European left is supporting the well-connected and privileged [update: unwillingly, of course]

October 12, 2007

Vox.EU recently published an article by Alberto Alesina and Francesco Giavazzi on Why the left should learn to love liberalism. It is based on a book that came out last year (again, one of those I wanted to read but never came round to!), The Future of Europe: Reform or Decline.

Continental Europe is in the midst of a burning discussion about the pros and cons of market-friendly reforms and greater economic liberalism. We all know what the package contains – competition, labour-market flexibility, liberalisation of services, lower taxes, and privatisations.

The traditional debate runs as follows. These reforms are “right wing” policies. They may increase efficiency – perhaps even economic growth – but they also tend to increase inequality and to be detrimental for the poorest in society. Therefore – and here comes the typical “socially compassionate” European argument – be very careful moving in that direction. Governments should proceed cautiously and be ready to backtrack at any point.

Much of this reasoning is fundamentally wrong. Labour-market flexibility, deregulation of the service industry, pension reforms and greater competition in university funding is not anti-equality. Such reforms shift financing from taxpayers to the users themselves and, as such, tend to eliminate rents. They tend to increase productivity by basing rewards on merit rather than on being an insider. They tend to open up opportunities for younger workers who are not yet well-connected. Pursuing pro-market reforms does not imply facing a trade-off between efficiency and social justice. In this sense, pro-market policies are “left wing”, if that means reducing the economic privileges enjoyed by “insiders”.

The debate is already a few years old. The British Labour Party is practically over it. Germany’s SPD is reversing the moves made by Schroeder, the French Left is in a coma because of its refusal to accept this. I am not commenting on the Italian Left, which Alesina and his colleague are targeting in particular. Come on guys, wake up! Don’t leave reform and its electoral rewards to the right-wingers!

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