Maybe second only to Greece, Spain is Europe’s most notorious instance of a broken labour market. In Spain, as in many other failing EU countries, “structural reform” means “labour-market reform” — and “labour-market reform” is a euphemism for confronting the unions.
Clive Crook, Bloomberg View
Virtually anywhere in the world industrial relations is a contentious issue. Employees want long-term certainty about employment and wages so that they can confidently plan and live their lives. Employers seek flexibility in how they use their workforce so that they can respond to changing business and economic conditions. Some countries do relatively well in achieving a balance. In other places, the system is woefully lopsided.
Take Spain as a contemporary example. As Clive Crook writes, its two-tiered system of ‘permanent’ and ‘temporary’ employees was a piecemeal measure designed to give wiggle room to companies. But bargaining arrangements are collective across industries and provinces — not specific to individual firms. Permanent workers, enjoying a high range of privileges, are virtually unsackable. Temporary workers, by contrast, are dropped at the first sign of trouble. Unsurprisingly then, in the midst of an economic crisis, unemployment is surging in Spain — it now exceeds 22 per cent. Most of those on the dole queue were temporary workers, who are generally younger workers too (having entered the system after labour reforms) Why would an employer choose to lock in a young worker on a permanent contract when they have potentially decades of employment ahead of them, with all the obligations attached to that? Meanwhile, companies are unable to change the legally-enforceable benefits of the permanent workforce. So, employment falls off a cliff, but wages barely budge. There are a range of other perverse effects, as Crook notes, but the fundamental problem is that inflexibility means that employers ultimately face far higher costs than many of their foreign competitors. Collectively, this limits Spain’s economic growth prospects, which also impairs its ability to respond to the debt crisis it now faces.
Hence, labour market reforms are being advocated as an important step to unlocking growth potential in Spain (as well as Greece and other sclerotic European economies). Crook notes that the battles the Spanish government now faces have been fought and won their counterparts elsewhere throughout the world. Spain has previously squibbed on serious reform, and will again face heavy union resistance to change. But as Crook also argues, the current crisis — and Spain’s unemployment rate, which dwarfs comparable statistic in other Eurozone members — also highlights just how dysfunctional the current system. This isn’t a battle between employers and employees. It’s about the fundamental inequity between (permanent) workers and the unemployed.
No time to bask in the Sunshine State
Another primary down, another win chalked up for Mitt Romney. And this time by a thumping margin — some 15 percentage points ahead of his main rival for the Republican party’s presidential nomination, Newt Gingrich. But with the Florida primary behind us, the campaign enters something of a lull — apparently there won’t be another televised Republican debate for three weeks. Oh, the horror. But there’s still plenty of voting to come. Within the next couple of weeks, the number of primaries and caucuses completed will have more than doubled — Nevada, Colorado, Minnesota, Missouri and Maine will all go to the polls. But none of this is particularly exciting according to political analyst Jeff Greenfield. So, to keep himself occupied, he’s turned to the arcane rules that dictate the nomination process, culminating in the Republican convention (also to be held in Florida) in August.
The current race is particularly bitter, with Romney and Gingrich likely to continue their slugfest for months to come. Pundits expect that February will favour Romney, but that with a swag of southern states voting in March, Gingrich will score plenty of wins. Then there are the differences in what the primary or caucus results mean in each state. Some states (such as Florida) run a ‘winner takes all’ system — that is, the candidate who claims the most votes gets all the state’s delegates at the August convention. (The delegates, in turn, vote at the convention on who the party’s presidential candidate will be.) But in most states, the delegates are distributed more closely in proportion to the number of votes won by each candidate (though there are plenty of differences in how this is done). This means that lots of close contests will limit the capacity for any candidate to take a decisive lead. And at the same time, Romney’s landslide win in Florida doesn’t have any greater significance mathematically than if he’d won by a handful of votes. (That said, there will no doubt be an important psychological boost for Romney and his supporters from having ‘momentum’ on their side again.)
And then there’s the convention itself. The anti-Romney forces backing Gingrich and Rick Santorum (another conservative candidate) could yet wreak havoc at the convention. Greenfield suggests Gingrich backers might try and rewrite parts of the party platform, or force their own vice-presidential nominee. It’s worth noting that many predicted a bruising battle at the Democratic convention four years ago when a scrappy young fighter named Barack Obama rattled the party’s presumptive nominee, Hillary Clinton. But the race was well and truly over before then, and the Clinton forces graciously acquiesced. One of the leading Republicans might mount a similar retreat this time. Then again, Gingrich is not Clinton, and Romney does not inspire in the way Obama did. Better to keep the popcorn on standby.
Reform is more than whacking the rich
The United States is slowly but surely exiting the recession it plunged into dramatically during the global financial crisis. But recovery hasn’t stalled rolling outrage about banker bonuses, nor the worldwide ‘Occupy’ movement in its fight against corporate greed. The political dynamics don’t appear to have changed much either. Politicians are still pondering how they might close a gaping budget deficit. And it’s an election year. So President Barack Obama (a Democrat) has signalled his priority: wealthy Americans aren’t paying their ‘fair share’ of tax, and should contribute more to the federal government. And in his corner is one such wealthy American, Warren Buffet (a legendary investor also known as the ‘Oracle of Omaha’), who has decried the fact that he pays a lower share of his income in tax than his secretary does.
Republicans are horrified at this ‘class warfare’. And as Douglas Holtz-Eakin writes, aside from the political theatrics, they have a point. Holtz-Eakin (who, it should be disclosed, is a Republican-aligned economist) points to research that suggests that the average effective tax rate among millionaires is commonly around 30 per cent — the level that Obama has signalled is his target rate for the rich. It’s “a problem that doesn’t exist”. Holtz-Eakin also argues that tinkering at one particular policy setting is a waste of time when the whole system is broken. Indeed, that notion is something that both sides of the aisle can seemingly agree on — no one believes the US tax code is well designed. The problem is that Democrats and Republicans can’t agree on how the system should be reformed.
To my mind, asking wealthier Americans to pay more tax is not particularly objectionable. Where I am critical is the argument being presented by Obama — that shaking down the rich will remove any need for the rest of the country to contribute more. This is a folly. The US budget deficit is too large to be closed solely by raising the highest marginal tax rate. So long as politicians fail to grasp this point, then all the debate about America’s tax system will count for nothing.
It is essential that European governments support the economy during a phase of private-sector deleveraging to avoid what would otherwise lead to a deep depression.
Wolfgang Münchau, Financial Times
The popularity of austerity with Europe’s policymakers is plain for all to see. However, the merits of such an approach are far more questionable. Efforts to cap national budget deficits in the region have been described by Wolfgang Münchau — and apparently those he speaks to — as ‘quite mad’. Such measures as ‘pro-cyclical’ — they force governments to cut spending (or raise taxes) during downturns. This is self-defeating: if governments withdraw, then at least the short-term effect will generally be to exacerbate recession.
Greece is a contemporary example of this effect. Indeed, with every step the Greek government takes to balance its books, it finds the target moving further away — despite harsh cuts in spending, Greece has consistently failed to meet its deficit targets. And yet countries in debt-induced turmoil follow the same prescription.
Now the new Spanish government, led by Mariano Rajoy, is headed down the same path. It has committed to deficit targets of 4.4 per cent in 2012 and 3 per cent in 2013. But Rajoy is committing to public sector debt reduction at the same time as Spain’s private sector is deleveraging on a massive scale. That process has been ongoing since 2007, and has been largely offset by the government’s balance sheet swelling. Münchau regards that as warranted and sensible. By cutting debt now, the Spanish government threatens to deepen the recession the country is already facing. Such prolonged pain, in Münchau’s estimation, is a far greater threat to the Eurozone than concerns about high debt levels.
Many Liberal MPs would, quite properly, have assumed there would be a conscience vote. … Indeed, there has never been a substantive policy issue (as opposed to a procedural one) where Labor has had a conscience vote and the Liberals have not.
Amanda Vanstone, former Liberal MP
Last year, the Labor Party’s national platform was changed to endorse same-sex marriage. But that was only half the battle. It was announced over the weekend that a group of parents with gay sons and daughters are now launching a campaign to convince Liberal leader Tony Abbott to offer his MPs a conscience vote in the event of a private members’ bill being put up to amend the Marriage Act. One poll found that a strong majority of coalition voters wanted their MPs to be offered such a right. (Who knew there was quite so many liberals in the Liberal Party these days?) And now a prominent ex-Liberal MP has thrown her support behind the conscience vote movement.
In an op-ed for The Age, Amanda Vanstone (a minister during John Howard’s reign as prime minister) argues that Abbott risks putting many in his party — and in the wider electorate — off side. He declared that there would be no conscience vote for Liberal MPs late last year, after the parliamentary session for the year had ended, and therefore without consideration from the party room. His justification was that all Liberal MPs went to the last election on a platform to preserve the notion of marriage being between ‘one man and one woman’. But as Vanstone notes, that commitment wasn’t debated by coalition MPs either — it was Abbott’s call to begin with. The problem for Abbott then is that, as someone already identified as a devout conservative with strong Catholic values, he looks like his faith is driving policy judgements — something that leaves many Australians (who are largely secular-minded) decidedly queasy.
It is commonly noted that a conscience vote is not strictly necessary for the opposition. Unlike in the Labor Party (where the principle of unity dominates), Liberals are entitled to cross the floor without retribution. That said, frontbenchers are expected to tow the official line — were they to vote out of step with the leader’s wishes, they would also have to resign their post. Hence senior Liberals who are also philosophically liberal, like Malcolm Turnbull (the party’s communications spokesman), would be left with the unenviable position of choosing between principle and power. A conscience vote would conveniently (for them) square that circle.
