In Mexico the so called right-wing ruling party wants to raise higher tax revenues (to increase social spending, for instance), to allow private investments in energy (to promote growth and employment)–and many more so called neoliberal reformsall of which the lefty oppositon party adamantly oppose. Granted, such means and ends are somewhat debatable but remind me again which party is more concerned about the poor? Indeed, the “left vs. right-wing” policy label brings more confusion than clarity in many countries. This VoxEU short op-ed by Alesina and Giavazzi (authors of The future of Europe, MIT 2006) is right on the mark. (By the way, I will surely refer back to VoxEU, the new and notable blog with “research-based policy analysis and commentary from Europe’s leading economists”, in my political economy class.)
“Anti-reformists in Europe claim to be protecting Europe’s weak and poor. Nothing could be further from the truth. Labour-market flexibility, deregulation of the service industry, pension reforms and greater competition in university funding might harm the interest of well-connected, privileged citizens but it would open up opportunities for Europe’s youth and disadvantaged groups. A real left-wing agenda would embrace reform.
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”.
Read the whole thing.