Polling data suggests that Podemos could become Spain’s third-most-voted political force. Faced with such a challenger, other left-wing parties might be tempted to incorporate some of Podemos’s ideas into their own platforms. But should they?
What follows is an analysis of some of Podemos’s main economic proposals, which are then compared with the measures that any responsible left-wing leader should adopt.
The conclusion, I might add right now, is that Podemos’s ideas do not take into account existing incentives and restrictions in the economy, and would thus have exactly the opposite effect of what they seek: their measures would end up hurting the poor, the jobless, and small and medium businesses.
1. Making it illegal for profitable businesses to lay off workers. Imagine you own a business and anticipate a future fall in revenue that will force you to cut your costs. If you cannot adjust them now (for instance, by replacing unmotivated workers with more productive ones), once the lean times come around it will be too late to react, and you will be forced to close your business. Meanwhile, the head of the competition, who is less honest than yourself, will probably conceal his own profits by exaggerating his costs and raising his own salary. So as a result of the well-meaning measure imposed by Podemos, the economy will have one business fewer, more unemployment, more inequality and more fraud.
A well-meaning measure imposed by Podemos would mean more unemployment and more fraud
What would a responsible left-wing leader do? Such a person would know that unemployment is not resolved by banning layoffs – on the contrary. Greater flexibility would allow businesses to adjust to the economic cycle, firing or hiring workers with relative ease, as is the case in all successful social models in northern Europe and Scandinavia. And instead of spending money on hiring more public inspectors to supervise absurd regulations, the leader would invest in a strong public program to provide support and training for workers who lose their jobs.
2. Stopping public debt repayments. This may be obvious to some people, but in order to be able to pay civil servants and keep hospitals running, public authorities need financing. And that financing is provided by the citizens and businesses who buy sovereign debt through something we call “the markets.” If the markets feel there is a risk involved in lending their money, they will ask for higher borrowing costs. And if they think that they will never get their money back, they will simply not lend it. If, tomorrow morning, the Spanish Treasury stopped repaying its creditors, Spain would be cut off from international financing for years, making our current problems seem insignificant by comparison.
If the Treasury stopped repaying its creditors, Spain would be cut off from international financing for years
What would a responsible left-wing leader do? Such a person would work with Europe (not against it) to find a common solution for countries with unsustainable debt levels. There are interesting proposals out there, such as PADRE (Politically Acceptable Debt Restructuring in the Eurozone), which have nothing to do with Podemos’s suggestions. But carrying them out requires more involvement with Europe, not less, as Podemos argues.
But above all, a progressive leader would fight for a European banking union in which the financial system, rather than taxpayers, become responsible for their own messes. This can be achieved by reducing the size of systemic “too-big-to-fail” entities, by making shareholders and investors pay first (bail-in before bail-out), and by creating a strong fund within the European Stability Mechanism to fund banks through higher taxes. None of these proposals show up on Podemos’s program.
3. Revoking pension reform. In countries such as Spain, with high debt levels, high unemployment and poor growth prospects, the state’s margin for offering greater social benefits is very limited. To deceive people with promises that are impossible to keep will not solve the problem. Spain had to reform its pension system for a very simple reason: it was unsustainable. By 2050 there will be 15 million retired people, compared with nine million now. The labor force, however, will likely remain at similar levels. The only way to guarantee that those of us who will stop working in 30 to 40 years will receive reasonable retirement checks is by adapting the system to the overwhelming demographic and economic evidence.
What would a responsible left-wing leader have done? In order to create the foundations for an efficient, sustainable welfare state, he or she would have complemented pension reform with in-depth tax reform to improve the state’s collection, which is significantly below the European average, to distribute the tax burden in a fairer, more efficient way, to combat fraud, to expand the tax base and to increase taxes on consumption. That is to say, the opposite of what the Popular Party (PP) has done in Spain.
4. Revoking labor reform and imposing the 35-hour work week. The Spanish labor market created more unemployment than any other country in the West, and it was also an enormously unfair system that protected a few privileged workers with open-ended contracts while leaving everyone else (mostly young people) in a situation of extreme vulnerability.
Moving backwards on labor reform, as Podemos proposes, would perpetuate unemployment and injustice
Would this be resolved by working fewer hours, as Podemos proposes? Evidently the answer is no. A responsible left-wing leader knows that reducing the working hours of a software engineer or a university professor would not create new jobs because the vast majority of new jobless people lack university degrees and their skills are no longer what businesses need. Does this mean that the PP’s reform was good? Not really. Much more should have been done to improve active job policies, to overhaul Spain’s education system, and to make human capital the cornerstone of our economy’s future. Moving backwards, as Podemos proposes, would only perpetuate unemployment and injustice.
5. Assuming political control of the ECB. The first thing that politicians who want to win elections would do, if they could, is to print money as soon as problems emerge. Why confront unfair monopolies or lose votes by reforming inefficient state agencies if you can create money for free? Soon afterward, we would have rampant inflation and workers’ life savings would become worthless.
A responsible left-wing politician would strive to make the European Central Bank less politicized, not more so
Does this mean that the European Central Bank works really well? Of course not. But a responsible left-wing politician would know that the solution lies in making this body less politicized, not more so, and in changing its mandate if necessary to include full employment, as the United States did with the Fed.
If Spain suddenly began moving in the opposite direction to all its European partners and walked down the path proposed by Podemos, in very little time we would lose all funding to maintain basic public services. The economy would become progressively less productive, businesses would shut down and joblessness would skyrocket again. Soon, inflation would eat into everyone’s savings, increasing inequality even more.
Do these sound like left-wing proposals to you? Not to me.
Antonio Roldán Monés is studying for a PhD in political economics at the London School of Economics.