Managing the Economy Well While Staying Faithful to the Ideals of Social Democracy (Version 2.0) Associate Professor Phua Kai Lit Monash University Malaysia July 2015

Lecture Objectives What is Social Democracy? What is Social Democracy? Social Democracy and the welfare of the people Social Democracy and the welfare of the people Social Democracy and the economy Social Democracy and the economy Progressive fiscal policy & Keynesian counter- cyclical fiscal policy Progressive fiscal policy & Keynesian counter- cyclical fiscal policy Increasing revenue Increasing revenue Ensuring cost-effective expenditure Ensuring cost-effective expenditure Sweden as a success story of Social Democracy Sweden as a success story of Social Democracy

What is “Social Democracy”? Democracy = rule by the people Democracy = rule by the people Social Democracy = a democratic government that serves mainly to promote the welfare or well-being of the people Social Democracy = a democratic government that serves mainly to promote the welfare or well-being of the people Best examples of successful rule by Social Democratic governments – Sweden, Finland, Norway, Ecuador (under President Rafael Correa) Best examples of successful rule by Social Democratic governments – Sweden, Finland, Norway, Ecuador (under President Rafael Correa)

What does the term “Welfare of the People” mean? Good health i.e. high life expectancy, low infant mortality, low rates of disability and disease, proper environmental protection Good health i.e. high life expectancy, low infant mortality, low rates of disability and disease, proper environmental protection Well-educated population Well-educated population Employment in safe jobs with decent wages Employment in safe jobs with decent wages Low unemployment Low unemployment Low poverty rates; a Welfare State helps the poor, disabled, the elderly & the unemployed Low poverty rates; a Welfare State helps the poor, disabled, the elderly & the unemployed Political freedoms safeguarded (IMPORTANT) Political freedoms safeguarded (IMPORTANT) Ethnic/religious minority rights are protected Ethnic/religious minority rights are protected

Social Democracy and the economy Social Democrats need to manage the economy well. (Right-wing political parties and their supporters almost always accuse left-wing political parties of “economic mismanagement”). Social Democrats need to manage the economy well. (Right-wing political parties and their supporters almost always accuse left-wing political parties of “economic mismanagement”). Managing the economy well – low unemployment, low inflation, satisfactory rate of “green” economic growth, high foreign exchange reserves, good physical infrastructure, high quality human resources & workforce Managing the economy well – low unemployment, low inflation, satisfactory rate of “green” economic growth, high foreign exchange reserves, good physical infrastructure, high quality human resources & workforce

Progressive fiscal policy Social Democratic governments managing a “mixed economy” must ensure that market forces are made to work for the good of the people Social Democratic governments managing a “mixed economy” must ensure that market forces are made to work for the good of the people “Fiscal policy” means how a government raises revenue (e.g. through taxes) and spends public funds (expenditure) “Fiscal policy” means how a government raises revenue (e.g. through taxes) and spends public funds (expenditure) Fiscal policy can be used to reduce economic inequality e.g. free or highly-subsidised health, education, transport and housing for poor people; financial help for the poor through welfare payments or “conditional cash transfers” (you receive public money only if you undergo job training courses or keep your kids in school, or get them vaccinated) Fiscal policy can be used to reduce economic inequality e.g. free or highly-subsidised health, education, transport and housing for poor people; financial help for the poor through welfare payments or “conditional cash transfers” (you receive public money only if you undergo job training courses or keep your kids in school, or get them vaccinated) Fiscal policy should be “Keynesian counter-cyclical” i.e. increase spending during recessions, strongly resist pressures to increase spending during good economic times Fiscal policy should be “Keynesian counter-cyclical” i.e. increase spending during recessions, strongly resist pressures to increase spending during good economic times

Increasing Revenue A progressive tax system i.e. higher taxes on citizens with higher income A progressive tax system i.e. higher taxes on citizens with higher income Consumption tax – to reduce consumption and increase investment. A broad-based consumption tax will also increase revenue of the government. Consumption tax – to reduce consumption and increase investment. A broad-based consumption tax will also increase revenue of the government. Combat tax avoidance (which is legal) through closing loopholes and punish tax evasion (which is illegal) with stiff fines and jail terms Combat tax avoidance (which is legal) through closing loopholes and punish tax evasion (which is illegal) with stiff fines and jail terms High taxes on goods and activities that are harmful to health and well-being of citizens e.g. very high taxes on tobacco, alcohol, junk foods; very big fines for occupational health and environmental health violations High taxes on goods and activities that are harmful to health and well-being of citizens e.g. very high taxes on tobacco, alcohol, junk foods; very big fines for occupational health and environmental health violations

Cost-Effective Expenditure “Cost effective” means “more bang for the buck” i.e. maximum output at each level of input, or achieving a fixed output using less inputs, or achieving targets with less inputs “Cost effective” means “more bang for the buck” i.e. maximum output at each level of input, or achieving a fixed output using less inputs, or achieving targets with less inputs An example of cost-effective expenditures: emphasis on public health (vaccinations, good nutrition, clean water, proper sanitation, environmental protection, basic medical care) rather than expensive high tech curative medicine An example of cost-effective expenditures: emphasis on public health (vaccinations, good nutrition, clean water, proper sanitation, environmental protection, basic medical care) rather than expensive high tech curative medicine Another example: public expenditures used to promote public transport (trains, trams, buses) or use of bicycles. Discourage car ownership. Another example: public expenditures used to promote public transport (trains, trams, buses) or use of bicycles. Discourage car ownership.

Anti-Corruption Efforts There should be an independent anti-corruption agency that reports directly to the Legislature There should be an independent anti-corruption agency that reports directly to the Legislature The anti-corruption agency should be bolstered with tough laws against corruption and abuse of public funds The anti-corruption agency should be bolstered with tough laws against corruption and abuse of public funds

Successful management of the economy by the Swedish Social Democrats: swedish-social-democrats-victory swedish-social-democrats-victory The Swedes also place a lot of emphasis on job training and retraining programmes to lower the rate of unemployment. The Swedes also place a lot of emphasis on job training and retraining programmes to lower the rate of unemployment.

Thank You