Big business is a scapegoat for failure in economic policy.


In this interview, Mercado Libre Forum coordinator Benito Arruñada analyzes the barriers to business development in Europe and Spain and advocates the need for economic reforms to preserve the welfare state. Arruñada is also a Professor at Pompeu Fabra University and an Affiliate Professor at BSE.

—What is the Mercado Libre Forum and what are its objectives?

—Foro Mercado Libre is a “think tank” that advocates and promotes the development of a competitive market economy in Europe, guided by strong, stable and democratic institutions, to ensure the common good and to respond to the strategic and social challenges facing European society of the twenty-first century. It arises in the context of growing and naive state intervention, which can crush private initiative.

– Is the current environment in the European Union conducive to the development of commercial activity?

The EU provides a relatively flexible framework and there are many differences among member states, with very heterogeneous regulations and restrictions. Although European regulations could be improved, the ultimate responsibility rests with the states, who must be able to provide an environment for their companies to develop, thrive and contribute to the common good.

And in the case of Spain specifically?

– There is excessive mass intervention in the market, a phenomenon that is not something new from a historical point of view. We come from an economy that intervened greatly during the Franco regime, which later witnessed various liberation and transformational waves (beginning in the 1960s, ending in the 1990s), and which did not require us to exert much political effort because we made Europe our goal. The reference and we knew where we want to go. Going as a country this is no longer apparent in recent years.

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Although some small reforms went through in the early years of the last decade, they were forced by the crisis and financial difficulties. We weren’t really convinced, apparently the Rajoy government wasn’t. Things got worse. With the current government, we have fallen behind in many dimensions, partly due to the responses to the crises that unleashed the pandemic and the war in Ukraine, which also served as a pretext for intervention in the market, as there were not many actions associated with it. .

“To maintain the standard of living and the welfare state, it is necessary to increase growth; And to increase growth further, reforms are necessary »

Can you give an example of this intervention?

– From the sector that affects specific sectors, I would like to highlight the “Ryders Law”, which brought to a halt a very dynamic sector, that of home delivery, which, moreover, allowed the rapid integration of a large number of immigrants. But there were also attacks on almost all large corporations, which became scapegoats for failures in economic policy. This has happened in many sectors, especially energy or banking, as well as in large distributions, accused of being responsible for inflation, a phenomenon mainly linked to the monetary expansion necessary to finance excessive public spending.

New rules for non-financial “disclosure” or “reporting” and formal “compliance” are further examples of this increasing intrusion affecting all businesses, as with continued increases in social charges. We have just undertaken a reform that will increase them again to preserve the purchasing power of pensions. In short, a tax on employment which, moreover, remains invisible to the worker because he pays it through the company. For the country with the highest unemployment rate in the European Union to continue to raise taxes on work is very stupid.

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We are deceiving ourselves, because despite the recent increase in contributions, this pseudo-pension reform contains a safeguard clause that must be activated now to ensure its sustainability, at least in part, increasing contributions again or reducing pensions, Fedea warned .

What will be the consequences of this general intervention on the economy?

One of the most important in the short term is the misallocation of resources. So many college-educated citizens, for example, vie for low-skill public jobs in search of more stability, that we drive trains with civil engineers or fill the primary ladders of the police force with college graduates. Companies are looking for the environments that are most attractive to them and, above all, the legal certainty which in Spain is evident in its absence. Ferrovial status is also very important. Likewise, many professionals move to Portugal in search of a friendlier tax environment.

– Is our country ready to compete on a global scale?

– The situation is ambiguous. A positive read is that we have very competitive companies globally, leaders in their respective sectors, such as infrastructure, finance, energy or commercial distribution. The presence of these companies tells us that there is no shortage of capacity in entrepreneurship. And the development of exports is very positive. The problem comes from unrealized potential. The liberalization of the business environment will bear great and immediate fruits, as happened with the reluctant liberalization in 2012, which had very positive effects on the development of our companies’ ability to compete abroad. Now it is necessary to delve into this kind of repairs.

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Where should the reforms go?

– One of the most important structural reforms, but also one with a high political cost, is the tax reform that punishes consumption more and reduces work, savings and investment. This is the opposite of what is happening now. Our indirect taxes are relatively low. Theoretically, the VAT is 21%, but there are a large number of services and products at lower rates. What’s more, the list of reduced, highly reduced or zero VAT has been extended as a result of the invasion of Ukraine and the pandemic.

We have very high labor taxes in a country with the record unemployment rate in Europe. However, no political party proposes any kind of adjustment along these lines because this social preference seems to be in the minority. Perhaps the citizen should also examine his conscience.

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