Monthly Archives: September 2013

THAT’S ENOUGH!

Since 2008 Spain has been crossing an economic and financial crisis that has lead the government to implement new reforms so as to promote competitiveness. Competitiveness can be defined as “the set of factors, policies and institutions that determine the level of productivity of a country taking into account its level of development” as it was explained in the global competitiveness report 2013-2014. The Spanish government is implementing new reforms, that it if they succeed, can reduce the national debt and increase productivity. However, in the long run, it harms the level of development of this country. Human Development indicators (HDI) focus on health, education and income. Will austerity measures produce a competitive national market in the future if cuts are done basically in these 3 sectors?

Huelga general, Madrid 29 Marzo 2012

1.1.  “the extremely aggressive” labour market reform

Spain’s unemployment rate is 27% of the population and 50% of young people can’t find a job. In order to put an end to this catastrophic situation the government signed last February the Royal Decree Law 3/2012 on urgent measures to reform or better said transform the labour market. This new policy aims to achieve a greater flexibility in the labour market. In order words, this law encourages companies to increase the effectiveness of their employees. Many international organisms claimed that Spain’s Labour Market reforms are the basis of the country’s improved economic performance. However, it is naive to think that labour market reforms will help reduce unemployment. The greater flexibility given by this new policy is going to increase unemployment in the short run since it is easier for firms to fire their employees. This is due to the new regulation, that enable employers to fire their staff without giving them redundancy benefits. Moreover, firms are being incentive to create temporary contracts instead of long term ones, which is harming the employee’s well-being. Due to the fast track arbitration procedures that have been introduced in these new policies, employees’ rights are not being respected in certain cases, because there are workers that do not have their own agreements and have to adopt outcomes from collective bargaining processes in which they are not represented as it was announced by the OECD.

1.2. The inefficiency of the labour market reform

What is the result of reducing the minimum wage, firing public servants, implementing temporary contracts, allowing employers to decide the revenue and the hours of work of their employees?

Firstly, most temporary contracts are addressed to young and low skilled workers, who have precarious conditions of work, hence Spanish over qualified workers are obliged to go abroad to find employment in their specific area. Over the last 2 years it is calculated that 50 000 spaniards have migrated to Germany. Nevertheless this ‘brain drain’ of engineers and other professionals will hurt Spanish competitiveness once its economy recovers. One of the main pillars of competitiveness is the capacity of innovation, how will the Spanish government encourage innovation if the availability of scientists and engineers is decreasing rapidly?

It is also true that temporary contracts alter consumption behaviors because employees do not know when they will find stable work, therefore they save money for precautionary purposes. However companies need to sell their products in order to stay in the international market otherwise they have to close down their companies, which will lead to more unemployment. Since the beginning of the crisis, over 177000 medium and small Spanish companies have been brought down.

What should also be emphasized is that cuts on wages will not incentive workers to maximize their capacity of work, leading to a decrease in competitiveness.  For example, teachers from the public system are overburdened with work, since last year over 40000 teachers were made redundant, and to show their disagreement with these new education reforms they took part in strikes that cost a lot of money to the government.

1.3. solutions are needed

What should be done is the reduction of temporary contracts, because in 2 years or less workers will not even acquire the knowledge and skills to make their work more productive. Moreover, employers do not want to invest in internships or trainings in a temporary contract, hence the workers’ productivity drops.

A new contract form  should be elaborated for highly educated young people for 3 years following the German model. Therefore the Spanish government should invest in workers from sectors that are strategic in the long run as research, medicine, and innovation and create qualified employees to sustain the country. Nevertheless Spanish deficit is 10,60% of the GDP.  The state needs to collect more funds and one of the solutions could be to raise extra taxes in sectors that are not strategic.

In conclusion, I would say that we need transition from an equality concept of welfare to an equity concept. This change will permit the state to have more funds to invest in areas that will lead to a future economic growth with a better competitiveness and a better place in the international markets. The labour market reforms should change in order to create efficient workers, so as to maximize our highly qualified young citizens that are eager to be productive for the Spanish society.

Bibliography:

LSE, “Spain’s labour market reforms are unlikely to lead to economic growth or a drop in unemployment” (Robert Hancké) [internet] Available from: http://blogs.lse.ac.uk/europpblog/2013/02/15/spain-labour-unemployment/

New York Times, “Short of Skilled Hands, Germany Looks South” (Judy Dempsey) [internet] Available from: http://www.nytimes.com/2013/05/28/

http://www.nytimes.com/2013/05/28/world/europe/28iht-letter28.html

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SUSTAINABLE HEALTH AND SOCIAL POLICIES

A sustainable economy aims to meet the needs of a society without compromising the needs of future generations as it was announced at the United Nations Brundtland report in 1987. Health and social policies must control the resources so that future generations can also benefit them. That is to say that each State has to ensure services for the common good of society such as health, education, employment and pensions without leaving a pharaonic debt to future generations.

 How do States ensure sustainable health and social policies?

First it depends on the economic situation of the country, its culture, its ideas. Health policies include health care and pensions. In a State of well-being, the Government pays them through taxes and social security contributions. The State guarantees to all its members a compensation in the event of labour accident, maternity leave, unemployment benefit, pensions for retired workers… The welfare State can be sustainable when there is a high level of employment because more people pay taxes and social security fees. The demographic factor has also a significant importance, since pensions are paid in most of the countries by active workers. When the people who work are less in number than the retired people, the system is unsustainable.

 In Spain, due to the actual  economic situation  this system seems to be  unsustainable since in the first quarter of 2013 there were 27.16 million unemployed, therefore non contributing to the  social security fund. This situation has led the State to increase its deficit in order to sustain social benefits. The budget on education and research was reduced which is a bad policy for the future. Spanish scientists and high qualified professionals look for opportunities abroad, causing in the long run a cultural and economic impoverishment of the country.

How could it be sustainable?

To increase the funds of the social security  system in order to guarantee the universal public healthcare and the payment of future pensions a solution could be the copayment. This is already in place in some of the Spanish regions. Instead of the expenses being covered  100% by the social security a small part of it is paid by the user in an equitable way. Investing in preventive medicine is a long term solution to cut the social security expenses, as early detection of a disease costs  less than treatments for chronicle and degenerative diseases. Education  has also an important role in the prevention of illness. For example, In schools today students learn the consequences of smoking, alcoholism and the importance of exercise to reduce the probabilities to develop cancer. Social and health policies are interconnected as we have seen previously.

 Another way to contribute to sustainability, especially in what refers to the payment of pensions could be that each worker individually quoted for its own  future pension. Although painful and at a very high political cost, lower the pensions is another way to make the economy sustainable. In some countries like the United Kingdom where state pensions  are very low, workers are encouraged to make their  own  private pension plan so as to complete  the social security one. Some companies offer workers a  private pension plan, which could be an incentive for the worker to accept lower salaries. Measures like this  might be necessary to sustain the system in times of crisis.

 However a sustainable economy should not be based only on cuts. Investing in education is necessary to create a human capital capable of working in research, preventive medicine, in companies which invest in new technologies. Investment should not be regarded as an expense. Governments investing in  education, research and development are contributing for future growth. Enabling companies to innovate,  will produce a new economic cycle as Schumpeter announced leading to the  creation of new professions and new jobs. At the same time, this will attract foreign capitals which are looking for innovative infrastructures and high qualified staff so as to gain in productivity. The deficit is then reasonable in a sustainable economy when it is an investment that brings growth in the long term.