Comment on Adalbert Winkler Evaluation of the pre-2008 European model of cohesive growth by Cezary Wójcik Friedrich-Ebert-Stiftung 23 October 2009 1
Agenda Overview and general remarks Some specific remarks Summary: lessons for cohesive growth 2
General remarks Very good input paper which raises a number of interesting points Cohesive growth before the crisis Albeit with different patters globally and in Europe: imbalances vs. divergences (?) Two alternative explantations for crisis Macro policy mistake (global imbalances cause) Financial integration (patters and financial markets failure) Is there a 3rd explanation Some interesting remarks Floating vs fixed exchange rate regimes (China, Latvia, Poland)? CEE would have not avoided the crisis? Debt credit booms, sustainable growth and the euro? How to reconcile the 3 objectives 3
Specific remarks Do we have a 3rd explanation? Imagine a patient with a sore throat who visists 3 doctors (here I follow a wonderful article by M. Lind) 1th tells: you have only cold and prescribes aspirine 2nd tells: the cold is a symptom of pneumonia and prescribes antibiotics 3rd tells: yes, it s sore thoat, caused by pneumonia but the patient must also deal with that fact that she is an alcoholic addiction that weakened the immune system. Prescribes, aspirine for cold, antibiotics for pneumonia and 12-step program for overcoming alcohol addiction In terms of crisis:what is sore throat, aspirine, antibiotics and 12-step program? 4
The 3rd explanation? Doctors in terms of crisis 1th: This is credit crisis/subprime caused by lax regulation (levarage) 2nd: Yes lax regulation a problem, but the underlying problem is global imbalances (asian oversaving which led to low % in the US) Yes, regulatory system was broken, and yes the underlying problem were global imbalances. But the bubble would have not arisen, was there more equal distribution of income (employers on both sides shared more gains from productivity) There is a parallel between 1930 and 2000 crisis productivity surged and worker wages stagnated in ani-union political climate + the rich used their increased share to speculate in property markets Prescription yes, there is a need for sound regulation, but it s not sufficient without rebalancing of global economy and rebalancing is not enough unless workers share more gains from growth Americans with higher wages will have less of a need to borrow, and if chinese wages and consuption rise there will be less excess savings (???) This implies that we need more cohesive growth internally to have cohesive growth internationally 5
Debt, credit boom and euro Private sector debt to GDP 120 1998 1999 2000 2001 2002 2003 2004 2005 100 80 60 40 20 0 CZ HU PL SK SI EE LV LT BG RO euro area Debt accummulation? Not a problem if, but how to manage it. Paralell with financial integration / euro integration 6
CEE, debt, credit boom and euro Many channales of euro integration trade, transaction costs, fdi, risk premia... Baseline scenario risk premia interest % investment Alternative scenario? risk premia interest % consumpsion 7
What it depends on? Two types of economy (follow Rodrik): TYPE I: Saving-constrained Lots of investement projects with high return, but no financing TYPE II: Investment-constrained Financing available, but no productive investement projects Difference: Domestic interest rate % (financing) has not influence over inverstment outlays in TYPE II Implications of the fall of the interest % for GDP growth 8
Lessons for cohesive growth Base your growth primarly on domestic savings Open to foreign savings, but make sure that foreign lending is secondary and is spent on investments reduce barriers to business, improve public sector efficiency Allow, but keep in check debt-led consumption Any-cyclical financial supervision, any-cyclycal fiscal policy Keep en eye on competitive exchange rate In open capital account: flexible? With capital controls: less flexibility possible? Do we need more cohesive growth domestically in order to have a cohesive growth internationally? 9
Thank you 10
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Debt, credit boom and euro Introduction of the euro Price transparency trans. costs reduction Ex. Rate risk reduction Fall of interest % Fall of macro risk Inverstement 12
O dwóch tezach... Nie kolor pieniądza decyduje o bogactwie narodów... ale dobry pieniądz tak (złoty a euro?) Euro to kamuflaż dla braku reform... ale euro może być katalizatorem zmian 13
Efekt spadku stóp %: saving-constrained S Trzy skutki 1. Wzrost inwestycji 2. Wrost konsumpcji 3. Napływ kapitału z zagranicy r o Wzrost gospodarczy r 1 I S, I... trwały... Inwestycje zwiększają potencjał...konsumpcja sfinansowana 14
Efekt spadku stóp %: investment-constrained Skutki I 1 I S 1. Krzywa inwestycji pionowa 2.... inwestycje stałe 3. Tylko wzrost konsumpcji 4. Substytycja oszcz. krajowych oszcz. zagranicznymi r o r 1 Nietrwały wzrost gospodarczy?... Inwestycje nie są jego podstawą (ale boom konsumpcyjny) Możliwy spadek inwestycji... import oszczędności / konsumpcja prowadzi do aprecjacji kursu i utraty S, I konkurencyjności 15
Wnioski: jakie reformy? S Co może przechylać krzywą inwestycji r o I Działania makro i mikroekonomiczne... konkurencyjny kurs walutowy (ULC)... obciążenia fiskalne będące barierą dla inwestycji... polegaj na oszczędnościach krajowych... otoczenie regulacyjne / instytucje S, I 16
Jak to wygląda w Polsce? Jaką gospodarką jest Polska? r o S I S, I Z jednej strony:... Gospodarka doganiająca z wysoką krańcową produktywnością kapitału... Sporo interesujących projektów inwestycyjnych Z drugiej strony:... Niski udział inwestycji w PKB, przy niskich stopach procentowych... Szereg barier?... Fundusze UE / Emigracja / Regulacje biznesu i otoczenie instytucjonalne 17