sou · GWB3105EN · 2009-01-01 00:00:00 — This policy results in substantially higher costs to achieve the same climate goals. It is the Surveys opinion that climate policy should take the following into consideration: The climate policy should focus on international and flexible solutions. Poorly designed policy instruments result in substantial additional costs to achieve a given effect on the climate. This may in turn limit the possibilities of achieving the The Long-Term Survey 2008 target of an increase in global mean temperature of no more than two degrees. The relatively strong correlation between energy use and economic growth indicates that there are greater risks associated with a policy focusing on energy use instead of on the fundamental problem. Given that it is lower greenhouse gas emissions that are to be achieved, policy instruments should first concentrate on this very problem. By effectively limiting global emissions, funds can be freed up for other purposes such as research and development, other environmental problems and welfare initiatives. The Survey analyses the requirements for financing the welfare systems based on the long-term scenarios for economic develop- ment. The proportion of elderly in the population will increase in the years ahead. Even if the elderly gradually enjoy better health, the greater proportion of elderly can be expected to lead to an increase in the need for health care and social services. Public sector consumption growth is based on the assumptions that the quality of the welfare services, i.e. health care, social services and education, and tax rates remain unchanged. That being so, there is no scope for developing welfare services beyond todays level. An unchanged standard in public sector services will scarcely meet the publics expectations when the overall standard of living increases. The increase in the cost of welfare services has historically been greater than that warranted by population growth and composition. It is also characteristic of welfare services that the cost of many of these often labour intensive activities can be expected to rise more than the cost of other goods and services. Technological developments in health care are also more likely to increase total costs than to yield lower costs as a result of higher productivity. As new treatments become available, demand for them will increase. Since the provision of welfare services is heavily subsidised, the price does not keep demand for these services in check. The Survey presents the following message on the possibilities available for developing welfare services in the future: The Long-Term Survey 2008 The problem of generations of varying size can be handled by the surplus in general government finances. But in the longer term, the welfare systems need to be reformed. The reasons are that life expectancy is increasing and the demand for welfare services rises when the standard of living increases. private financing makes it possible to develop welfare services beyond the current level. A cross-party inquiry should be appointed with the remit to examine how greater private financing can be designed at the same time that the welfare systems contribute to security for everyone in society. Postponing measures in this area may end in undermining confidence in the public welfare systems and their legitimacy. A more precise formulation of what society and the individual should be responsible for in the area of welfare services makes it possible for market solutions to emerge under orderly conditions. A policy for the future The three trends –changes in the composition of the population, changes in demand patterns and continued internationalisation affect future development in different respects. Changed conditions make it necessary to adjust the policy in order to make better use of new possibilities that arise and to meet new challenges. The Long-Term Survey 2008 has found that it is particularly important to encourage a longer working life, work for good adaptability and for more competition in the economy, investigate forms for more private financing of welfare services and work for a global climate policy based on effective policy instruments. 1Introduction: Trends Affecting Growth The aim of the Long-Term Survey is to provide a basis for economic policy. A key task is to analyse the challenges and possibilities facing the Swedish economy in the long term and study what they mean for economic policy. The Survey also has the task of providing an overall picture of economic developments in the long term, a picture presented in the form of scenarios for the economy as a whole. In addition, the Survey is to contribute to the economic policy debate. The Long-Term Survey is published by the at intervals of approximately four years. The Long-Term Survey 2008 is the twentieth in the series and is published sixty years after the first Long-Term Survey appeared in 1948.1 The work is conducted by officials in the Division for Structural Policy of the , who also prepare the main report. The Government has not established any terms of reference for the Long-Term Survey, unlike other official inquiries. Those involved in its preparation choose the subjects and methods judged best to correspond to its aim. The political leadership of the Ministry has not taken a position on the contents. In addition to this main report, the Survey includes eight appendices published as separate reports.2 1The first Survey was written at the request of the OEEC (now the ), then a new multilateral organisation. 2See a list of appendices in the appendix to the main report. Introduction: Trends Affecting Growth The Long-Term Survey 2008 1.1The Long-Term Survey 2008 focuses on the for growth The Long-Term Survey has traditionally focused on the possibilities of achieving healthy economic growth. The long-term growth have been a key part of the analysis as have the various factors that limit growth. The preceding Long-Term Survey took a somewhat different approach with a narrower focus. It discussed the distribution of welfare and the possibilities of financing the public welfare systems in the future.3 The Long- Term Survey 2008 takes a more traditional approach, which means that it spans many areas of the economy. The main theme of the Survey is the growth for the next twenty years and the possibilities of progressive improvements in the standard of living based on those . The long-term scenarios of economic development are a key element. The scenarios this time extend mostly to 2030, but in some parts to 2050.4 Since the Long-Term Survey 2008 is to form the basis for economic policy in the long term, it is relevant to assess the trends expected to characterise economic development during the next 15–20 years. The Survey has chosen to focus on three development trends in particular: changes in the composition of the population, including a growing proportion of elderly in the population and more people with high levels of education changes in demand patterns, resulting in an increased role for the service sector in the economy continued internationalisation, leading to increasing integration of the Swedish economy with world economy. To differing extents, these development trends have an impact on the discussion in various parts of the report. Together these trends will influence economic development and policy formulation in the years ahead. The following three sections provide an overview of these three trends. 3The Long-Term Survey 2003/04 (SOU 2004:19). 4The scenarios are presented in detail in appendix 1 to the Survey (SOU 2008:108). The Long-Term Survey 2008 Introduction: Trends Affecting Growth 1.1.1An ageing and better educated population The change in the composition of the population, i.e. the demo- graphic trend, is the first development trend that the Survey wishes to highlight. The demographic trend has been the focus of the last two Long-Term Surveys but is still a pertinent subject of discus- sion. The change in the composition of the population has conse- quences for both future growth potential and the possibilities of financing the public welfare systems. Longer life expectancy combined with the large baby boom in the 1940s means that , like many other countries, will have an increasing proportion of elderly in its population in the future. Expected life expectancy in 2006 was close to 83 years for women and almost 79 years for men, which is high in an international perspective.5 Life expectancy has increased by almost five years since the beginning of the 1980s. The increase is due primarily to better living habits, such as less smoking, as well as to achieve- ments in health care.6 Statistics population projections assume that average life expectancy continues to rise in the future. By 2050, average life expectancy is expected to be 86.3 years for women and 83.8 for men. The trend to a longer life is positive but at the same time it leads to a greater dependency burden for the working part of the popu- lation. In the next few years, many people will reach retirement age and will leave working life. Close to 90 per cent of the population increase between 2007 and 2030 will occur in groups that ordinarily are not available and eligible for employment.8 Among those who are available and eligible for employment, the increase is mostly in the number of people aged 55-64, which is a group with a relatively low supply of labour. The trend in the number of births also affects the composition of the population. In there are typically large annual fluc- tuations in this trend. The number of births has certainly increased since 1999, but with more people postponing having children, Statistics estimates that the rise in the number of births will probably not continue in the long term.9 5Statistics [2007c]. 6The [2008]. 7Statistics [2008b]. 8The group aged 0–19 and the group aged 65 and over. 9Statistics [2008b]. Introduction: Trends Affecting Growth The Long-Term Survey 2008 Another important feature of the expected population trend is the considerable importance of immigration. Immigration accounts for most of the population growth and is also of crucial importance for the increase in the number of people of working age. Without immigration, the number of people in the 20–64 age group would decline over the next thirty years. This also means that immigrants position in the labour market has to be strengthened in order for the future population increase to lead to more than a marginal increase in employment. The composition of the population is also changing in another respect. The level of education has been increasing at a rapid pace, thanks to initiatives in the education system in recent decades. Since the 1970s the average level of education has risen consid- erably. The number of people in the labour market with only a compulsory school education will gradually decline in the years ahead even though at the same time, the large percentage of young people who do not complete upper secondary school remains a problem. The trend to a longer life expectancy and a better educated population is very positive. If the elderly are healthy and also well educated, they may choose to extend their working life. Encour- aging a longer working life is among the aims of the reformed pension system. Today most of the older part of the population is relatively healthy. But with a larger proportion of the elderly over 80 years, health care and treatment and elder care require- ments will increase. The increasing requirements are expected to become all the more apparent in just over 10 years when the number of people who are 80 or older will rise sharply. 1.1.2Changes in demand patterns with rising incomes The second trend that the Survey wishes to draw attention to is the change in demand patterns. One clear trend has been the continu- ing increase in the service sectors role in the economy, due in part to the purchase of more services by households. The service sectors share in the economy has also increased as an input in production. Services comprise a larger part of household consumption partly because the purchase of services is increasing at a faster pace than the purchase of goods. When incomes rise, the demand for services The Long-Term Survey 2008 Introduction: Trends Affecting Growth tends to rise even more. The demand for services in the form of health and care and elder care also increases as a conse- quence of the increase in the proportion of elderly in the popula- tion. Services as a percentage of household consumption also increase as they become more expensive relative to goods over time. This in turn is due to the different conditions that generally prevail for productivity improvements in goods and services. Many aspects of the production of services are labour intensive compared with the production of goods and often provide relatively few possibilities for continuous productivity increases. Historically, productivity growth is clearly lower in the production of services than in the production of goods, even though the differences between indus- tries are large. Also characteristic of certain services is that they are predomi- nantly financed by tax revenue, for example, services in health and care, childcare and elder care and education. Distribution and efficiency are the main reasons for this. At the same time, the forms of financing limit the possibilities of increasing production of these services.10 Therefore, it is difficult to meet the increased demand for them in the future using public funding, at least if the ambition at the same time is that tax rates are to remain, in prin- ciple, unchanged. Increased revenue also makes it possible to use part of the increase in welfare in the form of more leisure time. Generally speaking, the length of working life has become shorter over time. One reason, but not the only one, is the longer time in education. For those people who have a job, average weekly working hours have changed relatively in the last 30 years. However, large differences lie behind the figures. It is women in the labour market who have increased the actual number of hours they work per week, while men have reduced theirs. In the last few years, the number of hours women work has stopped increasing. This may indicate that in future women and men will want to use a greater part of the increase in welfare in the form of leisure time. This, in turn, is important for the development of the number of hours worked in the economy. It thus also affects both the for growth and the possibility of financing the public welfare systems. 10 The Long-Term Survey 2003/04 (SOU 2004:19). Introduction: Trends Affecting Growth The Long-Term Survey 2008 1.1.3Internationalisation affects an increasingly large part of the economy Internationalisation – the third trend that the Survey wishes to highlight – has in a sense been going on throughout modern times, but today it includes an increasing part of the Swedish economy. There are no indications that this trend will wane, even though there have been protests against internationalisation and globalisa- tion. Technological development, not least in the form of informa- tion technology, argues in favour of greater integration. Increased internationalisation, for its part, may affect how the national policy can and should be formulated. The consequences of internationali- sation are a frequently discussed issue. The Government has appointed a Globalisation Council11 that is to deepen knowledge, design economic policy strategies and broaden the public discus- sion on globalisation. Internationalisation and globalisation are often used synony- mously and many times lack an exact definition. The Long-Term Survey 2008 uses the concept internationalisation, to describe international trade of goods and services, direct investment, inter- national financial transactions and cross-border labour mobility. The concept of internationalisation also includes international cooperation that in various ways affects national room for manoeuvre. In the EU, economic cooperation has gradually deep- ened to effectuate a single market with the free movement of goods, services, people and capital. The () aims to further liberalise world trade. Greater awareness of the need to fight climate change on a global level has also resulted in international regulations to which must adhere. Inter- national negotiations on climate change are currently under way. Their aim is to establish a comprehensive global climate regime for the period after the Kyoto Protocols first commitment period, that is, after 2012. The EU has also established targets for reducing emissions affecting the climate. For , with its small, open economy, trade and other economic exchanges between countries are crucial to its prosperity. Trade and direct investment provide companies with the opportu- nity to broaden their markets. They also provide opportunities for the international division of labour and thus a more efficient use of 11 Government Decision (Regeringsbeslut, U2006/9119/IS). The Long-Term Survey 2008 Introduction: Trends Affecting Growth Technological development has made it possible to separate stages in the production process in a way that was not previously possible. Companies can therefore choose to outsource components of production to different countries, and in this way build a business that makes use of different countries comparative advantages. The financial markets have been further integrated, partly due to technological developments that have made it possible to move financial capital very rapidly. An increasingly large part of the financial assets in a country are now owned by foreign investors.12 While internationalisation means opportunities for the Swedish economy, it sets various kinds of limits and demands on national policy. Internationalisation means greater international competi- tion, which in turn leads to more pressure to restructure. New rapidly growing industrial countries such as and have competitive advantages in the form of lower production costs for many products. Many people therefore perceive internationalisa- tion as a threat to Swedish jobs and Swedish growth. An appendix to the Survey shows that, contrary to what is often the preconcep- tion, industries that are more internationalised are not more likely to experience cutbacks than other industries are.13 But for to maintain a favourable position in international competition, it must be able to adapt well to new conditions. 1.2Key policy areas for meeting the future All three development trends include both opportunities and chal- lenges that may affect the for growth and thus the development of the standard of living in the future. Chapter 2 in the main report provides a picture of how the Swedish economy would develop in the 2008 Long-Term Surveys base scenario. The estimates primarily cover the years up to 2030, but trends in public finances have an even longer perspective and are calculated forward to 2050. The scenarios in the Long-Term Survey give a comprehensive overall picture of the economy, which differs from other, often more narrowly focussed analyses. It is thus possible to capture how changes in a market affect other parts 12Appendix 5 of the Long-Term Survey 2008 (SOU 2008:12). 13Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21). Introduction: Trends Affecting Growth The Long-Term Survey 2008 of the economy. At the same time, the scenario is not to be seen as a long-range forecast of economic development, but rather as a possible path for that development. The Survey identifies a number of core areas on which policy should focus so that will be well equipped to meet the future. The following need to be achieved: a plentiful labour supply a good ability to adapt and change a cost-effective climate policy stable welfare systems. Chapters 3 through 7 in the Survey discuss these areas in detail. These chapters discuss and in certain cases vary the assumptions made by the Survey in its projections of the economy. Two alter- native scenarios are also presented in these chapters. Increasing the labour supply (chapter 3) is essential for good development in the coming years. Labour both creates growth and helps finance the public welfare systems. While many other studies have discussed the labour potential in various groups in society, the Long-Term Survey 2008 focuses on the duration of working life. Relatively small changes in the age at which people first enter the labour market and in the retirement age could have a substantial impact on the number of hours worked in the economy. Given the close relationship between entry age and the education system, there is a discussion of the importance of education in getting established in the labour market. Good productivity growth (chapter 4) is likewise essential for the countrys prosperity to grow. The steady growth in output in rela- tion to input, i.e. increased productivity, is an important explana- tion for the improvements achieved in the standard of living over time. The chapter highlights the differences in productivity growth from industry to industry and the factors affecting productivity. In particular it discusses how the transition to increased production of services may come to affect productivity growth in the economy. Economic change and adaptability (chapter 5) in the economy are fundamental as has a small open economy and is thus highly dependent on developments in the rest of the world. The ongoing internationalisation means that several areas and people The Long-Term Survey 2008 Introduction: Trends Affecting Growth may be affected, which may lead to new demands for adaptability. Adaptability is affected by such factors as the geographic mobility of the labour force as well as mobility between different occupa- tions and employers. Change is a concept that lacks an exact defi- nition. Various ways of measuring change in the economy are discussed in this chapter. The chapter also examines whether the pace of change in has altered in the past thirty years. Another key issue to address to prepare for the future is how to design the climate policy (chapter 6) so that good economic growth can be combined with limited effects on the climate. The chapter describes how the connection between energy use and economic growth and their linkage to carbon dioxide emissions developed over time, and discusses what mechanisms underlie this develop- ment. The scenarios in the Long-Term Survey include carbon dioxide emissions and an alternative scenario includes an analysis of how the costs of achieving a given climate commitment are affected by the design of climate policy. The Surveys starting point is that will continue to have a welfare state in the future with publicly financed welfare systems that provide social security for its citizenry. The public welfare systems (chapter 7) therefore need to be designed so that they are stable and trustworthy in the future. The chapter focuses on the welfare services – health care, social services and education – and how they are to develop in the future. In line with the increase in prosperity, the demand for welfare services is expected to increase at the same time that tax-based financing will make it difficult to expand the services in the long term. The chapter also provides a picture of the extent of the exchange of welfare services between and other countries. The concluding chapter (chapter 8) sums up the main report by referring back to the trends described in the introduction. The Survey also highlights the policy changes that should be imple- mented in order to be better able to take advantage of new possi- bilities and to meet future challenges. In the chapter the Survey summarises its main conclusions.