The lasting nature of (most of) the productivity increases in Finland and Greece
Are stressed and stagnating economies like those of fFnland and Greece economic backwaters, doomed to stagnation, ridicule and decline which can only increase productivity by financial manipulations? Of course not. By far the larger part of productivity increases in Eurozone periphery countries has been of the lasting kind and productivity in Greece and Finland is still about 30% (yes, that’s a lot) higher than in 1995, even though the data are also consistent with a certain amount of debt driven productivity exuberance in the years directly before 2008 and part of the decline might be caused by the implosion of a debtdriven bubble, like in Greece between 2007 and 2011 (data: Eurostat). While, again, any bubble effects are dwarfed by the structural increase before 2008 and while part of the post 2008 decrease must also be caused by low levels of production which often tend to depress productivity.The lasting nature of the post 2008 productivity decline and stagnation however indicates that something else might be the matter, too.
Financial crises are supposed to last longer and to have a more lasting effect on output and productivity than ‘normal’ economic crises. And indeed: productivity per hour in Finland and Greece was, in 2014 lower than in 2007. The relatively low 2014 level and the post 2008 medium run declines are bucking a very long trend: relentless increases of productivity were the norm during the last 100 or 150 years or so (very large differences between countries), though the Italian experience of the Berlusconi decades shows that these increases are not a law of nature but of economics. A comparison with the severe 1989-1991 Finnish financial crisis shows the, in a historical perspective, extreme nature of the present crisis – this pretty serious even only caused a very minor blip in the developement of productivity (just like the productivity fallout famous British 1979 ‘winter of discontent’ was absolutely minor compared with the post financial crisis developments). There is of course an obvious link with the low level of investment in many countries which, in financial crises, is not only caused by a lack of demand but also by households and non-financial companies which use money to pay down debts and restore their balance sheets instead of investing this money in solar cells, robot vacuum cleaners and improving harbours and canals (I love this new and larger Suez canal,
the government of Greece the Troika should grasp this opportunity by speeding up investments in the Piraeus harbour – mind that faster sea transport and larger ships also mean less environmental damage). To me, this makes more sense than closing down the banks (ultra tight money policies…) in an already deeply, deeply depressed economy (as indicated by the combination of extremely high unemployment and a very low rate of investment).
Remarkably, productivity in Ireland and spain increased quite a bit after 2008. This was mainly caused by the housing crisis, which caused a demise of (low productivity) construction. Productivity increases seem to level off, however. By the way – back in 2013 I predicted that UK productivity growth would return to trend again in about two years. I was right.