Veilahti: The Not So Great Recovery — Social Expenditure and the Making of the European Crisis. Presentation at TITA Annual Research Meeting, Turku 15.-16.9.2016

1. The Not So Great Recovery
Antti Veilahti
University of Turku
Tackling Inequalities in Time of Austerity, Turku 15.9.–16.9.2016
— Social Expenditure and the Making of
the European Crisis

2. What Crisis?
¤ The standard narrative:
¤ Subprime mortgages
¤ Lehman Brothers
¤ CDS (credit default swaps)
¤ ‘The Great Recovery’?
¤ Global recession ended in 2009, with 5.3 % growth already in 2010
¤ Unemployment rates fell almost everywhere else
—just not in Europe (cf. Appelbaum, 2011)

3. Acting the crisis
¤ The ‘financial crisis’ viewed as a generic cause behind
contemporary economic stagnation
¤ Actually it involves various actors:
¤ the inert ‘multi-layered government’ of the EU
¤ national political rhetoric
¤ the EU and the IMF have forced some governments to make
cuts far beyond their own willingness
¤ cultural divisions between Nordic and Southern countries
¤ history of recurring sovereign default, with France defaulting at
least eight times, Spain six times and 'Greece [finding] itself
virtually in continual default' until few decades ago (Reinhart
and Rogoff 2009, xxx)

5. ‘Greece is the black sheep of Europe. That's its virtue.
Good thing there are black sheep like Greece to mix
things up, to refuse a certain Germano-French
standardization, etc. So, continue being black sheep
and we'll get along just fine...’
Félix Guattari

6. Questions
¤ It is a viable argument that uncertainty following the collapse of
Lehman Brothers’, resulted in economic ‘frictions’ (Hall, 2010)
¤ But were they sustained beyond what is necessary?
¤ PhD thesis (Goldsmiths, University of London)
‘Financial’ Crises in Europe— Multilevel Analysis of Youth,
Employment and the Economy of Wellbeing From 2007
To 2012 (http://research.gold.ac.uk/18875/)
¤ Did unemployment result as a direct consequence of the withdrawal
of capital in Europe?
¤ To what extent the ‘frictions’ are instead due to crisis-thinking itself,
resulting in economically adverse behavior?

7. Two Modes of Crisis Consciousness
Institutional crisis awareness:
Qualitative changes to work
present also in Sweden, the
Neatherlands, Germany
and Finland
Quantitative problems like
unemployment and bond
rates in
Greece, Portugal, Ireland,
Spain etc.

8. ‘Never let a good crisis
go to waste’
Winston Churchill

9. What is the role of policy?
¤ What role does policy play in enacting the
consequences of the crisis?
¤ Compare the cuts to social spending with the effects of
non-social public investment
¤ Based on multilevel analysis on unemployment,
deprivation and subjective representations of wellbeing
¤ European quality of life survey (Eurofound)
¤ National data (e.g., Eurostat)

10. Government expenditure
¤ It is argued that higher taxes should have a negative
effect on private consumption, innovation and
investment (e.g. Martti Hetemäki, Permanent State
Secretary, Ministry of Finance 2013–)
¤ Raising taxes is not conceived as a proper way to tackle
fiscal imbalances, that is, as an investment
¤ Overall tax rate during the crisis however decreased
> there is at least some ‘room’ to decide regarding the
level of public investment

11. Does type of matter?
¤ Crisis has resulted in cuts to social benefits
¤ In actuality, the rise of the total government expenditure
is only explained by non-social expenditure
¤ Traditional Keynesian stimulation focuses on the direct
promotion of employment instead of social security
¤ Study the effects of the change in non-social expenditure
¤ Contrast them with the level of social expenditure

12. Social expenditure (excluding health or pensions)
¤ Have not created negative incentives and lowered
employment
¤ Actually makes young adults more likely to be employed
¤ The feeling of being left out of society more rare
¤ Higher personal satisfaction
¤ Social expenditure predicts higher awareness of social
tensions

13. Change in non-social expenditure
¤ Many of the effects opposite to those of social
expenditure:
¤ Higher long-term unemployment increased
¤ Higher youth unemployment (short and long term)
¤ Deprivation
¤ Lower awareness of social tensions
¤ Makes the allocation of jobs less efficient
¤ More people looked down because of job

14. Contingency and control
¤ 27 countries and 13 national level predictors
¤ Enhance the reliability of the analysis by comparing the
so-called random effects:
¤ Measures the level of unexplained variation between
countries
¤ Compare models with and without a single predictor
¤ The analysis is based on 1600 models altogetherAllows us to
understand the role of intermediating factors
¤ Allows us to understand the role of intermediating factors

15. Effects of public expenditure
Non-social expenditure Social expenditure
Youth unemployment Lower youth unemployment
Deprivation of the young Young making ends meet
Less social tensions among the young
Looked down because of job Lower deprivation among the young
Lower happiness Political participation
Cuts to unemployment benefits
Higher youth uneployment

16. Effects on ‘the Subject’

17. An inter-generational question?
1. Due to the benefits of social investment, lowering taxes
and expenditure does not result in more efficient
economies
2. The decision between social and non-social investment
is, above all, an inter-generational question
¤ cutting benefits results in higher demand for jobs,
undermining the prospects of youth
3. Promoting employment directly results in less than
efficient allocation of jobs

18. Some methodological notes
¤ In the case of social expenditure I considered the overall
level, because this reflects also the immediate changes
in social expenditure whose demand has been higher
during the crisis
¤ Expenditure on health and pensions excluded (they do
not respond to the immediate demands induced by the
crisis)
¤ Changes in the random effects were also analysed for
the change in specific social spending categories