Tag Archives: Germany

Finland: what is its competitiveness?

The Finnish economy is not doing well, regardless of the better-than-estimated growth. Politicians, business representatives and also labour unions talk about Finland having become uncompetitive, especially relative to Germany. This is commonly expressed through a comparision of the (Real) Unit Labour Cost developments. Especially the wage increases in the sectoral collective bargaining rounds of 2007-2008 are frequently blamed for Finland’s downfall.

Recently, I have read all kinds of literature related to trade diversification, export performance and such. It was also nice to discover this website, which can provide a wealth of insight. Basically my thought for this post is: If Finland is so uncompetitive, this must somehow show up in the data. Another issue is: Finland is frequently mentioned as very competitive and high-tech, such as in this article, but does this show up in Finland’s exports?

Regarding the first question:

Export destinations of Finland (1995-2012)

Export destinations of Finland (1995-2012)

The top export destinations of Finnish exports are Sweden, Germany and Russia (followed by the Netherlands, UK, USA and China). That is the ‘macro’ picture. If you look at those individual countries, you will see completely different ‘export packages’.

Finnish exports to Germany (2012)

Finnish exports to Germany (2012)

Half of what Finland exports to Germany is either paper goods or metal goods (this can be steel plates, zinc, nickel, iron pipes etc.). Machines account for nearly 18% of exports. These are typically machines for the German industry to make things (e.g. paper machines, processing machines, lifting machines, …) but it also includes telephones, electrical transformers and electrical motors.

For Finnish exports to Sweden the picture looks quite different:

Finnish exports to Sweden (2012)

Finnish exports to Sweden (2012)

Mineral products is the category code for e.g. oil-based products, like petroleum and refined petroleum. Chemical products also include medicaments.

Finally, exports to Russia look like this:

Finnish exports to Russia (2012)

Finnish exports to Russia (2012)

Again, chemical products, phones, computers and other machinery are a large part of exports, but Russia is also a significant market for Finnish dairy products.

To make the picture complete, I provide a list of the Top-40 export products from Finland (in 2012), in terms of export value (in US$), see below. What I find striking, is that in terms of the classification used by Cafiso (2009) there are only a few high-tech export products in the top-40,  and the top-6 features ‘traditional’ industry products, as in relatively low-tech. In terms of export value, the Finnish paper industry is far from being history.

When we go back to the first question – does Finnish uncompetitiveness show up in the data? – it depends what you look at!! Here are the graphs fror the top-3 products:

Kaolin Coated Paper exports

Kaolin Coated Paper exports

Refined petroleum

Refined petroleum

Stainless steel

Large Flat-rolled Stainless Steel

Strange to say maybe, but depending on the destination and the product Finnish competitiveness does not look too bad. Yes, the start of the Great Financial Crisis is visible in the data in 2008-2009 and from 2011 European demand for two of the three products here is in decline. But that doesn’t mean that Finland is uncompetitive – German exports of stainless steel and kaolin coated paper also declines, especially in Europe.

I think one of the most relevant lessons of these sketches is that in Finland the industries that produce the top-40 products are typically very capital-intensive.  It may be true that Finnish Real Unit Labour Costs are higher than in Germany, but does it matter? Storm and Naastepad (2015) conclude that for Germany (and other industrialized countries) trade is not very sensitive to changes in Real Unit Labour Costs.

This overview of some of the aspects of the Finnish export industries has implications for the labour market relations and what issues are emphasised (either by labour unions, the state or employers). I hope to write more about that in a later phase.

 

1
Refined Petroleum $7,571,937,492.43 10.06%
2 Kaolin Coated Paper $5,546,692,160.65 7.37%
3 Large Flat-Rolled Stainless Steel $3,188,856,875.23 4.24%
4 Uncoated Paper $1,896,120,674.00 2.52%
5 Sawn Wood $1,578,749,613.50 2.10%
6 Sulfate Chemical Woodpulp $1,554,623,680.00 2.07%
7 Packaged Medicaments $1,402,117,640.52 1.86%
8 Electrical Transformers $1,397,459,014.12 1.86%
9 Telephones $1,213,812,358.00 1.61%
10 Excavation Machinery $1,141,698,501.29 1.52%
11 Broadcasting Equipment $977,911,850.49 1.30%
12 Papermaking Machines $874,822,111.30 1.16%
13 Machinery Having Individual Functions $821,263,336.80 1.09%
14 Electric Generating Sets $809,612,169.02 1.08%
15 Medical Instruments $789,197,173.22 1.05%
16 Electric Motors $707,507,667.19 0.94%
17 Other Construction Vehicles $652,354,778.80 0.87%
18 Raw Nickel $648,832,883.17 0.86%
19 Raw Furskins $619,987,425.28 0.82%
20 Raw Zinc $602,721,172.66 0.80%
21 Uncoated Kraft Paper $596,906,691.21 0.79%
22 Stone Processing Machines $574,838,607.82 0.76%
23 Plywood $570,319,551.66 0.76%
24 Cellulose Fibers Paper $557,917,828.69 0.74%
25 Cars $529,368,714.55 0.70%
26 Refined Copper $526,786,902.13 0.70%
27 Rubber Tires $522,128,649.04 0.69%
28 Valves $512,834,686.85 0.68%
29 Lifting Machinery $500,867,236.02 0.67%
30 Ethylene Polymers $495,928,852.51 0.66%
31 Passenger and Cargo Ships $456,775,890.54 0.61%
32 Other Uncoated Paper $430,972,171.17 0.57%
33 Electric Motor Parts $428,195,865.56 0.57%
34 Low-voltage Protection Equipment $423,857,644.83 0.56%
35 Flat Flat-Rolled Steel $421,897,577.90 0.56%
36 Coated Flat-Rolled Iron $415,547,511.74 0.55%
37 Special Pharmaceuticals $415,278,848.27 0.55%
38 Computers $411,008,464.22 0.55%
39 X-Ray Equipment $404,066,790.60 0.54%
40 Tractors $401,011,453.94 0.53%
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The hypocrisy of Germany, as told by Bill Mitchell

This morning’s link is very good reading. Other authors, such as Jörg Bibow of the Levy Institute have written similar things, but the way Mitchell puts the whole story in a tight narrative is on another level (the benefit of discussing this outside an academic paper). I also know this history of course, but I did not connect the dots very well between this episode and the Hartz-reforms. It quite well dispells the myth of ‘German recovery through hardship.’

Anyway, go read it, you will end up wiser and will wonder why they didn’t chuck the rules out already in 2003. Oh wait, that would be admitting failure by the political elite.

Jörg Bibow on Germany’s policy prescriptions, again

This is as concise as it can be. Jörg Bibow once more (how many times does he have to write the same thing?!) deconstructs the fallacies of the German Model, especially when it is forced upon the rest of the Eurozone. I linked to this post in this article already but it fully deserves its own post.

‘Why the Eurozone Suffers from a Germany Problem’

Link

The key part:

The Eurozone’s current problem arises because one country – Germany – allowed nominal wage growth well below the Eurozone average, which undercut everyone else…. Within a currency union, this is a beggar my neighbour policy.

Bill Mitchell on the repeated follies of the SGP – comparing Germany then and France/Italy now

Bill Mitchell doesn’t mince words. In a very long and detailed post, he disects how the SGP and Excessive Deficit Procedures (EDP) have been used against Germany in the early 2000s and against France and Italy at the moment. It is worth your time to read it, because right now:

10/18 [Eurozone] nations [are] caught up in the ridiculous bureaucratic procedure, which only kills growth and prosperity.

And from his conclusion:

The history of the EMU to date has taught us that if Germany is unable to meet rules, then the rules will be altered. Otherwise, the rules will be used as a blunt weapon to devastate the employment base and living standards of weaker nations without the political clout of Germany.

The mindless Eurozone rules (German rules) have failed. It is time to move on and get over it.

It is time to abandon the project and release these nations and their people from the growth-sapping, poverty-inducing straitjacket.

In this context I think this paragraph is important:

This is why it is nonsensical to target a particular public deficit ratio (with respect to GDP) because it is so sensitive to private economic activity. The government cannot actually guarantee it will hit a particular outcome given that private spending essentially dictates the outcome.

The government is far better off targetting employment levels to ensure there are enough jobs available and to also work to ensure first-class public infrastructure is in place.

Whatever the fiscal outcome that emerges from that sort of quest will be appropriate, given the goal of government is to advance welfare rather than achieve some abstract financial ratio, which few people fully understand anyway.

But any of this will probably fall on deaf ears again.

Sunday the 25th and what next in Europe?

Important. Reuters has good reporting on the EU of late!

Finnish economists in the media and the role of journalism in the Eurocrisis

Yesterday I attended a seminar on “The Eurocrisis in the News”, organized by the Finnish Union of Radio and Television Journalists with support from the Finnish Journalist’s Union and the Finnish Broadcasting Corporation (YLE). This was a very interesting seminar on a topic which I am rather interested in. The seminar was too long and too diverse to summarize it properly, but some interesting points and highlights:

– according to a research by one of the organizers, there is a big skewedness in which economists get asked to comment on news related to the eurocrisis. There are a few which are asked all the time and there are many which are asked a few times at most. The period of time investigated was from the crash of Lehman Brothers until the 15th of September 2014 and focused on the daily news of YLE as well as the Finnish daily Helsingin Sanomat.

– perhaps this skewedness is a result of who is famous and who is available, but a much more worrying bias is that there were hardly any women represented in the sample studied. Nonetheless, in Finland there are many talented female economists, both in banks and research institutes.This is a big problem, as the eurocrisis in any case has an asymmetric gender impact (i.e. given the kind of jobs and sectors women are predominantly present in, they suffer from the crisis to a greater degree than men.)

– As Sveriges Radio economic reporter Staffan Sonning stated, bank economists are paid to do work for the bank, so one should not listen too much to their policy advice.

– Research journalist Elina Grundström launched a new concept: the Triple-H credit rating, referring to the works of (journalist) Jan Hurri, researcher Timo Harakka and economist Lauri Holappa (of the Raha&Talous -blog). The question discussed in this section of the seminar was whether these kinds of ‘alternative’ analyses were less represented in the media and whether it has been more difficult for these to gain visibility in the Finnish media. The answer was yes and no. The majority of analysis (of the Eurocrisis) followed the ‘German good – South profligate’ model apparently (which I also have criticized in a column in Turun Sanomat, regarding a specific part of this discussion). The no-part is reflected in the finding that actually there were more critical analyses than may have seemed. While this may be true, I would like to see this over a period of time (Jan Hurri has been on this topic for a long time, but Harakka’s and Holappa’s books came out this Spring – but they were very active in the internet). Also it would be interesting what the substance of the various articles was, how e.g. the ‘alternative explanation’ was categorized etc. Another question is whether the inclusion of ‘alternative explanations’ or criticism led to more media presence for those economists. Given the statements by the Finnish Prime Minister Alexander Stubb on the issue of public finances and economic policy, it doesn’t look like any of the criticism had any effect. But then again, nowhere in Europe this seems to be the case.

– The director of EVA (a Finnish pro-market think tank) Matti Apunen had a presentation which defies summarization. This was caused by his use of rethorical devices and he also frequently seemed to contradict something which he just said. Regardless of the feeling of ‘what did he actually say, did he say something sensible at all?’ I think he had a couple of things worth mentioning. First, he had a good point that the news media should have a Eurocrisis ‘task force’ to report on these issues and be able to have  a kind of strategy regarding longer term investigative journalism etc. This is ultimately a resource question, which e.g. websites such as NakedCapitalism also face. Apunen asked who is the Finnish Martin Wolf or Wolfgang Munchau, and I think there is no answer (yet). Another thing he mentioned which is a good point is, what is our/the media’s next blind spot? He claimed that the current eurocrisis is like that (or I think he claimed that) but that is obviously not true – maybe for some actors and some media but there have been plenty of warning signs and scholars who were right on top of it. But although there is plenty to say about the past and past mistakes, it IS important to think about blind spots. Sixten Korkman mentioned Donald Rumsfeld’s Unknown unknowns, which (although I think he is a politician of the worst sort) is one of the smartest things any politician has said, in a kind of philosophical sense.

These blind spots are of course by definition hard to conceive, but some in the audience mentioned France and Italy. Well, these are obvious and not blind spots anymore. Also Germany is not a blind spot, as Bill Mitchell and Jörg Bibow show. What I think is a blind spot is the link between the eurocrisis and the narrowing of democracy. This is an issue about which has been written before, but the media could be more interested in it. After all, a democracy cannot work without the media to report on good or bad things, and without critical voices. I think right now we can very clearly see that the EMU, and to a great extent also the EU as a whole, has turned into one great neo-liberal project. Seen from that perspective, everything makes sense – austerity, saving the banks, pumping the liquidity, the demands for labour market flexibilization etc. And here we have the blind spot: news media have to be much more in contact with social scientists (yes, I know I am advertising myself here) – economists discuss outcomes, social scientists are able to say sensible things about policy making and power struggles, not to mention legal issues, that lead to these outcomes. Where are the political scientists discussing Brussels policy making? Where are the sociologists and demographs that focus on the ill effects on austerity policies on the fabric of society? Where are the legal scholars that discuss the hollowing out of the rule of law (anyone remember Greece and Italy and how the European Commission installed puppet-governments?)

The eurocrisis involves so much more than just economy; at the very least we have to talk about political economy – what decisions are in whose interests and why? We can’t let this be discussed by economists alone.