs and production decreases.
This is also possible in a
regular company but labour market policy, bureaucracy and inflexibility often
prevent companies from reaching any effective decisions. They are unable to
negotiate how employment could best be maintained while retaining the company’s
economical viability. Inflexibility during negotiations or continuously
striving to get higher wages may lead to a higher unemployment rate. These
problems would be much less common if employees were also co-owners of a company.
- (Luke 3:12-14) Then came also publicans to
be baptized, and said to him, Master, what shall we do?
13 And he said to them, Exact no more than that which
is appointed you.
14 And the soldiers likewise
demanded of him, saying, And what shall we do? And he said to them, Do
violence to no man, neither accuse any falsely; and be content
with your wages .
- (Prov 30:15) The horse leach has two
daughters, crying, Give, give. There are three things that are never satisfied,
yes, four things say not, It is enough:
Takeovers and unemployment. People also
become unemployed when their company is taken over. Employees are made
redundant so the merged company can become more profitable. No heed is paid to
the continuity of employment here, either.
The most important thing is to have a good balance sheet and to benefit rich
shareholders. Another problem is that takeovers are often funded with borrowed
money, which adds to the debt of the purchasing company and makes the financial
system more vulnerable.
One measure the Government should immediately
take to control the frenzy is to pass a law against banks and other financial
institutions that grant loans for takeovers. Like in the 1920's, there has been
a huge boom in corporate mergers in the 1980's.
What is the final result? The debts of merged companies have increased and the
disparity of wealth worsened as the stockholders become even richer than
before. Keep in mind that the top 1 percent of wealth holders own as much as 50
percent of common stock in America. (18)
Shorter working hours. One way to reduce
unemployment is for people to work shorter days. A four-day work week or
six-hour work days have been proposed. This would open the doors for new
employees and radically decrease the unemployment rate. This would, however,
require lowering people's salaries to reflect this reduced work week, because
the cost to companies would be unreasonable if people were to receive the same
salary as before.
The four-day week was tried
out in the U.S., in Utah. The state ordered a shorter work week for most of its
employees. In this experiment, people still got the same salary as before. It
was noted that people would rather work four longer days than five shorter days
as long as their salaries were not influenced. The state's costs lowered, and people
saved because they had to drive less. The change generated a savings of $1.4
million. Furthermore, people took fewer sick leaves and worked less overtime,
which led to additional savings of $4.1 million. (Finnish Reader's Digest,
January 2011, p. 44)
Another example is from France
where the working week was reduced in length to 35 hours. This experiment
caused a significant decrease in the French unemployment rate; it lowered
unemployment from 12.6% to 8.5% over the course of four years. The economy in
Finland and other parts of the globe clearly experienced more growth during the
same period but this growth did not influence unemployment in the same way.
This supports the idea that shorter working hours would reduce unemployment.
During the late 1990s the social democrat government
of Lionel Jospin changed the course of French economic policy and used a Keynes
approach to reviving consumption. The government employed 300,000 young people
in the public sector and lightened the workload by reducing the work week to 35
hours. This immediately caused an increase in people’s faith, boosted the
economy and caused rise in the employment rate. In 1997, the trade balance
surplus reached an unparalleled high in France and investments increased by ten
per cent compared to the previous year.
Consulting official Pekka Tiainen of the Ministry of Employment assured
that shorter working hours would improve employment in France. He justified
this view by comparing Finland to France: "The unemployment rate in France
has decreased clearly faster than the unemployment in Finland even though
Finland has had clearly better financial growth. In my opinion, this shows that
the shorter working hours have worked," Tiainen said, justifying his
period of five years, the shorter working hours created 265,000 new jobs in the
private sector in France according to a study by the research institute Plan
ordered by the French government's budgetary planning division.
that reduced per-week working hours to thirty-five was passed – after harsh
political debate – in the autumn of 1997. It entered into force for all
companies with at least twenty employees as of June 1998.
the four-year reign of the left-wing government, the unemployment rate of
France decreased from 12.6 to 8.5 per cent. This was the lowest unemployment
rate in 18 years. According to Plan, one fifth of the improved employment was
directly due to the new jobs generated by the shorter working hours. (19)
Facilitating business. Establishing a
company often requires plenty of paperwork, and bureaucracy makes it difficult.
If establishing a company were easier and simpler, and new entrepreneurs were
continuously supported, then more companies could be established that would
employ more people.
This approach was adopted in
the United Kingdom in the late 1970s. A separate unit was established for small-
and medium-sized companies. The plan was to cut red tape; anybody planning to
start a new business could turn for help to the new unit. The approach was very
effective: in the course of eighteen months two million new companies were
established in the UK, and these employed almost five million people.
Agriculture and employment. The goal in
agriculture should be to retain jobs or create new ones. Trying to reduce the
number of people working in agriculture is senseless in the current situation
where urban unemployment rates are high. It is not reasonable when looking at
the whole picture of the economy. A policy that does not protect basic food
production in one’s own country is especially dangerous because it means the country
must depend on other countries for food. Swedish newspaper Dagen describes the situation in Sweden:
Dagen agrees with what Gyllenhammar said:
"Shutting down Swedish agriculture would be a huge waste of resources. We
would smother our resources and cause thousands of people in agriculture and
the food industry to become unemployed. If one only looks at the small picture,
one will see that food is cheaper outside Sweden. This does not mean, however,
that it would be wise from the national economy perspective to shut down our
own food production in favour of exported goods. Extensive importing of food
would require increased export income in order to even out the trade balance.
If we do not have the money to pay for goods, we cannot buy them. The policy
practiced currently is dangerous and mad. Abundance of food is hardly likely in
the foreseeable future: quite the opposite, the situation seems dire. So how
could we justify a country with such excellent preconditions giving itself up to
be taken care of by others?" (20)
How could we retain or increase employment in agriculture? The first
precondition is for each country to secure its production of basic foodstuffs
as stated in the example above. Not trying to achieve this is a dangerous
Another means of retaining
agricultural jobs is providing support for small farms. The more small farms
there are the fewer people will be unemployed. Small farms improve employment.
They can be supported by making a few important legislative changes:
Agricultural subsidies. Agricultural
subsidies are traditionally paid based on the farm's surface area. For example,
a farmer with 200 hectares receives ten times more subsidies than a farmer with
20 hectares. This policy has caused farm size to increase and the number of
small farms to decrease. The total amount of subsidies being paid has not
decreased, though: the same subsidies are simply paid to a smaller group of
farmers. This is not wise from the perspective of the national economy because as
farms have become larger the number of farm-related jobs has dropped.
One solution would be to
revise agricultural subsidies so small farms get more money. This would mean
paying a basic amount to all farmers and then decreasing the relative amount of
subsidy as the surface area increases. Here is an example of this alternative:
If the agricultural subsidy
package size is retained but the money is divided among fewer farmers, the
State's total expenses will increase, because there will be fewer jobs and
unemployment benefits must be paid from the state budget to a larger group of
income transfers should aim at levelling out differences in people's income and
supporting the poorest. The underlying logic of the EU agricultural policy is
quite the opposite, however. It rewards ownership: a farmer who owns 1,000
hectares of arable land will receive – directly from the Finnish Government or
via the EU – a hundred times more money than a farmer who only owns ten
practice, this policy will increase the unemployment rate and lead to a sort of
a reverse land reform and ever faster centralisation of real property.
is not the only possible policy, however. What if Finland started to pay a
certain annual amount of agricultural subsidy to all farmers who are not
receiving unemployment benefits or other state subsidies, regardless of the
size of their farm? Additional funds could be granted to highly indebted
farmers during a transitional period, and organic farms could receive a little
more money each year. Such a system would benefit small farms the most. Large
farms would lose a lot of money but this would not be catastrophic because all
farms that are sufficiently large should be able to make do on their own if
they abandoned the far too expensive and inefficient procedures they have
adopted because of the current agricultural subsidy policy, such as excessive
fertilization that causes blue-green algae to bloom in the Finnish lakes. (21)
Taxation of lands. Another option is
levying a tax on land. Small farms could be exempted from this tax but large
farms (100+ hectares, for example) would be progressively taxed. The larger the
farm, the higher would be the tax rate. This would cause the land to be more
evenly divided and more small farms would be established because increasing the
farm size would no longer be beneficial. This would be relevant particularly in
developing countries in which farms are huge. Even a small patch of land is
very important there because it can provide the basic income of a family.
TAXATION is one of the
keys in balancing the economy. Every country has expenses; if the government is
unable to obtain funds to cover these expenses through taxation or some other
means then the national economy will become unstable and the country will become
indebted. Such fiscal policy cannot be successful in the long term.
The following points pertaining
to taxation should be taken into account.
Tax reductions? It has been
observed that one cause of economic recessions is collapse of the tax base.
Governments reduce taxes and grant tax relief instead of tightening their
fiscal policy. This occurred in Greece and the United States, for example. Those
governments probably tried to create more jobs; creating jobs through tax
relief is very expensive, however. It has been estimated that if one wishes to
lower the unemployment rate by one per cent, one would have to lower salary
taxation, indirect labour expenses and value-added tax by 10%. Such a tax
reduction would be absurd because it would cause the state to incur lots of
debt. There are better and more efficient means of reducing the unemployment
Less taxes, less taxes, less taxes, the choir of
economists shouted at the peak of the last boom in the spring of 2000. They had
not been as unanimous since the bottom of the last downswing, except that the
shout then was save more, save more, save more.
average, empirical studies show that reducing structural unemployment by one
per cent would require a reduction of the total tax rate on labour – salary
taxation, indirect labour expenses and value-added tax – by around 10% total.
Finland, this average tax relief efficiency would mean that reducing the
structural unemployment rate by 1% – meaning by around 25,000 people – would
require tax relief of around FIM 20 billion per year, i.e. the squandering of
almost a million Finnish marks of tax income and the resulting need to reduce
public expenses per one person employed. This sum would be enough to support
several dozen unemployed people. Doesn't seem very wise! (22)
of automation. One reason why many governments lose tax income is
automation and its impact on the economy. The more automation there is and the
more advanced the Web-based self-service society becomes the more jobs, and
thus tax income, will be lost. For example, tens – even hundreds – of thousands
of industrial jobs have vanished in Finland because of rationalised production
and new technologies. Productivity has increased but the tax income of the state
has remained the same because the same volume of goods can now be manufactured
with fewer employees. New investments will not necessarily change this
situation because they aim to improve efficiency, which runs counter to saving
The same problem can be seen
in the services industry: jobs vanish because people do their errands
themselves, online. This has already occurred in banking. Thousands of jobs
have been lost. Any other sectors where self-service is possible are also in
danger. Some examples of this are online shopping and buying travel tickets
online; these reduce the number of jobs in the services industry.
What can we do to prevent the reduction
of state tax revenues and unemployment as a result of automation?
The most reasonable approach
would be to tax more company profits than just taxing the share of worker
wages. If fewer and fewer people are permanently employed by industrial
enterprises and the services sector, we will at some point reach a level where
society is no longer able to ensure delivery of its welfare services. This will
also reduce people's buying power and the profit of other companies because the
unemployment rate will increase.
However, if we were to tax
productivity and business volume, then society would have tax revenues also in
the future. (For example, Finnish companies earned FIM 184 billion in 2000.
This was close to the total government budget for 2000. The government budget
never exceeded FIM 200 billion during the 1990s.) Changing the focus in
taxation from worker wages to company profits would also favour any companies
that aim at employing as many people as possible. This focus could be further
enhanced by making each employee tax-deductible. Taxation treatment on salaries
would lower the unemployment rate.
Politicians worldwide should make sure that
profits – at least as much of them as before – can be obtained from the
stagnant production, and by profits I mean money to be shared out as taxes and
wages, regardless of whether the work is done by human or robotic hands. The
same goes for non-manual labour, regardless of whether the thinking is done by
a human brain or a computer.
Instead of taxing labour, the focus of taxation and social costs should be
transferred to other production components; the taxation of production value
added instead of human labour, in particular. (...) This would ensure that as
the production volumes increase, more money to be divided will be accrued in society's
pockets. With the current taxation principle, technology and automation can be
legally used to evade taxes. Not even the trade unionists have understood this.
European countries are unable to harmonise their taxation, infrastructure and
social security, the only way to secure tax income is switching from the
current income taxation system that is based on human labour to a "cash
flow based" taxation system. A proposal to this effect has been made by,
for instance, Hans-Werner Sinn, Professor in the Faculty of Economics at the
University of Munich. A neoliberal professor of economics, Sinn is currently
the President of the Ifo Institute for Economic Research and an advisor to the
black and red government coalition of right-winger Angela Merkel.
Scientists have discussed the benefits of this model since the 1970s but
it has not been tried out anywhere in the world. Sinn says that the cash flow
taxation would provide the benefit of preventing erosion of tax income.
Companies would be taxed based on the difference between cash coming in and
going out. Investments would be written off as one-off depreciations.
scientists say that this is a simple system. It will not require any complex
accounting nor are there any complex valuation problems connected with it. Sinn
considers cash flow taxation a realistic alternative even though there is no
experience with it yet.
Technology mainly benefits the capitalists even though it should benefit all
citizens. Unfortunately, politicians worldwide have not addressed this problem,
not even in their speeches. (23)
Income differences. Fair distribution
of income is one of the key factors in promoting the economy of a society and a
state. The more evenly divided the income is, the more buying power there will
be on the market and the lower the society's welfare benefit expenses will be.
Let's take an example: we have two super-rich people who already have
everything they could need and who spend as much on groceries as other people.
If both of them buy an expensive luxury car and gamble away some money in the
stock exchange, the society as a whole will not benefit much from their
However, if 10,000 regular
people invest the same amount of money in consumer goods, such as food and
clothes, it will have a much more significant impact on the economy. This will
benefit the society more because the money will assist in maintaining several
services and sectors of industry. When the companies in these sectors can
continue their business, people will not lose their jobs and the society will
not have to pay more welfare benefits.
Some means that can be used to
reduce the income difference include progressive taxation and higher capital
gains tax. Let's study these
Progressive taxation. Progressive
taxation at a scale higher than now would reduce the income difference and
improve total wellbeing of society. Many rich people complain about their taxes
but in Finland, for example, only state income tax is progressive. Total state
income taxes amount to less than 20% of all taxes paid by salary earners: they
represent a small portion of total tax obligations. Municipal taxes,
value-added tax, and other consumption-related taxes are not progressive.
One way of reducing the income
difference is making more taxes progressive. The increase could start when a
person's annual income exceeds EUR 30,000, for example. This is close to the
biblical model of trying to level out income differences (2 Cor 8:13-15: For I mean not that other men
be eased, and you burdened: But by an equality, that now at this time your
abundance may be a supply for their want, that their abundance also may be a
supply for your want: that there may be equality: As it is written, He that had
gathered much had nothing over; and he that had gathered little had no lack.).
An increase in taxes of a couple of per cent will not make a huge impact on a
rich person, and it should not mean much to such a person.
What about employment? Some
studies strongly suggest that progressive taxation is also a good alternative in
terms of employment. The benefits are not limited to the reduction of income
Another claim you often hear from the National
Coalition Party and the Confederation of Finnish Industries is that progressive
taxation kills people's willingness to work and thus increases the unemployment
rate. A survey published a couple of years ago says quite the opposite,
however. It says that progressive taxation is favourable particularly from the
employment perspective. According to Professor of Economics Erkki Koskela, high
progression will keep wages in check, which will lead to a better development
Professor Koskela says that both Finnish and international empirical
studies have confirmed that progression improves employment. Koskela has
written about this in a book called Towards
Higher Employment, the Role of Labour Market Institutions, published by the
Government Institute for Economic Research.
Koskela says that this observation has not received enough attention. He
continues to say that the observation is supported by empirical studies in
Italy, the United Kingdom, Sweden and Finland. Progressive taxation is usually
justified only with equality instead of employment. (24)
Capital income. In promoting the
economy of a society and a state, a higher tax rate for capital income (from dividends,
interest, sales, profit from stocks, etc.) is one of the key factors. One
problem of modern society is that the share of salaries in the GNP continues to
decrease – which causes states to take on more debt – while the share of
capital income continuously increases. Even though the share of capital income
has increased, it has -benefited society a little because the tax rate for
capital income has remained extremely low (in Finland, dividends became
tax-exempt in1993. The tax levied in 2004 is also very low.) The tax rate of a
regular salary earner may sometimes be even higher than the tax rate of a
person who receives a large share of their high income in the form of tax-free
dividends. Many well-off people have become freeloaders in terms of taxes
because of this legislative error.
The taxation for capital
income should be the same as for salaries. This taxation could be progressive:
small amounts of capital income could remain tax-exempt. If governments agreed
on how big this tax and other taxes should be, there would be much less
speculation and the heavily indebted national economies could start to revive.
The late professor of fiscal law in the
University of Helsinki Kari S. Tikka was also concerned about the current
unfair taxation. He stated: "The largest tax-free dividends paid to
private persons this year (in 2001) will amount to more than 100 million
Finnish marks. At the same time, salary income is heavily taxed and tax must be
paid even for unemployment benefits and the smallest pensions. This has caused
many people to lose faith in the fairness of taxation."
taxation professor was of the opinion that fairness in taxation is a complex
issue. "We adopted the principle of not evening out the income
distribution for capital income but only for earnings in the tax reform of
1993. We took a huge step towards favouring global competitive ability instead
of fairness in our taxation. (...) This could be one reason why people have
estranged from politics and feel less solidarity for their fellow members of
the society: they see that the people with the highest income seem to be
freeloaders," Tikka pondered. This is why Tikka was in favour of
reinstating a tax for dividends.
State income tax, municipal tax and additional capital income should all be
added up, and the progressive tax rate should apply to the lot. The maximum tax rate could be 55%, for
example. 45% should be sufficient incentive even for the greediest of people.
The capital tax rate should be at least the same as the tax rate for salaries.
It is incomprehensible that having money "lay around" is currently
more advantageous than working. Wealth tax should also be restored.
incomprehensible that people who receive dividends in Finland can get away with
paying almost no taxes thanks to the corporate tax compensation system. The
capital tax rate in Finland is already one of the lowest in the EU states. It
is odd that politicians worldwide accept that the tax rate for capital income
is lower than the tax rate for salaries even though there is already excess
supply of capital in the world. (25)
Tax havens. Tax havens – i.e.
countries where the tax rate is very low and thousands of dummy companies exist
– are one reason why some governments have lost tax revenue. These are places
where dirty money is laundered: dummy companies are used by terrorists, drug
lords and other criminals. They are also used to evade taxes by many regular
private persons and companies. Using a dummy company for such activities show’s
people’s greed, and shows their willingness to steal. The Bible warns us not to
engage in either. People do not want to pay the same taxes that others pay.
This will erode society's tax- based foundation; it is one reason why some
national economies are in such poor condition.
- (Luke 12:15) And he said to them, Take
heed, and beware of covetousness: for a man's life consists not in the
abundance of the things which he possesses.
- (Eph 5:5) For this
you know, that no fornicator, nor unclean person, nor covetous man, who is
an idolater, has any inheritance in the kingdom of Christ and of God.
How can we intervene in such tax evasion? One way to do it is for other
governments to start putting pressure on governments that allow tax havens. The quote below suggests major action to
prevent tax evasion. One of the key reasons why governments lose tax income is
tax competition. Governments are trapped in a vicious cycle: they have a hard
time retaining their welfare services because they fear that capital will leave
the country because companies get better benefits in other countries. This
insane tax competition could be avoided by means of treaties. Levying a
reasonable tax on capital leaving the country could also keep currency speculation
Tax havens and dummy companies should be made
illegal globally. The EU should institute a trade block on the tax havens and
cut any data communication with them, if necessary.
tax administration should have the right to see people's bank account
information. Hidden bank accounts
abroad should also be criminalized. Nameless nominee registers in the stock
exchange should be closed down to prevent tax evaders using them. Furthermore,
attorneys and accounting firms who assist their clients in tax evasion should
be made liable for their actions in the same way as their clients. (26)
If value-added tax were
increased by a couple of per cent, the national economy could clearly improve.
Private persons would not suffer much from paying €103 instead of €100 for a
product they are buying. Neither would such a minor increase harm businesses
because consumers would not change their behaviour. Such an increase would
clearly benefit the national economy, however.
Raising VAT would be a better
idea than raising the fuel tax, for instance, because VAT is a much more
comprehensive tax and raising it would not cause unjust harm to people who have
to commute from farther away. Furthermore, transport costs would increase if
the fuel tax was greatly raised (according
to an article in newspaper Etelä-Suomen Sanomat on 20 September 2011, fuel tax
will increase the costs arising from a single truck by €15,000). This could
cause transport companies to go bankrupt, force cutbacks of public transport
and raise the prices of all goods due to the higher transport costs.
Pension ceiling. One means of intervening
in the state's expenses is instituting a pension ceiling, an upper limit for
the pensionable income. This would mean that one’s tax-free pension could be a
maximum of €1,500–2,000 per month. The pension ceiling would clearly reduce the
income differences in society. (Income
differences among pensioners have become unreasonably high in many countries.
Some pensioners are very poor while others have plenty of money.) It would
be one way of keeping the budgets reasonable. The problem is that politicians
themselves are rich and refuse to make such cuts.
Welfare expenses are a huge expenditure
for the state. One alternative of reducing this expenditure is to allocate expenditures
more carefully. We should focus on assisting those who have it the worst. For
example, wealthy people (those who earn more than €40,000 per year) can make do
without child benefits or other benefits. These benefits could be taken away
from people whose income exceeds a certain limit. Another alternative is
progressive taxation of benefits.
Cost of living. One factor that
greatly influences the economy and employment is the cost of living. The more
people spend on their home, the less buying power they have and the higher the
unemployment rate becomes. If all of people's assets are tied to their home,
they will have less money to spend elsewhere. This has been a prevailing
tendency in the past few years in Finland where rents and real estate prices
have continued to rise. In 2004, the
average Finn had a mortgage of €42,000 whereas the average mortgage in 2008 was
€71,500. Increased prices have also raised society's expenses in the form of
housing allowances and income support: almost €1.1 billion was paid as housing
allowances in Finland in 2009 (Etelä-Suomen Sanomat, 29 May 2011).
How can we utilise the housing
policy to maintain people's buying power and employment? A low interest rate is
of key importance for people who own their home. If the interest rate for
mortgages remains low, people will be able to pay their debts and still have
money to spend elsewhere. This would not be the case if the interest rate
soars: people would have less buying power because paying their mortgage loan takes
all their money.
Another, more radical,
alternative in the case of people who own their homes is setting a price
ceiling per square metre. Prices in many urban areas are so high that regular
salary earners can no longer afford to buy a home there. Regulation of prices
could prevent people from overpricing their homes.
In the case of people who rent
their homes, one means is building more affordable rented flats. The problem
with this solution is the lack of available plots. There are the fewest plots
available in those same urban areas where new homes are needed the most.
Another means would be
reinstating rent control. The rent control system was initiated in Finland fin 1968
and was in effect until the mid-1990s. Somewhat more rented flats were
available on the market after the dismantling of rent control, but rents
skyrocketed. If rent regulation were reinstated – keeping in mind the needs of
landlords such as building renovation costs – people's cost of living could
decrease. A suitable compensation could be mandatory expenses (building cleaning,
repairs, waste management, energy expenses, etc.) plus 100% and a monthly
compensation of €100 for each apartment regardless of its size.
If mandatory expenses were
€100 the rent would be €300, and if mandatory expenses were €200 the rent would
be €500. The rent could be higher in the more expensive areas where apartments
cost a lot. Landlords using too high rents could be fined.
Tenants suggested both increasing the number of
flats available and instituting rent control as a solution to make rents more
reasonable. "Some kind of a maximum level" was wished for the rent
per square metre. Abolishment of rent control in the 1990s was considered to
have been "a really stupid act" that caused the renting business to
become "legalised robbery". Many of the respondents considered
reinstating rent control absolutely necessary to prevent arbitrary rents and
keep the renting business in check. The fact that financial issues were clearly
stressed by the respondents goes to show that tenants are insecure about their
living arrangements particularly because of their finances. They do not feel
that the housing allowance is a good solution because the allowance paid to
low-income households is often insufficient. Furthermore, only a minority or
around one in four respondents currently received housing allowance. The
desired functionality of the rent market has not been achieved by the transfer
to market economy. The fact that too few homes are being built plays a major
part in this problem. (27)
Meller: Raha ja Raamattu, p. 85,86
2. David Wilkerson: Jumala huolehtii (God’s Plan to Protect His People
in the Coming Depression), p. 11
3. David C. Korten: Elämä kapitalismin jälkeen (The Post-Corporate
World. Life After Capitalism), p. 239
4. Published in Suomen Kuvalehti in 1996, quote from Suuri lama
5. David C. Korten: Maailma yhtiöiden vallassa (When Corporations Rule
the World) p. 403,404
6. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and
Its Discontents), p. 160,161
7. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and
Its Discontents), p. 165
8. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and
Its Discontents), p. 146
9. Frederic Lordon: Rahamyllyt kuriin (Jusqua’a quand? – Pour en finir
avec les crices financieres), p. 190
10. Frederic Lordon: Rahamyllyt kuriin (Jusqua’a quand? – Pour en finir
avec les crices financieres), p. 191
11. David C. Korten: Maailma yhtiöiden vallassa (When Corporations Rule
the World) p. 403
12. David C. Korten: Maailma yhtiöiden vallassa (When Corporations Rule
the World) p. 67,68
13. Joseph E. Stiglitz: Globalisaation
sivutuotteet (Globalization and Its Discontents), p. 330,331
14. Risto Isomäki: Kohti vuotta 1929?, p. 76
15. Risto Isomäki: Kohti vuotta 1929?, p. 101
16. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and
Its Discontents), p. 84
17. Risto Isomäki: Kohti vuotta 1929?, p. 45
18. Ravi Batra: 1990 – Suuri lama? (The Great Depression of 1990), p.
19. Ari Ojapelto: Ahneuden aika, p. 651
20. Thoralf Gilbrant: EU, peto vai pelastaja (Ef i politikk og
21. Risto Isomäki: Kohti vuotta 1929?, p. 241,242
22. Ari Ojapelto: Ahneuden aika, p. 349,
23. Ari Ojapelto: Ahneuden aika, p. 328,638,660
24. Ari Ojapelto: Ahneuden aika, p. 353
25. Ari Ojapelto: Ahneuden aika,
26. Ari Ojapelto: Ahneuden aika, p. 644
27. Anneli Juntto, Anne Viita, Sonja Toivanen,
Mia Koro-Kanerva: Vuokra-asunto Helsingissä sijoituksena ja kotina, p. 69
1. Ken Ham: Valhe,
evoluutio, The Lie: Evolution, p. 55,112,113
2. Matti Joensuu: avoliitto,
avioliitto, perhe, p. 12,13
3. Pirjo Alajoki: Naiseus
vedenjakajalla, p. 54
4. Pirjo Alajoki: Naiseus
vedenjakajalla, p. 126
5. Pirjo Alajoki: Naiseus
vedenjakajalla, p. 123 / Graglia p. 2, 127
6. Pirjo Alajoki: Naiseus
vedenjakajalla, p. 140
7. Pirjo Alajoki: Naiseus
vedenjakajalla, p. 150
8. Nicky Cruz: David
Wilkersonin viimeinen varoitus (David Wilkerson: A Final Warning), p. 84,85
9. Päivi Räsänen: Kutsuttu
elämään, p. 134
10. Matti Joensuu: avoliitto,
avioliitto, perhe, p. 19
11. Pirjo Alajoki: Naiseus
vedenjakajalla, p. 21,22
12. Erwin W. Lutzer: Miksi helvetti on (Coming to Grips with Hell), p. 24
13. Bill Hybels: Kristityt seksihullussa kulttuurissa (Christians in a Sex Crazed
Culture), p. 132
14. Bill Hybels:
Kristityt seksihullussa kulttuurissa (Christians in a Sex Crazed Culture), p.
15. Paavo Hiltunen: Ja maa tuli
täyteen väkivaltaa, p. 20, 72,73
16. Ritva Santavuori: Rouva
syyttäjän paluu, p. 26,27
17. John Graham – Trevor Bennett:
Rikoksentorjunnan strategioita Euroopassa ja Pohjois-Amerikassa, toimittanut ja
uudistanut Mikael Scheinin, p. 85
18. Reino Sirén & Martti Lehti:
Musta maaliskuu, p. 15
19. Dada Maheshvarananda:
Kapitalismin jälkeen, Proutin näkemys uudenlaisesta yhteiskunnasta (After
Capitalism – Prout’s Vision for a New World), p. 154
20. David Wilkerson:
Jeesus-kansalaisen kypsymisen käsikirja (Jesus Person Maturity Manual), p. 93
21. Matti Virén, Matti Wiberg:
Kallis rikollisuus, järkevät vastatoimet rikollisuudelle, p. 80
22. John Graham – Trevor Bennett:
Rikoksentorjunnan strategioita Euroopassa ja Pohjois-Amerikassa, toimittanut ja
uudistanut Mikael Scheinin, p. 1,2
23. Charles G. Finney: Ihmeellisiä
herätyksiä, p. 245, 246
24.David Wilkerson: Hei saarnamies, sä pääset läpi (Hey, Preach… You Are Comin’ Through), p. 78
25. Liisa Tallgren: Tarjolla
huominen, p. 121
26. Ritva Santavuori: Rouva
syyttäjän paluu, p. 208, 209
27. David Wilkerson: Kukkaislapsia
löytöretkellä (Purple-violet Squish), p. 9