Libera’s Year 2014: Finland in a Global Economy

In 2013 Libera concentrated on the welfare state. Now it’s time to turn our gaze from our own navel to the world: what will happen inside and outside Europe’s borders in 2014 and what is Finland’s role in the global economy? We will focus on the Euro and the future of the European Union, the protection of property as a human right and free exchange as a source of well-being.

The Right of Ownership and Free Exchange

The right to private ownership means the right of a person to property, its use, the benefit derived from it and to its exchange. The right of ownership is a human right. In free markets, exchange is based on its voluntary nature and on the benefits that both parties derive from the exchange. A prerequisite of free markets is strong property protection and rules which are common and predictable to everyone. A strong and independent judicial system is needed to ensure these.

The 17th-century philosopher John Locke argued for a person’s right to personal property, against the prevailing control of land and work by the monarchy that existed at the time. He defined his famous natural state as a state of peace, good will and the mutual provision of help and care. The ideas put forth by Locke are considered to be the foundations of the capitalist societal model.

Investments are one of the most important factors behind economic growth. Many investments are left undone if the means of production, such as land, can be lost before the investment has paid back for itself – that is, if there is no property protection. In capitalism, investments are directed to where capital produces the most new wealth. Differently from a purely centralised system, the strength of the model is based on dispersal: each operating party seeks out the best possible profit for its own capital.

The powerful role of the state as an investor or “reviver” is in conflict with capitalist thinking: the state invests the (tax) revenue it has collected from the economy and those resources are then taken away from circulating in the rest of the economy. There is no reason to assume that one centralised investment solution would be more practicable than many separate ones or one in which the responsibility for the investment is always borne by the investor themselves.

Strengthening property protection leads to an increase in investments and thus to higher economic growth. An extreme example of the absence of property protection is from communist social systems. in which the national economy was, or is, in the light of historical examples, at the very least withered. Weak property protection can be seen to explain the stalled development of many African countries.

The principle of exchange is fundamental in the capitalist system. On the basis of this principle, goods and services are traded when both parties wish to do so and gain from it. On this assumption, free exchange leads to increased welfare and a positive sum game.

The Euro and the Foundations of the European Union under Challenge

The European Coal and Steel Community was formed after the Second World War as a coalition of six countries. If the state could not get coal and steel freely, it could also not start a war. The Community, which is considered to be the beginning of the European Union, was first and foremost a peace project, and its achievements up to the 21st century have been impressive.

A central guiding thread running through the development of the EU has been the observation that doing business and mutual economic interests are the best guarantee of peace. Through the development of common markets and the constitutional state and ever freer mobility of goods, services, the factors of production and capital, the EU has improved interaction between people, the efficiency of the economy and welfare. Development in the last few years has been more gradual than blinding.

One of the central building blocks of the EU through the years has also been the principle of subsidiarity, i.e. proximity. In line with this, the decisions of public authorities should be made as close as possible to citizens, and only matters which require joint decision-making would be taken to the level of the EU. Democracy has been at core of the EU’s organisation. In the Treaty of Lisbon, which took effect in 2009, the role of the European Parliament was strengthened and increasing democracy and transparency were encouraged.

The eurozone has struggled with a debt crisis for many years, the seeds of which were sown in conjunction with the establishment of the common currency. The Maastricht criteria were meant to a backbone to guide states to harmonise their public economies. Instead of respecting the agreement, the euro countries systematically violated the criteria during the monetary union. One of the basic founding principles of the monetary union was also the no bailout clause, in accordance with which each member state would be responsible for its own debt. This principle has also been violated since.

At the same time, the central bank system was created to support the harmonisation of the face value of the member countries’ debt: banks were in practice permitted to lend to any euro country at the same level of risk within the framework of the ECB’s repo programme. As intended, it rapidly led to the situation where the value and interest of the national debt of the most financially solid and weakest euro countries were in practice the same. In conjunction with the Greek crisis, there was a focus on criticising banks – for good reason in many cases – while the role of the system in enabling overindebtedness has been sidelined in the debate to this day.

The European monetary union and therefore the Union itself has developed in a more undemocratic direction from many perspectives. The power of the European Central Bank has been highlighted in solving the euro crisis. It does not however have democratic legitimacy. Uniting and even staged federal state development is now seen as a forced partial solution to the euro crisis, instead of allowing development to occur at its own pace and step by step. Taxpayers have been burdened with bills they were not meant to be liable for at the founding stages of the monetary union.

Was too great a step taken at once with the common currency or will Maastricht 2.0 bring a lasting solution? What options do Europe and Finland have to correct the moral deficiency? In the European election year of 2014, it’s time to examine the solution models for the imperfections of the eurozone dispassionately. It should be possible to shift back from crisis management to the path of steady economic growth. There is no room any more for anything else in an ageing Europe and global competition.