A few weeks ago I noted that we will draw on Sweden's budget reform experience in the January executive education course at Harvard. I set up a link to some interviews about the reform that centered on the role of key politicians introducing new technical fixes between 1994 and 1997.
The example is pretty impressive. I'm not the only one who things so. A number of articles suggest it is a good model for OECD countries to reflect on as they struggle with questions of austerity and what budget processes should look like moving ahead. Here are some other references: http://www.telegraph.co.uk/finance/budget/6199271/Canada-and-Sweden-inspire-Tory-cutters.html
http://www.voxeu.org/article/what-can-europe-learn-sweden-four-lessons-fiscal-discipline
http://www.economonitor.com/dolanecon/2011/07/31/how-smart-fiscal-rules-keep-swedens-budget-in-balance/
The story is simply shown in the following diagram I lifted from Ed Dolan's blog site.
Essentially, the country went from a dramatic fiscal deficit situation in the early 1990s to a sustained period of surpluses thereafter. So, what made the difference? What are the lessons for the USA, Greece, Ireland and others.
Among the answers to this question, you will find people referring to the fiscal rules in place, the medium-term orientation of budgets,?and the role of the Fiscal Council. These are?'what' one sees as the?lessons, and they are pretty inspiring. They also lead to simple proposals: Adopt a flexible, counter cyclical rule, or a multi-year budget.
But here's the problem. The USA had a fiscal rule (not counter cyclical perhaps,? but a rule nonetheless) that fell into disuse? (rapidly). And Ireland pursued multi-year budgeting reforms (twice) in the past without success (early 1990s and late 1990s). Both solutions--and other interventions--have been raised consistently for countries like Greece as well. Politics and other factors seem to be in the way of reforms emerging in these contexts that work like they did in Sweden.
This begs the?question?in Sweden: How did the Swede's come up with solutions that could actually?find political acceptance and?work practically. Here are some observations.
First, in respect of fiscal rules: When one reads the popular material about Sweden's fiscal rules, one learns that they were introduced in 1997 and are special because of the way they call for surpluses across the business cycle, tied with expenditure limits. The design is indeed special,?but what is more interesting to me is where it came from.?And here one needs to go backwards into Swedish budgetary history, to the 1930s when Dag Hammarsjkjold and Gunnar Myrdal first introduced countercycical fiscal policy rules into the country. Swede's?know who these people are.?And their influence carried through the 1940s and 1950s when debates about?counter cyclical?measures were rife in the government. They were not effective at the time, however, but?were?always part of the budget lore of the country. Until, of course, they were taken off the shelf and used.
So, what kind of lore is present in the USA, Greece, and other places??How much dialog has been happening in the technoratic and political space and how have alternatives to the incumbent systems been incubated. Are there any alternatives that have legitimacy enough to actually emerge as politically viable?
Second, in respect of multi-year budgeting: When one reads about Sweden's current system it seems like multi-year budgets were introduced in 1997. Not true. The first attempt to introduce a multi-year approach--with programs as well--was in 1968. The program budgeting initiative at the time saw alliances develop between the national audit office and budget department and led to a significant number of lessons about what does not work with these reforms! As a reform it was not very memorable, but it was a key point of reference when the government again developed a multi-year budget reform in 1988 (also with performance management dimensions). This again was not a huge success, but people like Per Molander used lessons from this to inform the 1990s reforms that culminated in the current structures.
So, what kind of experience can countries like the USA, Greece, and others build on to improve their systems? The past few decades have seen a myriad of reforms emerge in places like the USA and Ireland--but it is not clear that reforms build on each other or that reformers are learning from experiences. The technocrats and politicians seem to change eveery few years and emerge with ideas taht pay little attention to past experience and?seem to?lead to the same kinds of failure, again and again, with little learning.
Third, in respect of Sweden's Fiscal Council: I'm not sure what we learn from the Fiscal Council, at least about getting out of fiscal austerity. It was introduced in 2007 and certainly helped the government manage its response to the 2008 global crisis. That is a good thing, and I guess it would be great if the USA had an equivalent entity. But Sweden's big crisis was in 1992-3 and there was no Fiscal Council to get it out of that jam. Come to think of it, the fiscal rules and multi-year budget did not get them out of that jam either. These reforms came a few years afterwards (when politicians, technocrats and others could chew a? bit on their experiences and work out sensible solutions). With this timeline in mind, I asked what helped the country from its jam and what created the room for interventions like the fiscal rules? Here is what I see. Dramatic health care reform in 1992. Deconcentration of fiscal responsibilities throughout government at the same time. Pretty aggressive civil service reforms and cuts. And the centralization of reforms and of budget decisions in the Ministry of Finance, staffed by highly competent and influential civil servants and headed by an ambitious, powerful and focused Minister. Probably the most important thing these civil servants and politicians did was construct a message about why austerity was needed that?ensured acceptance of?the interventions. When I read about the cuts and changes it is important that part of the message was that everyone had to suffer for everyone to ultimately survive and succeed. Egalitarian sacrifice I guess.
So, the lesson I see is simply that there is something to a successful austerity program that looks less like a technocratic reform and more like a political movement. Strong action, coupled with a message of urgency spread by a group of agents, that ultimately created space for real change. The government did not just signal change with some technical fix. They addressed the cost drivers, faced up to the problems they had in real time, and then looked for real fixes.
This seems to be a common factor in real fiscal reform. Let the problem become shared and real, felt by many, and then use this problem as the driver of a search for real solutions.
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