Anatomy of the Global Economy
Emma Bonino and The War For Europe's Future
Rüdiger Dornbusch
|
|
|
|
CAMBRIDGE: Everybody agrees: Europe needs a revolution of its economic structure. But how to achieve this is another matter altogether. Advocates of the status quo note that there is no crisis, so why rush? They place their faith in a gradual restructuring and, above all, in the myriad high-tech companies now being started by the young. Somehow, they reckon, the information revolution will arrive in a European way. From here it is but a short step to proclaiming that the American model cannot work in Europe because it is socially reprehensible and, in any case, poised to crash any day now.
On the other side of the debate, Europe's desperate reformers see no way to trim, roll back or blow up the Continent's obsessive bureaucracies and consensual politicians. In today's Europe they see only hints of a possibility – a glass far less than half full – for reform and restructuring, and are impatient at Europe's slow progress.
True, Europe is moving at a painfully slow pace, but the attack on the State and its allies in an ossified supply side and the dinosaurs of industrial stake holders, is widening. New fronts in this war are opening every day. But this is not an issue of sweeping moves that will change the world from one day to the next. The devil is in the details, and that is where the attack must focus.
A wonderful example is the referendum promoted by Emma Bonino, Italy's star political renegade. Among many issues, the referendum she put forward proposes three measures: end automatic tax withholding; end judicial power to reinstate dismissed workers; end automatic withholding of union dues from pay checks. Three cheers for Emma Bonino; never mind if she fails. Rome was not built in a day and it will take many such assaults to reform it!
At first sight it seems unreasonable, indeed irresponsible, to undermine the all-too difficult task of collecting taxes by taking away the device of automatic withholding. It is hard enough to collect taxes, so how can societies possibly go back to a world where the tax office has to run after the taxpayer?
True, withholding makes tax collection easier and that is the point. The referendum's advocates believe that making it much harder for the state to tax will force governments to retrench on the currently untouchable spending front. This is an old idea from the California tax revolt of twenty-five years ago that was an important part of America's supply side revolution. Milton Friedman always said: take away the government's tax revenues and that way, and only that way, can you get spending cuts.
There is no better way to undermine taxation then to make government work hard to get its money. So, let people get their paychecks and then force the government to come and take the money from them. Only when the difference between gross and after-tax income becomes painfully obvious will tax payers revolt against the taxes they bear. Only when they figure out very concretely that half of the days they work are for the government will they really start agitating about big government. Here, indeed, is a wonderful plot to force the State to retrench, but Italians shouldn't get their hopes up too early, for Italy's supreme court ruled that taxation is not for the people to decide.
The proposal about union dues works just the same way. At present dues are automatically withheld and hence workers have basically no clue as to how much they pay for their union. But if it becomes a matter of individual worker choice – do I send a check or do I keep the money? – union revenues and membership and power will shrink very rapidly. If one believes that less overweening unions and a smaller state are the first steps toward a better supply side in Europe, this referendum item deserves praise.
The third issue highlighted by Ms. Bonino is the quaint Italian labor law that allows a dismissed worker to go to court and seek reinstatement. It is obvious that this measure creates havoc in business and leads to deeply unproductive outcomes. There is no issue here of weakening workers' rights but rather one of redressing a now grotesquely even playing field. The proposed alternative of separation payments but no recourse to the courts is the right economic answer, or at least it goes in the right direction.
It will be interesting to watch status-quo Italian politicians face up to these issues. There are no supply-siders in Italy except the referendum-rebels; in Italy everybody near government is playing the end game of accepting the existing system and getting the maximum out of it. The central bank stands in the way of cross border financial mergers; union bosses stand in the way of free choice for workers; business leaders have too much to gain from the State to see their interest in rocking the boat.
Yet, over the next few years Italy ultimately cannot avoid the road laid out by the referendum. Economic performance has been horrible for two decades; the system is grinding to a halt. The stock market, rightly looking ahead, already sees prospects for change. Italy's politicians and administrators, as always and as elsewhere in Europe, are missing the message. In the meantime, even if the referendum is held and eventually lost under the combined onslaught of bureaucrats, politicians and union bosses, the modernization revolution is alive.
Rudi Dornbusch is Ford Professor of economics at MIT and a former chief economic advisor to both the World Bank and IMF.
Copyright Project Syndicate 2012
You might also like to read more from Rüdiger Dornbusch or return to our home page.
|
|
