This anniversary guest post was written by the indispensable JÃ©rÃ´me Guillet, who normally writes for The European Tribune.
Laurence Parisot, the head of MEDEF, the French business
organisation, recently complained that:
There is one word who meaning for the public has changed in the past 25 years: “reform”. It used to be synonymous with progress, and now it means social regression.
One wonders why. Or not. As I’ve written incessantly over the past year at European Tribune (for instance here), “reform” has come to mean only one thing: less regulation of corporations, lower wages, fewer rights for workers, and weaker unions, i.e. the elimination of anything that can impede corporations’ freedom to make profits in the short term.
[And it works:
There is no better demonstration of this state of mind than the recent report prepared by the World Bank, Doing Business 2007 (pdf) which “compares regulations in 175 countries”, and whose substitle is, simply, How to reform. Thie introduction deserves to be quoted:
Regulations affecting 10 areas of everyday business are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. The indicators are used to analyze economic outcomes and identify what reforms have worked, where and why.
The methodology has limitations. Other areas important to businessâ€”such as a countryâ€™s proximity to large markets, quality of infrastructure services (other than services related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutionsâ€”are not studied directly by Doing Business.
“Reform” has been hijacked, even by the World Bank, which should know better, to mean reducing the “burden” on corporations. Te Bank’s index, which has become quite influential and is widely used by governments around the world to set their policies, specifically excludes things like infrastructure, institutions and security, i.e. these pesky things usually provided by good governments and paid by taxes and “forgotten” by businesses when they complain about governmental interference (but not when they choose where to invest, as attests France’s almost permanent presence in the top five favorite destinations for FDI alongside China and the USA). That such issues can be mindlessly excluded from public discourse on this topic via a 3 line disclaimer in their report is profoundly dishonest.
If the logic was to facilitate wealth creation by companies with a later focus on redistribution of that wealth, that might make a little bit of sense, but the goal seems only to be wealth capture by corporations per se, whether out of actual creation of wealth or, increasingly, from the shifting of costs from their P&L to the public purse. Where that wealth goes is obviously no longer a worry of the World Bank, something I find frankly disquieting. Even more, as taxes are seen as a negative thing, any redistributive policy is explicitly considered an obstacle to “reform”. Thus we end up in situations where economies appear to be growing strongly and yet median income (as opposed to average income) is stagnant or even declining, a sure sign of growing inequality rather than growing prosperity.
The case of Germany in recent years is striking. The country has “reformed” in that real wages have been going down significantly against all competitors. And it worked: German companies are the world’s export champions and are making record profits, and Germany is seen as one of the two big winners, with China, of globalisation. And yet German growth, until this year, has been dismal, something blamed on the lack of dynamism of domestic consumption, the very direct and unavoidable consequence (unless you indulge in a debt orgy as some other countries are doing) of wage moderation and “reform”. So profits have been created for profits’ sake, but they obviously don’t benefit Germans, beyond the small class of investors in the financial markets. OECD’s response: increase wages so that all can benefit from the wealth created? Nah – “reform more“.
That business leaders push for such short-sighted policies is somewhat understandable – after all, it makes their life easier in the short term, and, via stock options, they can capture a disproportionate share of these profits. That politicians follow their advice so blindly these days is a betrayal of their role as custodians of the general interest, and they should not be surprised that increasing numbers of their citizens find it unfair.
Reformers and would-be reformers might do well to read again the Wealth of Nations (as quoted by Migeru over at European Tribune):
Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.
Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical.
Adam Smith, the hero of most self-labelled liberals (in the European meaning) who have obviously never read his works, said it two centuries ago: business must be regulated, otherwise it will inevitably abuse its position of strength against workers and others. Transforming “reform” into a blind quest to eliminate all constraints on corporations, as seems to be the zeitgeist today, is ignorant, callous, and a profound betrayal to true liberalism. It must be fought resolutely. it’s one of the core ideas at the heart of the European Tribune community.