To the future with the guidance of history

I emailed my done Treatise in June 2013 to all Members of Parliament at the time. The content reviews the development of legislation from the 50’s-60’s to the 2010’s. I received several answers, even praising. But still nothing have changed.

To the future with the guidance of history

When going back in time and looking at the development of legislation, you will find that the structural change, against it has been fought for a half century, is the legislation itself!

It has hardly made sense to first build a system that increases unemployment, inequality and social problems and prevents equal competition between companies. And then sacrifice a huge effort to fight unemployment and prevent the growth of social problems. And on top of all, create competition law designed to control unfair competition from companies that have grown up to large. Of course, it will add more work, but primarily to there from where it was to be cut. Not much there where it was supposed to be done. And yet, as at the extreme end of stupidity, is the use of pension funds as a barrier to competition. Where the state use half a billion on discretionary assistance, pension insurance companies use more than a hundred times more. Money is collected where employed and invested where jobs are cut. But even this, sawing the own branch, is not enough. That money also supports imports. About half of the pension assets invested in companies are supporting foreign business.

”We know how this is going to be handled.”

If this treatment means a new recession in the near future, then someone has actually read their homework well. In the midst of a recession, the values of real estate and corporate shares are collapsing, which is why by buying them, the real gains will be made in the coming boom. It requires money that is not made by selling those cheap stocks, but can be made by raising profits. From the point of view of society, the good thing about this is that it generates a lot of tax revenue. In addition, a resurgent stock and real estate transaction at the bottom of the recession will cause the economy to recover rapidly. Good thing for investors and society, but unfortunately not for those who lose their assets in these ‘voluntary works’. That is what happened in the 60’s and 90’s, is this how the problems are transferred to the future once again?

From wrong conclusions to the wrong kind of corrections? 

It is widely believed that the recession of the 90’s was caused by the liberalization of the money markets and their overheating. Yet correcting this by restricting banking sector for 15 years did not push unemployment to the level it was before the recession. On the contrary, it is getting worse. Debt crises also continue, this time on the other side of Europe. The economies of the countries are collapsing one after another. Nothing has changed despite the efforts.

It is becoming increasingly clear that the conclusions we have been told over the decades are wrong. The structural change that has followed the liberalization of the international market and the accompanying banking crises are not the cause. Is over-indebtedness just the unnecessary desire of people to live in debt or the result of some legal problem that people have to fix by taking on debt? Do companies fall under the debt burden only as a result of entrepreneurs’ own stupid decisions, or because some legal provisions cause companies to take on debt and become over-indebted? 

To get the questions answered, you have to go back in time to the 60’s, even further. The problems then were similar to today, the imports is threatening to grow faster than exports. If would have asked from a poor man who could not find a permanent job, he would have given the practical advice he learned in life. ”If you haven’t afford to buy, you have to do every possible by yourself.”

The birth of the recession of the 60’s

In the wake of war compensation efforts, the legislation was already skewed. And therefore it could not respond to the changed situation caused by strong industrialization. It had supported the growth of the industry and its ability to fulfill its role, while at the same time using other business activities as a fundraiser. The package created for exceptional circumstances remained in force. It supported the operating conditions of exporting companies and hampered the ability of the labor-intensive domestic industry to compete against imports. This was because the fundraising of society was concentrated into cost-based payments with regard to the payment of wages, and accordingly, in the assets investments to result based taxation. It facilitated the investment of foreign money in the export industry and with it its development, but weakened the domestic one. Despite the increase in exports, imports grew faster. To balance this, a line was chosen that became a problem that reflected far into the future. Even greater support for the export industry at the expense of domestic companies.

The laws were redrafted. More payment burdens on the employee’s salary and at the same time were alleviated by fiscal means and later by further assistance with investments in machinery, equipment and factories. They increased the volume of production but reduced the need for workers. As the profitability of the industry improved, employees also wanted to get their part. It started a building of collective agreements with better terms and conditions for the industrial employer and industrial workers. Under their leadership and by law, universally binding collective agreements were created to which employers in other sectors had to accept.

In the midst of those changes, the payment burden in labor-intensive industries rose more than its tolerability was. The recession of the 60’s was born which reflected to far into the 70’s. Half a million people became unemployed, 300,000 moved to Sweden and internal migration began to concentrate population in growth centers. In them, the price of land, the need for housing and services grew exponentially. Satisfying that need brought work and the country’s economy gradually began to recover. Also banking, because almost everything had to be acquired as debt. The property left in the sparsely populated area had lost most of its value. So the capital tied up in them, let alone land or buildings, could not be moved anywhere.

Towards the recession of the 90’s

More holidays and other laws designed to protect workers emerged as if on a conveyor belt even after the recession. Sales tax also became more favorable to the export industry. In the past, companies had been allowed to purchase raw materials for further processing without tax. In the renewed model, it had to be paid at the time of purchase. The change increased the need for working capital for companies operating in the domestic market. It was covered by loans. In contrast, taxes paid on purchases began to be reimbursed to the export industry. In addition, the wood and paper industry was allowed to make a deferred sales tax deduction on the purchase of wood. When the seller did not have to pay it at all, it accounted for billions in grants from the state treasury to the forest industry accounts as refunds. Another purpose was to keep the price of wood paid to the forest owner as high as possible.

On reaching the 90’s, came into force, the so-called Pekkas free time, 12.5 days more paid leave. In addition, pension insurance premiums were raised by almost 35%. Despite the recession, the assets of pension funds continued to grow and investment began to increase in large-scale industry and growth centers. Significant amounts of money began to flow from elsewhere in the country towards the largest cities in the south. The sales tax was changed to VAT, the number of percent amount was increased and the tax was extended to some service companies that were previously excluded from sales tax. Together, these further increased the cost of employment. On the other hand, the legislation had introduced ways to repatriate profits from companies and made it even easier. Debt growth was boosted by the corporate depreciation system. For example, funds used to build a property may not be removed at once, but a few percent per year. The removal right for machinery and equipment is greater, but still staggered over to several years. This has a direct impact on the company’s results. The accounting result shows more profit than the actual operating result would require. It will, of course, bring tax revenue to society, but also the opportunity to raise profits from companies. Because it is an accounting profit and not so much a result of operations, the company’s cash register usually does not have these assets. Not for taxes, nor for the payment of profits, but they must be covered by a loan for the majority of companies. In that situation it’s also easy to get loans because the accounting shows the company is doing well. It also misleads small investors to pay an exorbitant price for the company shares. In that sense, it is no wonder if the Accounting Act, amended in the 80’s, hid the top two lines of the income statement. They would have shown part of the difference in the accounting result, in relation to the actual result of the company.

Indebtedness in this situation is not so much a problem for large companies, but for small ones. In large companies, the investments are usually only a few percent of turnover, up to a few tens, so they have generally been eliminated in advance as permitted by the reservation system. Correspondingly, in smaller companies, for example, a business premises investment may be greater than turnover. Therefore, its indebted effect is greater and will last longer. Not just the investment year, but several years forward. In the income statement, only interest on debt is deductible, not debt repayments. It follows that a company’s result can still be profitable, even if in reality the company is starting to be in a cash crisis. In many cases, this only needs a public credit default entry, by the collection system, so the company will be destroyed. From an earlier purchase with a payment period must be switched to a cash purchase. The cash situation will worsen further and will not be alleviated by the multiple interest rates and expenses allowed by recovery laws.

The deaths of the labor-intensive industries

Together, all these agreements and changes in the law further widened the mismatch between the companies that employed and the industry, but had also increased their indebtedness. Funding for the activities of society focused on the use of labor had the greatest impact for the livelihoods of the craft-intensive sectors. It raised the cost burden for all of them. At the clothing industry, the largest factories of which died as early as the 80’s. At the shipbuilding industry, which is still struggling with problems. But also in construction, where their impact kept housing prices high also at that time. That, in turn, increased the need for a homeowner’s loan and was part of the reason for the over-indebtedness. Due to rising labor costs, the need for loans for small businesses also increased further. They became bill of exchange-driven. And not long after we were in the same situation as in the 60’s. Companies began to drift into bankruptcy. Unemployment began to explode, leaving workers’ loans increasingly unpaid. Banks tried to catch money by paying record interest on deposits. It, in turn, raised interest rates on loans to the skies and prevented the rest of the chances of surviving the debts. Was born a banking crisis that was managed by means whose consequences are still visible.

Where it should have supported debt solvency, banks were supported. They received money from the open spike of the state for all the loans they terminated. Therefore loans were truly dismissed, for a reason or even a reason. Nevertheless, although the State paid the debt, its pledge did not, in accordance with normal practice, pass to the payer but remained with the bank. It was later realized and the bank offset the money received from it as default interest on the original loan. The loan amount was still on the debtor to be paid. Payments were still required from debtor and / or the guarantors continued. But even this was not enough. At the beginning of the situation, at the request of the government, the banks made very large loss recordings on the real estate mass, which had become worthless during the recession. In the following years, which were profitable, banks reduced it from loss recordings. And therefore they did not pay tax on profits at all.

All in all, thanks to political decisions, banks received 2-4 times their original receivables. Pretty good fee for realizing debtors’ assets. So once again, as in the 60’s, the massive redistribution of wealth and the re-accelerated migration and with it the construction of growth centers, roads, railways, etc. gave the impetus for a new rise.

Towards the third recession

We are now on our way to a third recession, with almost similar preparations. A new feature is the increased investment of pension assets in the shareholdings of domestic and foreign companies. Funds are raised across the country and invested in growth centers and foreign destinations and jobs. This means that the domestic labor-intensive sector to pay the costs of export promotion more and more. That opportunity is only increased here by increasing the salaries, benefits, and additional vacation days of our employees. The very high level of VAT also causes problems for domestic businesses, not the export industry. Nor is it diminished by the fact that our export companies, due to their increased foreign production, are also largely import companies.

What is worrying about this development is that media, which is considered a labor-intensive sector, is also concentrating in to a few hands. As a result, citizens’ access to information has narrowed. Due to rising labor costs, there is no longer an investment in investigative journalism. Thanks to advanced information technology, copying news, citing to a source, is a cheaper way to get news than to commissioning media content from own journalists.

History repeats itself

At present, the total strain on employment, relative to today’s conditions, is at pre-recession levels as in the 90’s. Contrary to what should be done in this situation, the taxation of for-profit companies has been eased and will be further eased, although it has not helped even before. With the recession, the value of shares drops, so they are not worth selling. The only way to secure investment is to take profits as much as possible. This was also done in the 90’s, even with a fair handshake from the state. Taxation was reduced. As a result of this and the recession, record amounts of corporate profits were paid for shareholders. More than ever before.

Compared to those days, the possibilities have only increased. State fiscal and direct investment support will continue to help. In addition, companies now have the opportunity to purchase their own shares. It provides a new opportunity to transfer funds to low-cost asset items, even without tax. In addition, the accounting bias created by the depreciation system still exists and allows for the repatriation of extra profit. Many other detours made possible by accounting also help.

For the repatriation of money invested there is other needs than save it into a sock. Quick wins are also attractive. Shares and real estate that become tempting, as a result of the recession, are good targets for acquisition of property. It takes money. Therefore, the amount of tax on the repatriation of profits is not in itself a significant factor, but its relationship to the opportunities offered by the general economic situation of the country. No one invests money in companies and real estate to create jobs, but for maximum profits. Legislation has linked almost all social responsibility to wages and, on the other hand, favors for job-reducing investments. That is why is no wonder that the starting point for all design and product development is to increase turnover by the number of former employees or to reduce them. It’s the only way to big profits, therefore, it is also invested in!

After the third recession

The rise will be more difficult than before, as there will no longer be so many newcomers from the countryside. It’s starting to get empty. Unemployment will also remain at a higher level than before the recession. This was also the case after the recession of the 90’s. The supposed studying and its increase are not bringing the desired result either, as the number of academic unemployed is still increasing. Yes, statistics have shown that the employment situation of scholars is better than the less educated. The unequivocal conclusion has been drawn from this that unemployment is eliminated by studying. The statistical result caused by the consequences is considered a direct indication of the cause, erroneously. Since it is not, supporting it and forcing it on it cannot bring the desired result either. The view is based on wishful thinking, similar to what is believed to be the reduction in corporate taxation, that it will create new jobs.

In the same way, believing and hopeful about the growing alcohol problem that unemployment brings. It is believed that financial support will improve the situation and the person will change. But who would really work if drinking raises the benefits more than working. Social construction, municipally subsidized rents, ongoing property maintenance, shoe and food vouchers, sickness or unemployment benefits combined with alcohol-related damages account for an estimated total annual cost of € 10 billion. The main responsibility for financing it has fallen on the shoulders of municipalities. In particular, it is hampering the finances of small municipalities in remote areas with high unemployment.

Although the problem is considered significant, costs are still being cut e.g. health and care for the elderly, the police and prison care. The continued growth of problems is considered a better option. Violent and / or extinguished drunken who break up properties and families and are herded by police as their main job. But there are also ”sick” people swaying in health center queues, due to which health center doctors lose most of their working time. Probably the problem is looked through the fingers because alcohol is taboo in Finland. But also because a bottle of alcohol in the hand of an alcoholic is a better option than a petrol bomb in the hand of a dissatisfied citizen who is rising to the barricades.

Use of grants

Targeted grants do not solve these cumulative problems. There is no evidence of the employment impact of society support. On the contrary, there are numerous destinations where money has just disappeared without producing a single permanent job. Large-scale industry has been assisted in many ways for decades, yet its employment today is only a fraction of the tens of thousands at the beginning. Agriculture is an excellent example of what is actually being helped and with what results. At the dairy farms work is being done 9.7 million days a year and at the grain farms 3.5 million days a year. Annual agricultural support is € 2.1 billion, of which farming accounts for about € 1.9 billion. In total, all Finnish farms employ about 90,000 people, of whom 10,000 are external workers. One such job is assisted with about 190,000 euros every year! 15,200 euros per month and about 670 euros per hour. With an emphasis on, almost entirely, highly mechanized farming activities, which employs only a few weeks a year.

Every Finn, from baby to elderly, supports farming activities with about 350 euros every year. A family of four, who already buy the most expensive food in Europe, supports it with about 1,400 euros a year that could buy flour from the store about a euro per kilo.

The problem is also with the EU

Just as money is transferred from peripheral areas to growth centers within Finland, it is transferred from peripheral areas of the EU to industrialized countries. Significant amounts also to us in Finland and, of course, even more to Germany. This means that the countries that are now struggling with economic problems are more caused by the harmonized legislation, not so much those countries themselves. Criticizing, blaming, and put them cramped does not eliminate the real cause. Problems will be overcome and the lasting functioning of society throughout the EU will only be secured if employment costs are cut by several tens of percent. In addition, the competitive position between large and small companies must also be made equal in all areas.

Conclusion

All things considered, it is clear that complex legislation itself is a structural change. It is designed to take advantage of small and employing businesses. As fundraisers – but also by preventing them from competing against the big ones. The system puts them and their employees in distress and puts their assets back into circulation as quickly as possible (when there is not enough income someone has to sell their property… forcibly or voluntarily). For decades, legislation has used this unscrupulous line as a means of resuscitation. Rather, it cleared the small ones out of the way than gave them opportunities. This has been the case in industry, but also in trade. The situation has only been exacerbated by increased regulations, rules and directives, the cost impact of which is often far too great for smaller companies. This kind of concentration of interests on groups close to decision-makers and the weakening of the position of the press are typical features to all dictatorships in the world.

Keminmaa 03.04.2013
 Reijo Lahdenperä

 Sources:
– Statistics Finland
– Agricultural statistics
– SAK’s annual reports from the 60’s
– Industrial Policy Review of Keskusta 1978
– Bank of Finland annual reports
– Academy of Finland research program:
”The lessons of the recession. The causes
and the consequences of the crisis in Finland
in the 90’s ” by Jaakko Kiander
– Business legislative decisions
From the 50s to the present day
– Akava Unemployment Review on December 3, 2012
– Hannu Tikkala (Bank Manager in the 90’s)

I recommend next http://reijolahdenpera.com/complaint-to-the-constitutional-committee-2017/

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