I try to keep away from US current affairs. But in the spirit of my prior blogs, I think there are some lessons that US lawmakers could take from Sweden as they consider policy responses to the fiscal challenges they face. As I suggest, the lessons are about 'how' the Swedes did things, not what they did. These lessons come from an interview with Goran Persson, the former Prime Minister. They are simple:
First, it is extremely important to be in the driver’s seat. You must make it clear that you are responsible for the process and that you are prepared to put your position at stake.
Second, the consolidation program must be designed so that the burdens are shared fairly. Public-sector cuts will hurt the most vulnerable people in society, so those who are better off need to contribute—for example, by paying higher taxes. Public support for tough policies would quickly deteriorate if they were not perceived as fair, and parliament would lose the political will to make hard decisions.
Third, the consolidation program has to be designed as a comprehensive package; if you are in as deep trouble as we were, an ad-hoc hodgepodge of measures will only have a limited chance of success. Moreover, by presenting the measures together, it becomes clear to all interest groups that they are not the only ones being asked to make sacrifices. It also has to be a front-loaded program. By starting with the most difficult measures, you demonstrate your resolve and increase the chances of achieving the early results, which will be important for getting the continued support that is critical for sustaining the effort.
Transparency is the fourth lesson. You must never play down the effects of the program’s measures. On the contrary, remind the public again and again that this will hurt. It is one thing to get support in parliament for the program; it’s another to stay in control during the implementation phase, when the measures become real for ordinary people in their daily lives. You must also be completely honest when you communicate with financial markets. Clarify assumptions and calculations. Don’t use any bookkeeping tricks. Only then can you recover credibility; only then can the program earn legitimacy. Indeed, you should always go for conservative estimates. If, for instance, you estimate that economic growth will be 1.5 percent and you end up with 2.5 percent, you will have solved much of the credibility problem.
If we asked how the current discussions were going in respect of these four pieces of advice, what would we find?
1. Do we know who is responsible for getting the USA out of ths current situation? The President and his administration, of the House leader, or the House itself, or the Senate, or the Congress,. or interest groups, or the press....
Note a good answer, I am afraid.
2. Are proposals fair and equally painful? The democrats suggest that they are after fairness but their rhetoric is all about the rich taking the hit; The Republicans seem to be protecting the rich. I would love to see both sides coming out with data showing how their strategies hurt all sides...the ones who vote for them and those who do not. I don't see this yet.
Again, not a good answer, I am afraid.
3. Is the policy solution frontloading pain? Hmmmm. It seems to me that the negotiations on all things are constantly aimed at showing that we need as little change as possible...some call it kicking the can down the road. It seems to me the negotiations aim to kick a range of cans down a very long road. I have not heard anyone coming out with ideas about the real reforms needed to taxes, entitlements, etc. and proposing at least ways of starting in all these areas.
Again, not a good answer, I am afraid.
4. Transparency? Frank dialog? I don't think this is what I see. The kind of economic and governmental restructuring that seems necessary is not really what many politicians are discussing. The President's fiscal commission last year raised many areas where many far-reaching reforms are needed to put the country onto a more sustainable fiscal path in the future. I don't see many politicians addressing these issues. What I see is politicians on different sides raising the issues they know their supporters will approve and keeping far away from other issues. Some call this pandering.
Again, not a good answer.
I don't pretend to know the solutions to the current US situation, and I am sure that 'what' Sweden did will not address the issues in a huge economy like that of the USA. But the process principles (about ‘how’ to do this) raised by the ex-Swedish Prime Minister seem pretty interesting. And a good set of ideas for US policymakers to consider.