Escaping the “accountant’s vision” trap


Picture of Jože P. Damijan
Jože P. Damijan

The economic downturn of 2008 and the lukewarm recovery since have not brought happiness to the EU, with the possible exception of Germany and the financial markets. The latter seem to have benefitted from the crisis while Europe more broadly is stuck in a bad equilibrium of low growth and deflation. Aside from the European Central Bank’s lone and desperate attempts to create at least some inflation, there is no common plan to return from depression to growth. Seven years later, Europe is tackling only individual problems as they come – from Greek debt to the refugee crisis. In short, Europe is visionless.

Individual EU member countries are stuck even more deeply in this short-term state of mind. My own country, Slovenia, last released a strategic development document back in 2005. Entry into the EU and eurozone appears to have exhausted the country’s boldest political visionaries, leaving the post-2008 period completely void of long-term strategies for development or growth. The government has limited its efforts to mitigating the mess left behind after the financial and housing bubbles burst.

This has led to a development paralysis in which projects are not assessed according to a long-term cost-to-benefit analysis, but only with regard to the coming year’s fiscal targets. I call this visionless economic policy the “accountant’s vision”.

Let’s take the case of infrastructure projects. The European Commission estimates that until 2050, cargo flows between Asia and Europe will quadruple in volume. To keep up with this increase, EU member states will have to modernise their transport networks significantly, particularly the railways. Europe’s core rail network, the so-called ‘TEN-T corridors’, was introduced “to facilitate co-ordinated implementation of the core network”. This would bring together public and private resources, with the EU providing €26 billion to the project until 2020. This project would also directly benefit the economy in the struggle to recover growth.

To take responsibility for its share of the increased cargo flows, Slovenia needs to invest €5-10bn into modernising its existing network and building the rails currently missing from the Mediterranean and the Baltic-Adriatic TEN-T corridors. Work should begin with the most urgent part, to construct the missing line between Koper and Divača. Without it, the existing infrastructure will be saturated by 2018 and the port at Koper will face serious impediments to its growth prospects. It would also create jobs and provide multiplier effects on the economy, and at low cost as it could be financed by issuing long-term infrastructure bonds of 20-30 years. But the project has been continuously delayed, with the government citing either a lack of the private partners or binding short-term fiscal targets. This is the “accountant’s vision” at work.

This short-sighted view has serious detrimental effects on future growth. There is a lack of government action not only on infrastructure such as transport, but a whole range of sectors including R&D, education and healthcare. Each of these are taken into account in the annual competitiveness reports provided by the International Institute for Management Development (IMD) and the World Economic Forum (WEF), and are essential to, as the IMD puts it, “the ability of a country (or company) to generate more wealth for its people than its competitors in world markets”. Not investing, or delaying investment, in broadly-defined infrastructure means that a country will not be able to maintain growth in the medium-to-long term.

Escaping the “accountant’s vision” trap will not be easy. Though this obedience to short-term fiscal targets seems a technical principle in recent economic policy, it is an utterly ideological concept. The soaring of public debt has been used as an ideal excuse to pursue the traditional conservative agenda by imposing tight fiscal targets to spur public investment. Never mind the historically low interests rates, sluggish recovery and persistently-high unemployment in Europe, ideology is hard to beat.

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