Managing the Economy Managing the Economy Well While Staying Well While Staying

Faithful to the Ideals of Faithful to the Ideals of Social Democracy Social Democracy

(Version 2.0) (Version 2.0)

Associate Professor Phua Kai Associate Professor Phua Kai LitLit

Monash University MalaysiaMonash University Malaysia

July 2015July 2015

Lecture Objectives Lecture Objectives What is Social Democracy?What is Social Democracy? Social Democracy and the welfare of the Social Democracy and the welfare of the

peoplepeople Social Democracy and the economySocial Democracy and the economy Progressive fiscal policy & Keynesian Progressive fiscal policy & Keynesian

counter-cyclical fiscal policycounter-cyclical fiscal policy Increasing revenueIncreasing revenue Ensuring cost-effective expenditureEnsuring cost-effective expenditure Sweden as a success story of Social Sweden as a success story of Social

DemocracyDemocracy

What is “Social Democracy”?What is “Social Democracy”?Democracy = rule by the people Democracy = rule by the people

Social Democracy = a democratic Social Democracy = a democratic government that serves mainly to promote government that serves mainly to promote the welfare or well-being of the peoplethe welfare or well-being of the people

Best examples of successful rule by Social Best examples of successful rule by Social Democratic governments – Sweden, Democratic governments – Sweden, Finland, Norway, Ecuador (under President Finland, Norway, Ecuador (under President Rafael Correa)Rafael Correa)

What does the term “Welfare What does the term “Welfare of the People” mean? of the People” mean?

Good health i.e. high life expectancy, low Good health i.e. high life expectancy, low infant mortality, low rates of disability and infant mortality, low rates of disability and disease, proper environmental protection disease, proper environmental protection

Well-educated populationWell-educated populationEmployment in safe jobs with decent wagesEmployment in safe jobs with decent wagesLow unemploymentLow unemploymentLow poverty rates; a Welfare State helps the Low poverty rates; a Welfare State helps the

poor, disabled, the elderly & the unemployed poor, disabled, the elderly & the unemployed Political freedoms safeguarded (IMPORTANT)Political freedoms safeguarded (IMPORTANT)Ethnic/religious minority rights are protectedEthnic/religious minority rights are protected

Social Democracy and the Social Democracy and the economy economy

Social Democrats need to manage the economy Social Democrats need to manage the economy well. (Right-wing political parties and their well. (Right-wing political parties and their supporters almost always accuse left-wing supporters almost always accuse left-wing political parties of “economic mismanagement”).political parties of “economic mismanagement”).

Managing the economy well – low Managing the economy well – low unemployment, low inflation, satisfactory rate of unemployment, low inflation, satisfactory rate of “green” economic growth“green” economic growth, high foreign exchange , high foreign exchange reserves, good physical infrastructure, high reserves, good physical infrastructure, high quality human resources & workforcequality human resources & workforce

Progressive fiscal policy Progressive fiscal policy Social Democratic governments managing a “mixed Social Democratic governments managing a “mixed

economy” must ensure that market forces are made to work economy” must ensure that market forces are made to work for the good of the people for the good of the people

““Fiscal policy” means how a government raises revenue Fiscal policy” means how a government raises revenue (e.g. through taxes) and spends public funds (expenditure) (e.g. through taxes) and spends public funds (expenditure)

Fiscal policy can be used to reduce economic inequality e.g. Fiscal policy can be used to reduce economic inequality e.g. free or highly-subsidised health, education, transport and free or highly-subsidised health, education, transport and housing for poor people; financial help for the poor through housing for poor people; financial help for the poor through welfare payments or “conditional cash transfers” (you welfare payments or “conditional cash transfers” (you receive public money only if you undergo job training receive public money only if you undergo job training courses or keep your kids in school, or get them vaccinated) courses or keep your kids in school, or get them vaccinated)

Fiscal policy should be “Keynesian Fiscal policy should be “Keynesian counter-cyclicalcounter-cyclical” i.e. ” i.e. increase spending during recessions, increase spending during recessions, strongly resist strongly resist pressures to increase spending during good economic timespressures to increase spending during good economic times

Increasing RevenueIncreasing Revenue A progressive tax system i.e. higher taxes on A progressive tax system i.e. higher taxes on

citizens with higher incomecitizens with higher income Consumption tax – to reduce consumption and Consumption tax – to reduce consumption and

increase investment. A broad-based consumption increase investment. A broad-based consumption tax will also increase revenue of the government.tax will also increase revenue of the government.

Combat tax avoidance (which is legal) through Combat tax avoidance (which is legal) through closing loopholes and punish tax evasion (which is closing loopholes and punish tax evasion (which is illegal) with stiff fines and jail termsillegal) with stiff fines and jail terms

High taxes on goods and activities that are harmful High taxes on goods and activities that are harmful to health and well-being of citizens e.g. very high to health and well-being of citizens e.g. very high taxes on tobacco, alcohol, junk foods; very big fines taxes on tobacco, alcohol, junk foods; very big fines for occupational health and environmental health for occupational health and environmental health violations violations

Cost-Effective ExpenditureCost-Effective Expenditure

““Cost effective” means “more bang for the Cost effective” means “more bang for the buck” i.e. maximum output at each level of buck” i.e. maximum output at each level of input, or achieving a fixed output using less input, or achieving a fixed output using less inputs, or achieving targets with less inputsinputs, or achieving targets with less inputs

An example of cost-effective expenditures: An example of cost-effective expenditures: emphasis on public health (vaccinations, good emphasis on public health (vaccinations, good nutrition, clean water, proper sanitation, nutrition, clean water, proper sanitation, environmental protection, basic medical care) environmental protection, basic medical care) rather than expensive high tech curative rather than expensive high tech curative medicinemedicine

Another example: public expenditures used to Another example: public expenditures used to promote public transport (trains, trams, buses) promote public transport (trains, trams, buses) or use of bicycles. Discourage car ownership. or use of bicycles. Discourage car ownership.

Anti-Corruption EffortsAnti-Corruption Efforts

There should be an independent anti-There should be an independent anti-corruption agency that reports directly to corruption agency that reports directly to the Legislaturethe Legislature

The anti-corruption agency should be The anti-corruption agency should be bolstered with tough laws against corruption bolstered with tough laws against corruption and abuse of public fundsand abuse of public funds

Successful management of the Successful management of the economy by the Swedish Social economy by the Swedish Social

Democrats:Democrats:

http://www.newstatesman.com/politics/2014/09/lessons-labour-http://www.newstatesman.com/politics/2014/09/lessons-labour-party-swedish-social-democrats-victoryparty-swedish-social-democrats-victory

The Swedes also place a lot of emphasis on job training and The Swedes also place a lot of emphasis on job training and retraining programmes to lower the rate of unemployment. retraining programmes to lower the rate of unemployment.

Thank YouThank You