I blogged about debt and governance in the last few posts.
The core idea behind these posts is to see how we might conceptualize and measure governance in the field of government debt management. Conceptually, the idea is simple: Citizens give governments authority to use debt to further the goals ad needs in running the state. In terms of measures, I suggested we look at the amount of debt (relative to GDP) and the cost of servicing the debt (as the opportunity cost of not doing other things).
I came out with a two dimensional view of the situation and potential scenarios: From conservative governance to managed risk to higher risk governance scenarios.
I suggested that we cannot simply refer to 'good governance' or 'bad governance' in these scenarios but we should use the analysis to ask questions about governance challenges facing different countries.
Some folks asked me offline how I would use the data in this manner, and I thought I'd give some perspectives on this. My first approach is to ask why different countries are located in different places in the debt governance realm and what this tells me about the kind of authority they have (a key idea in my approach to governance) and what the recent and even past trajectory suggests about current status.
Let me start by showing some recent history for four countries, which shows (me at least) how darn complex any work on governance is.
First, the USA. The graph below shows that the USA has consistently spent just over11% of its revenues servicing debt, since 2001.What has changed is the level of debt, reflected in a rightward shift throughout the period. This suggests that the government is authorized to increase debt and can do so without incurring additional costs in the immediate period. The question of course, is how much more debt can be incurred and if the costs will stay at this level. This is an important question and is not just technical but also reflects the political dynamics within the country. It does not suggest that austerity is required, but that the country is in risky territory and authorities need to ensure their mandate is secure as they move ahead. I will get into this a bit more in the coming days, trying to understand why the US government has increased debt in the past decade and if this suggests problems with debt governance or not.
Now, Greece. This story is totally different. Since 1995 Greek debt has been above 100% and debt servicing costs have been historically higher (as a percentage of revenues) than in recent years. The government reduced servicing costs in the period between 95 and 99 and managed to keep debt at around 110%. Then, between 2000 and 2007 they carried on decreasing servicing costs but saw debt/gdp ratios rise to about 125%. Sine 2008 both debt/gdp ratios and servicing costs have been rising, which reflects the real trouble this country is in. The governance challenge is two-fold: bring the debt down and convince the public to endure higher servicing requirements. Both demand austerity.
Now, Ireland. I have not blogged about Ireland to date but it is an interesting case and one that several of my past and present students are interested in. The situation here is again completely different to the other two. Ireland decreased its debt and debt servicing burdens substantially between 98 and 07, partly because a growing economy influenced the measures but also because there was pressure for the government to show itself as fiscally disciplined. This was part of its story in the past fifteen years of engagement in the EU. One can see that the government was locked into appearing (at least) like a conservative governed debt context (a Swedish story, perhaps). Between 08 and 10 one sees that debt and debt servicing levels have risen substantially, largely because of problems in the economy. The debt governance challenge has changed into one of containing rising debt and servicing costs in the context of a slow growth economy. The question is whether the government can change its approach to respond to this challenge. (I hear it is….)
Now, Sweden. I have to cover Sweden because it has been a focal point of so many ideas about what the USA should do to escape crisis and get its house back into order. The graph below shows the situation is again totally different. I only show data from 1995 but you can see that Sweden has been on one consistent path towards lower debt and debt servicing levels since that time. You can also see that it has been in a different part of the graph to the USA or that entire period as well The USA government has always had higher debt servicing costs (at least measured in this way) which seem appropriate in the context. The Swedish debt governance challenge seems to be consistent since the early 90s when crisis was deep and prolonged: Get debt down and keep it down.
What is the point of these graphs and analyses? First, to show again that politicians who say the USA risks becoming like Greece should stop making such commentary. And commentators who say that the Swedes have lessons for the USA to learn from should think carefully about why the two countries seem to have such different looking legacies: what does this say about what is appropriate in the different contexts and how might this impact what kinds of governance reforms are possible. It seems to me that governance stories are highly contextual. The four stories of debt and debt governance I see here look like different stories that demand different interpretations and different responses. They are not 4 versions of the same story that can be interpreted through the same lens and lends itself to the same solutions.