The ethics of capitalism can also be examined in relation to how it rewards individual luck, merit and hard work. Like in many other human activities, success in business results from a mix of luck, merit and work. There are always many that work hard and skillfully but who are unlucky in their ventures while many lazy and inept succeed through sheer luck.
Obviously capitalism does not determine luck. One either has it or not. However, capitalism raises the number of lucky opportunities available as well as our ability to profit from them when they come our way. Because capitalism is based on the principle of free entry (free markets), when one “strikes gold” nobody has the right to take it a away (private property rights) or to prevent its exploitation (rule of law). Moreover, if some do not have the necessary resources to dig it up they may use those of other passive capitalist.
One aspect about luck that cannot be corrected by capitalism is its reproduction and access. For instance, knowing the right people is often the best way to find the best opportunities. So, if one is born in a family of business people he or she is more likely to become aware of such opportunities. However, being rich also brings in many distractions and that partly explains why many business dynasties rarely go beyond the third generation. Overall, the small hereditary bias in luck it is not enough to deny the neutrality of capitalism in relation to luck.
Despite its few limitations capitalism is broadly a meritocratic system. Even if you do not have the required skills you may always bid for other people’s talent. And, should one fail to do so someone else will step in and force you out of the game.
However, capitalism is not a jungle where the strongest prevails in the fight for talent or hard work. By upholding the principle of free contracting, labor and capital usually negotiate long term work contracts rather than opting for piece rate pay. Indeed, this choice is based on calculated self-interest and is not necessarily the result of government imposition.
However, in the case of handicapped workers and less qualified workers there are circumstances when it would not be profitable to employ them even if they were willing to work as slaves. Such cases represent a market failure that needs to be corrected through subsidization or government employment.
With technical progress the number of tasks requiring high qualifications increases while those less demanding in skills are declining in relative terms. Thus access to education is of paramount importance in a capitalist system. The system can be trusted to produce efficiently the necessary qualifications but it cannot ensure equal opportunities in access to education, especially for advanced levels.
Given the importance that education has as a screening device for the top jobs it is normal that those with more resources use all kinds of aid to secure a top school for their children. This ranges from private tuition to crammer schools which are not available to the less favored. Nevertheless, provided that there is a market for student financing and that schools compete for bright students (whether they are poor or rich), those from disfavored families may still secure a place in top institutions.
In what concerns fair promotions and rewards for merit and hard work these are secured under capitalism by giving workers the freedom to change employers. Although there are many instances of nepotism in relation to family and favorites this cannot be extensive, otherwise firms will not be able to maximize profits and stay competitive.
There are however cases where in the short run it would be profit maximizing to lead workers to work to death. This was initially feared given the poor working conditions in the early days of the industrial revolution and because capitalists did not own the workers. However, history has shown that it would be counterproductive since in-the-job training and the costs of hiring would make such behavior untenable.
Indeed, a dramatic example of working slave labor to death was carried out in German and Japanese concentration camps during World War II and proved them to be both inefficient and resisted by some company managers. Obviously in a free labor market, as required by capitalism, workers themselves would not accept that.
Yet, there are industries (e.g. law, auditing and finance) where greed may lead professionals to accept overworking in return for a high compensation and the opportunity of retiring rich at an early age. It is interesting to note that such practices are more common on partnerships than on corporations. That is, the pursuit of profit under overworking conditions is not profitable in the typical capitalist firms - joint stock companies.
In conclusion, despite some early abuses, capitalism turned out to be the closest we got to a meritocracy, rewarding hard work and creating a level playing field to take advantage of one’s luck.
Friday, 27 March 2015
Tuesday, 24 March 2015
The ethics of capitalism
There is a never ending history of blaming capitalism for all evils in society. Vigilantes are always out there looking for market failures and externalities to "prove" the limitations or evils of capitalism.
The most recent accusation is that capitalism is responsible for obesity because the food industry is driven to profit from what Ken Rogoff called coronary capitalism.
The idea that capitalism promotes vice at the expense of virtue is historical nonsense. Otherwise, after 200 years of capitalism, western economies would now be dominated by casinos and brothels. Yet, these vice industries are still niche industries.
The ethic foundations of capitalism are not necessarily the same as the (protestant or other) ethics of the capitalist or the ethics in business. Business ethics is the study or practice of the good or right in a business setting. For instance, the responsibilities of a CEO in relation to the company’s stakeholders. Or whether in some industries managers need to preserve primitive hunting or predatory instincts.
The origins of freedom and individualism go back to Aristotle (384-322 B.C.), who argued that a human being uses his rational mind and free will to pursue his well-being and personal happiness. John Locke (1632-1704) extended these concepts to include the state of nature, natural law, natural rights, social contract, consent of the governed, and the right of property ownership. So, the ethics of capitalism must be discussed around the foundations of capitalism – namely, the ethics of private property, the profit motive and free competition - and not in terms of the social responsibilities of businessmen.
For Adam Smith and Hume the morality of capitalism resided mostly in the virtues of prudence and reciprocity, respectively. For Smith, the first to study capitalism, economics was still a moral science. Only after Marshall, did the prevailing view of economics as a positive science takes its roots based on the assumption that preferences are “given”. The assumption of utility maximization was replaced by wealth maximization and “greed” was adopted as an undisputable microeconomic assumption.
Despite Adam Smith’s demonstration that 'self-love', could be the greatest driver of wealth creation as long as it was restrained by market competition, law, and customary morals, today many sceptics still question either the morality of money-making or wish it to be unrestrained. Some qualify money-making as bad and enterprise as good, but these are truly the two sides of the same coin because the first measures the success of the second.
For Keynes, the distasteful aspects of capitalism would have to be endured until the accumulation of wealth loses its social importance. In his words: “Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight. (JMK, CW, IX, pp.329, 331)”.
Of course capitalism is not flawless. It is true that capitalism is affected by moral dilemmas, market failures and externalities, but these are the exception not the rule. It is also true that it may cause some unhealthy patterns in terms of consumption. But in market capitalism these imbalances are necessarily temporary; while they are bound to be perpetuated under other economic systems and government rule.
In fact the food industry provides a unique proof of this principle. As soon as the junk food became dominant and inefficient, a growing number of enterprising capitalists stepped in to offer all sorts of alternatives without any government intervention; ranging from the organic food industry to keep fit and health clubs.
Indeed if the fast-food industry still caters for so many people it is because of governmental failures rather than market failures. It is because of government failures that we have an ever growing number of families living on social security and low-cost dinners. It is because governments provide lousy school meals that children acquire unhealthy eating habits. And, it is also because of government´s inadequate funding for scientific research in food and health that we have so much voodoo science in what relates to healthy eating habits.
On the contrary, capitalism is part of the solution for these government failures. By competing to provide low income families with affordable and varied meals it facilitates the acquisition of good eating lifestyles.
That is really the beauty of market capitalism. Instead of raising regulatory barriers to protect the incumbents in the food industry competition ensures that they will be under permanent challenge. So, it corrects not only its own imbalances but also those created by devious as well as well-meaning paternalistic governments.
The most recent accusation is that capitalism is responsible for obesity because the food industry is driven to profit from what Ken Rogoff called coronary capitalism.
The idea that capitalism promotes vice at the expense of virtue is historical nonsense. Otherwise, after 200 years of capitalism, western economies would now be dominated by casinos and brothels. Yet, these vice industries are still niche industries.
The ethic foundations of capitalism are not necessarily the same as the (protestant or other) ethics of the capitalist or the ethics in business. Business ethics is the study or practice of the good or right in a business setting. For instance, the responsibilities of a CEO in relation to the company’s stakeholders. Or whether in some industries managers need to preserve primitive hunting or predatory instincts.
The origins of freedom and individualism go back to Aristotle (384-322 B.C.), who argued that a human being uses his rational mind and free will to pursue his well-being and personal happiness. John Locke (1632-1704) extended these concepts to include the state of nature, natural law, natural rights, social contract, consent of the governed, and the right of property ownership. So, the ethics of capitalism must be discussed around the foundations of capitalism – namely, the ethics of private property, the profit motive and free competition - and not in terms of the social responsibilities of businessmen.
For Adam Smith and Hume the morality of capitalism resided mostly in the virtues of prudence and reciprocity, respectively. For Smith, the first to study capitalism, economics was still a moral science. Only after Marshall, did the prevailing view of economics as a positive science takes its roots based on the assumption that preferences are “given”. The assumption of utility maximization was replaced by wealth maximization and “greed” was adopted as an undisputable microeconomic assumption.
Despite Adam Smith’s demonstration that 'self-love', could be the greatest driver of wealth creation as long as it was restrained by market competition, law, and customary morals, today many sceptics still question either the morality of money-making or wish it to be unrestrained. Some qualify money-making as bad and enterprise as good, but these are truly the two sides of the same coin because the first measures the success of the second.
For Keynes, the distasteful aspects of capitalism would have to be endured until the accumulation of wealth loses its social importance. In his words: “Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight. (JMK, CW, IX, pp.329, 331)”.
Of course capitalism is not flawless. It is true that capitalism is affected by moral dilemmas, market failures and externalities, but these are the exception not the rule. It is also true that it may cause some unhealthy patterns in terms of consumption. But in market capitalism these imbalances are necessarily temporary; while they are bound to be perpetuated under other economic systems and government rule.
In fact the food industry provides a unique proof of this principle. As soon as the junk food became dominant and inefficient, a growing number of enterprising capitalists stepped in to offer all sorts of alternatives without any government intervention; ranging from the organic food industry to keep fit and health clubs.
Indeed if the fast-food industry still caters for so many people it is because of governmental failures rather than market failures. It is because of government failures that we have an ever growing number of families living on social security and low-cost dinners. It is because governments provide lousy school meals that children acquire unhealthy eating habits. And, it is also because of government´s inadequate funding for scientific research in food and health that we have so much voodoo science in what relates to healthy eating habits.
On the contrary, capitalism is part of the solution for these government failures. By competing to provide low income families with affordable and varied meals it facilitates the acquisition of good eating lifestyles.
That is really the beauty of market capitalism. Instead of raising regulatory barriers to protect the incumbents in the food industry competition ensures that they will be under permanent challenge. So, it corrects not only its own imbalances but also those created by devious as well as well-meaning paternalistic governments.
Monday, 23 March 2015
Mariana Mortágua vs. Maria João Marques
As televisões descobriram finalmente uma nova geração de jovens políticas talentosas. Ainda bem! Como a Mariana é uma jovem de esquerda e a Maria João de direita é interessante analisar o que as distingue dos outros jovens políticos e entre si.
Trata-se de duas jovens bloggers que se destacam por serem entusiastas, inteligentes, cultas, bonitas, femininas e simpáticas.
O seu empenhamento, perspicácia e saber não podiam contrastar mais com a perceção geral dos jovens políticos saídos das jotas - geralmente alunos medíocres de universidades igualmente medíocres, produto do nepotismo e intriga partidária, preletores dos lugares-comuns típicos do carreirismo nos jobs for the boys.
É também curioso contrastar a sua feminidade com a de outras jovens políticas. Por exemplo, o contraste da sua beleza natural com o pretensiosismo da beleza de Joana Amaral Dias. Ou, o contraste da sua feminidade, com a dureza de Catarina Martins a repetir a cassete do fanatismo revolucionário. E, ainda mais, o contraste da sua simpatia com o cinismo das not so young comentadoras do programa Barca do Inferno.
A Mariana e a Maria João são por isso duas jovens que podem e devem inspirar a juventude do nosso país. No entanto, o que é que as distingue politicamente?
De forma simplista podemos dizer que ambas se inspiram nos dois ideais do século XIX, a Maria João no liberalismo clássico e a Mariana no socialismo utópico. Por isso, podemos antecipar que a Maria João terá mais razão. De facto, a história e a teoria já nos mostraram abundantemente que o racionalismo da primeira criou liberdade e riqueza enquanto o idealismo da segunda gerou sempre tirania e miséria.
No entanto, isso não significa que no imediato a Mariana não seja mais atrativa para muitos jovens. Em primeiro lugar, porque a nossa comunicação social está excessivamente dominada pela esquerda, que não hesitará em transformá-la numa superstar se isso lhe der dividendos. Em segundo lugar, porque os jovens são naturalmente mais idealistas e impacientes e como tal mais atraídos pelos mitos revolucionários. Mas, e sobretudo, porque a substituição de um estado patriarcal todo-poderoso por uma mão invisível omnisciente despiu o liberalismo radical da empatia indispensável ao ser humano e em especial aos jovens.
Mas não precisava de ser assim. O radicalismo liberal é apenas uma doença infantil dos economistas que tendem a identificar os modelos baseados no mítico homo economicus com a realidade. Os modelos são apenas abstrações necessárias à análise dedutiva ou indutiva mas não podem incluir toda a complexidade humana, tanto mais que apenas agora começamos a saber um pouco sobre o cérebro humano. Por isso, o liberalismo tem de encontrar a sua própria humanidade e simpatia se quiser preencher os sonhos e idealismo da juventude.
Na verdade a renovação do espirito liberal talvez não seja suficiente numa fase de amadurecimento do capitalismo. As novas gerações não podem continuar prisioneiras das ideologias que resultaram das necessidades do século XIX. Têm de criar um idealismo para o século XXII, seja na economia, no papel do espiritualismo e convívio entre religiões, na bioética e na ciência ou em qualquer domínio.
Por isso não se trata apenas de deixar correr o tempo de acordo com o principio de Churchill de que “If you're not a liberal at twenty you have no heart, if you're not a conservative at forty you have no brain”, e desejar pacientemente que a Mariana chegue aos quarenta.
Para aqueles que, como eu, já iniciaram o crepúsculo, é particularmente gratificante ver o despontar de uma nova geração capaz de responder a esse desafio. Por isso, faço votos que a Maria João e a Mariana não se deixem corromper pela inevitável adulação dos media e que mantenham a sua frescura, irreverência, simplicidade e empatia para que o seu exemplo atraia cada vez mais jovens.
Trata-se de duas jovens bloggers que se destacam por serem entusiastas, inteligentes, cultas, bonitas, femininas e simpáticas.
O seu empenhamento, perspicácia e saber não podiam contrastar mais com a perceção geral dos jovens políticos saídos das jotas - geralmente alunos medíocres de universidades igualmente medíocres, produto do nepotismo e intriga partidária, preletores dos lugares-comuns típicos do carreirismo nos jobs for the boys.
É também curioso contrastar a sua feminidade com a de outras jovens políticas. Por exemplo, o contraste da sua beleza natural com o pretensiosismo da beleza de Joana Amaral Dias. Ou, o contraste da sua feminidade, com a dureza de Catarina Martins a repetir a cassete do fanatismo revolucionário. E, ainda mais, o contraste da sua simpatia com o cinismo das not so young comentadoras do programa Barca do Inferno.
A Mariana e a Maria João são por isso duas jovens que podem e devem inspirar a juventude do nosso país. No entanto, o que é que as distingue politicamente?
De forma simplista podemos dizer que ambas se inspiram nos dois ideais do século XIX, a Maria João no liberalismo clássico e a Mariana no socialismo utópico. Por isso, podemos antecipar que a Maria João terá mais razão. De facto, a história e a teoria já nos mostraram abundantemente que o racionalismo da primeira criou liberdade e riqueza enquanto o idealismo da segunda gerou sempre tirania e miséria.
No entanto, isso não significa que no imediato a Mariana não seja mais atrativa para muitos jovens. Em primeiro lugar, porque a nossa comunicação social está excessivamente dominada pela esquerda, que não hesitará em transformá-la numa superstar se isso lhe der dividendos. Em segundo lugar, porque os jovens são naturalmente mais idealistas e impacientes e como tal mais atraídos pelos mitos revolucionários. Mas, e sobretudo, porque a substituição de um estado patriarcal todo-poderoso por uma mão invisível omnisciente despiu o liberalismo radical da empatia indispensável ao ser humano e em especial aos jovens.
Mas não precisava de ser assim. O radicalismo liberal é apenas uma doença infantil dos economistas que tendem a identificar os modelos baseados no mítico homo economicus com a realidade. Os modelos são apenas abstrações necessárias à análise dedutiva ou indutiva mas não podem incluir toda a complexidade humana, tanto mais que apenas agora começamos a saber um pouco sobre o cérebro humano. Por isso, o liberalismo tem de encontrar a sua própria humanidade e simpatia se quiser preencher os sonhos e idealismo da juventude.
Na verdade a renovação do espirito liberal talvez não seja suficiente numa fase de amadurecimento do capitalismo. As novas gerações não podem continuar prisioneiras das ideologias que resultaram das necessidades do século XIX. Têm de criar um idealismo para o século XXII, seja na economia, no papel do espiritualismo e convívio entre religiões, na bioética e na ciência ou em qualquer domínio.
Por isso não se trata apenas de deixar correr o tempo de acordo com o principio de Churchill de que “If you're not a liberal at twenty you have no heart, if you're not a conservative at forty you have no brain”, e desejar pacientemente que a Mariana chegue aos quarenta.
Para aqueles que, como eu, já iniciaram o crepúsculo, é particularmente gratificante ver o despontar de uma nova geração capaz de responder a esse desafio. Por isso, faço votos que a Maria João e a Mariana não se deixem corromper pela inevitável adulação dos media e que mantenham a sua frescura, irreverência, simplicidade e empatia para que o seu exemplo atraia cada vez mais jovens.
Friday, 20 March 2015
About managerial capitalism
Managerial capitalism is the sector comprised by public companies with such a high degree of capital dispersion that in practice shareholders have little or no control over management and the profit motive is often discarded.
Managers' capitalism developed not as the result of any specific ideology but from the natural growth of companies.
So, all non-stated owned big firms are by nature part of this sector as long as their capital grows beyond the resources of a small group of shareholders. For instance, even if the three wealthiest billionaires in the world were to invest all their fortunes to buy a large cap stock like Apple they would own only 30% of the company.
In the managerial sector it is often useful to distinguish three types of firms. Those that operate in regulated sectors and often resulted from the privatization of state monopolies, those that have grown to a dominant position in their sector and the conglomerates.
The emergence of big firms is not a new phenomenon and since the late XIX century there has been a fear that business concentration threatens free markets, the rule of law and the profit motive indispensable in a capitalist society. The concern has always been that business concentration would lead to the abuse of market power, the collusion with politicians would result in an uneven playing field and tax arbitrage for the benefit of a few and the separation between ownership and management would erode the profit drive and encourage waste and self-aggrandizement.
Today’s novelty resides solely on substantial transformations in the governance system. While in the age of the Trusts and the so-called “robber barons” these were still mostly capitalists who paid professional managers a salary of about 20 times that paid to the other professionals, nowadays there is a new layer of professional money managers between the ultimate owners and the managers and these now earn about 300 times the average salary in their companies. For example, it is now possible to find CEOs who earn more in compensation than what they pay in dividends to a shareholder who owns more than 2% of the business.
So, the modern day CEO-cracy has little capital invested in their companies and a strong incentive to maximize the company size and his compensation at the expense of profitability. Indeed, finance theory has contributed for such behavior by replacing profitability with a more ambiguous concept of shareholder value and by promoting a culture of stakeholders responsibility instead of stockholders.
Moreover, the average tenure of Fortune 500 company CEOs was 9.7 years in 2013, with many being recruited internally and going straight into retirement. That is, nominations often are the result of political and internal power struggles as in any bureaucracy rather than business performance.
In fact, the growing mix of business and politics is evident not only in the regulated sectors but also in the remaining sectors of managerial capitalism because of the role played by banks and institutional investors in corporate control. This places the managerial sector somewhere between the state enterprise sector and the market capitalism sector.
Through political favoritism and managers’ desire for size it is not surprising that managers' capitalism has continued to grow despite its inefficiency. For instance, in the two groups referred to below the top 50 managerial firms used twice as much capital as the bottom group.
This raises the question of knowing whether the managerial sector is beneficial for its investors. For this, one needs to know if returns are greater in the managerial sector. Using as a proxy for managerial capitalism the free float, we did a cursory analysis of the top and bottom 50 companies in the S&P500 Index. It revealed that last year firms in the managerial sector had a median return on equity which was lower than in firms with a lower float by three percentage points. Furthermore, the annualized return of stock prices over the past three years was also lower by two percentage points.
Surprisingly, managerial capitalism does not seem able to extract any rents for its own shareholders despite being protected by the political sector. Overall, the system endangers competition, the profit motive and social mobility necessary to keep capitalism a mild Darwinian system where the stronger takes over the weak for the benefit of both.
That is, although there is some truth in the statement that “when we have strong managers, weak directors, co-opted accountants, and passive owners, don’t be surprised when the looting begins (Bogle, J.C. (2003))”, the problem with managerial capitalism is not simply a question of generating some “bad apples”. It is really a cancer that sooner or later compromises free markets, the rule of law and the profit motive.
Yet this should not be the inevitable result of growth. One could still benefit from company size as long as the agency problems had been tackled head on. Unfortunately, the emergence of institutional investors who were supposed to represent a dispersed constituency of individual shareholders has aggravated the problem rather than solve it. For instance, in the USA the 100 largest managers of pension and mutual funds represent the ownership of about 50% of corporate America.
However, they hardly even attend annual meetings. And, quoting Bogle again: “the focus of the mutual fund industry has gradually shifted—from management to marketing, from stewardship to salesmanship, and—just as in the case of corporate America—from owners capitalism to managers capitalism”.
So, with the money managers riddled by conflicts of interest and governance problems similar or even worse than those of the corporations they are supposed to oversee a rising managerial sector can only end in inefficiency.
However, since the alternative to state owned enterprises is often its transformation into a managers’ corporation one has to assess their relative merits. Likewise, since size and job security often come together, for those employed in such firms the managerial model seems similar to many of the ideals of the XIX century utopian socialism.
Managers' capitalism developed not as the result of any specific ideology but from the natural growth of companies.
So, all non-stated owned big firms are by nature part of this sector as long as their capital grows beyond the resources of a small group of shareholders. For instance, even if the three wealthiest billionaires in the world were to invest all their fortunes to buy a large cap stock like Apple they would own only 30% of the company.
In the managerial sector it is often useful to distinguish three types of firms. Those that operate in regulated sectors and often resulted from the privatization of state monopolies, those that have grown to a dominant position in their sector and the conglomerates.
The emergence of big firms is not a new phenomenon and since the late XIX century there has been a fear that business concentration threatens free markets, the rule of law and the profit motive indispensable in a capitalist society. The concern has always been that business concentration would lead to the abuse of market power, the collusion with politicians would result in an uneven playing field and tax arbitrage for the benefit of a few and the separation between ownership and management would erode the profit drive and encourage waste and self-aggrandizement.
Today’s novelty resides solely on substantial transformations in the governance system. While in the age of the Trusts and the so-called “robber barons” these were still mostly capitalists who paid professional managers a salary of about 20 times that paid to the other professionals, nowadays there is a new layer of professional money managers between the ultimate owners and the managers and these now earn about 300 times the average salary in their companies. For example, it is now possible to find CEOs who earn more in compensation than what they pay in dividends to a shareholder who owns more than 2% of the business.
So, the modern day CEO-cracy has little capital invested in their companies and a strong incentive to maximize the company size and his compensation at the expense of profitability. Indeed, finance theory has contributed for such behavior by replacing profitability with a more ambiguous concept of shareholder value and by promoting a culture of stakeholders responsibility instead of stockholders.
Moreover, the average tenure of Fortune 500 company CEOs was 9.7 years in 2013, with many being recruited internally and going straight into retirement. That is, nominations often are the result of political and internal power struggles as in any bureaucracy rather than business performance.
In fact, the growing mix of business and politics is evident not only in the regulated sectors but also in the remaining sectors of managerial capitalism because of the role played by banks and institutional investors in corporate control. This places the managerial sector somewhere between the state enterprise sector and the market capitalism sector.
Through political favoritism and managers’ desire for size it is not surprising that managers' capitalism has continued to grow despite its inefficiency. For instance, in the two groups referred to below the top 50 managerial firms used twice as much capital as the bottom group.
This raises the question of knowing whether the managerial sector is beneficial for its investors. For this, one needs to know if returns are greater in the managerial sector. Using as a proxy for managerial capitalism the free float, we did a cursory analysis of the top and bottom 50 companies in the S&P500 Index. It revealed that last year firms in the managerial sector had a median return on equity which was lower than in firms with a lower float by three percentage points. Furthermore, the annualized return of stock prices over the past three years was also lower by two percentage points.
Surprisingly, managerial capitalism does not seem able to extract any rents for its own shareholders despite being protected by the political sector. Overall, the system endangers competition, the profit motive and social mobility necessary to keep capitalism a mild Darwinian system where the stronger takes over the weak for the benefit of both.
That is, although there is some truth in the statement that “when we have strong managers, weak directors, co-opted accountants, and passive owners, don’t be surprised when the looting begins (Bogle, J.C. (2003))”, the problem with managerial capitalism is not simply a question of generating some “bad apples”. It is really a cancer that sooner or later compromises free markets, the rule of law and the profit motive.
Yet this should not be the inevitable result of growth. One could still benefit from company size as long as the agency problems had been tackled head on. Unfortunately, the emergence of institutional investors who were supposed to represent a dispersed constituency of individual shareholders has aggravated the problem rather than solve it. For instance, in the USA the 100 largest managers of pension and mutual funds represent the ownership of about 50% of corporate America.
However, they hardly even attend annual meetings. And, quoting Bogle again: “the focus of the mutual fund industry has gradually shifted—from management to marketing, from stewardship to salesmanship, and—just as in the case of corporate America—from owners capitalism to managers capitalism”.
So, with the money managers riddled by conflicts of interest and governance problems similar or even worse than those of the corporations they are supposed to oversee a rising managerial sector can only end in inefficiency.
However, since the alternative to state owned enterprises is often its transformation into a managers’ corporation one has to assess their relative merits. Likewise, since size and job security often come together, for those employed in such firms the managerial model seems similar to many of the ideals of the XIX century utopian socialism.
Wednesday, 18 March 2015
Socialist state capitalism in Scandinavia
State capitalism is a form of capitalism in which the state holds a significant part of the means of production or regulates big companies, interfering directly or indirectly in the majority of the most significant businesses.
This interference is similar to that observed under the so-called crony capitalism, except that is carried out under the guise of the interest of the state. Another feature is that it rejects to be identified with the private sector and capitalism but does not disavow them in entirely. State capitalism exists in democratic or dictatorial regimes, as well as under right or left-wing governments.
In Western Europe there are two distinct forms of state capitalism - the Scandinavian and the Mediterranean. The first was made possible by the rise to power of social democratic parties in Sweden and England in the 1920s which would lead them to the government in the aftermath of World War II, with an extensive agenda of industry nationalization and social policies. The basic ideal of a broad welfare state was common to other political forces, including the Liberal and Conservative party in England, but has since been identified with social democracy.
The British experience with post-war nationalization was progressively abandoned after the Conservative electoral victory in 1951, but it continued in the Nordic countries with a golden age that lasted until the 1970s. For various reasons (namely windfalls) not all Nordic countries experienced a decline as pronounced as that of Sweden. However, we will use the case of Sweden to illustrate the initial success and subsequent decline of the Nordic model.
The Scandinavian initial success in combining strong equality with economic growth has been attributed to special features of their people, namely being ethnically homogeneous protestant societies, to their taxation policies and to a decentralized welfare system.
Some dismiss this golden era as being simply the result of the Western golden Keynesian period of the 1950-1960s compounded by a pragmatic continuation of the liberal policies that had transformed Sweden in a modern industrial country from 1870 to 1936. They reinforce this hypothesis by claiming that Sweden’s decline began in 1968 when the radicalised left wing Social Democrats attempted a ‘third-way’ approach trying to establish an economic system between a free market and a planned economy.
During this period the taxation of business financing was strongly discriminatory in favour of state pension funds and insurance companies. For instance, Henrekson (2007) estimated that in 1980 the maximum marginal tax rate on new share issues was 137% for private household investors but -12% for tax exempt public pension funds, while the rates for debt financed investments were 58% and -88%, respectively.
This attempt to create a market economy without individual capitalists and entrepreneurs proved disastrous. For instance, Axelsson (2006) points out that in 2004 among the top 100 Swedish firms in terms of revenue only 38 started as privately-owned businesses. Moreover, out of these 38, only 2 were created since 1970 while 21 were founded before 1913.
Not surprisingly, despite the initial success in upholding private property, free markets and the rule of law while avoiding the dependency culture often associated with extensive welfare systems, in the early 1990s Sweden went through a dramatic banking crisis with a cost for taxpayers equivalent to 2% of GDP. At the political level it also meant the break of the Social Democrats rule. Since 1991 the liberal conservatives have alternated in power and promoted the introduction of a liberalization program that initiated the end of the Nordic model of state capitalism in Sweden.
Personally, in 2012, I drove through Sweden to Gothenburg and could still feel an atmosphere of decay that was markedly in contrast with the energy I had felt in 1977 when I first visited the country. This was not an impression simply due to my aging. The OECD figures below for GDP per capita also confirm the relative decline until 2005 and a minor recovery thereafter.
There are two important lessons that one can draw from the Swedish experience. First, that there is a limit on how much the weight of the state in the economy can go. Using as an indicator the level of public expenditure as a percentage of GDP, that limit seems to set in when its value reaches 55%. Second, and probably most importantly, capitalism cannot dispense with the profit motive as a driver of innovation and entrepreneurship.
The attempt to socialize profits through state pension funds and the tax system might have contributed to a high level of equality in Sweden but its cost in terms of entrepreneurship was severe. In the end, the pursuit of profit motive always implies a certain degree of inequality. So, the challenge for Sweden, as it moves towards market capitalism, is to find a fair balance between a socially acceptable increase in inequality and the growth of the private sector initiative.
This interference is similar to that observed under the so-called crony capitalism, except that is carried out under the guise of the interest of the state. Another feature is that it rejects to be identified with the private sector and capitalism but does not disavow them in entirely. State capitalism exists in democratic or dictatorial regimes, as well as under right or left-wing governments.
In Western Europe there are two distinct forms of state capitalism - the Scandinavian and the Mediterranean. The first was made possible by the rise to power of social democratic parties in Sweden and England in the 1920s which would lead them to the government in the aftermath of World War II, with an extensive agenda of industry nationalization and social policies. The basic ideal of a broad welfare state was common to other political forces, including the Liberal and Conservative party in England, but has since been identified with social democracy.
The British experience with post-war nationalization was progressively abandoned after the Conservative electoral victory in 1951, but it continued in the Nordic countries with a golden age that lasted until the 1970s. For various reasons (namely windfalls) not all Nordic countries experienced a decline as pronounced as that of Sweden. However, we will use the case of Sweden to illustrate the initial success and subsequent decline of the Nordic model.
The Scandinavian initial success in combining strong equality with economic growth has been attributed to special features of their people, namely being ethnically homogeneous protestant societies, to their taxation policies and to a decentralized welfare system.
Some dismiss this golden era as being simply the result of the Western golden Keynesian period of the 1950-1960s compounded by a pragmatic continuation of the liberal policies that had transformed Sweden in a modern industrial country from 1870 to 1936. They reinforce this hypothesis by claiming that Sweden’s decline began in 1968 when the radicalised left wing Social Democrats attempted a ‘third-way’ approach trying to establish an economic system between a free market and a planned economy.
During this period the taxation of business financing was strongly discriminatory in favour of state pension funds and insurance companies. For instance, Henrekson (2007) estimated that in 1980 the maximum marginal tax rate on new share issues was 137% for private household investors but -12% for tax exempt public pension funds, while the rates for debt financed investments were 58% and -88%, respectively.
This attempt to create a market economy without individual capitalists and entrepreneurs proved disastrous. For instance, Axelsson (2006) points out that in 2004 among the top 100 Swedish firms in terms of revenue only 38 started as privately-owned businesses. Moreover, out of these 38, only 2 were created since 1970 while 21 were founded before 1913.
Not surprisingly, despite the initial success in upholding private property, free markets and the rule of law while avoiding the dependency culture often associated with extensive welfare systems, in the early 1990s Sweden went through a dramatic banking crisis with a cost for taxpayers equivalent to 2% of GDP. At the political level it also meant the break of the Social Democrats rule. Since 1991 the liberal conservatives have alternated in power and promoted the introduction of a liberalization program that initiated the end of the Nordic model of state capitalism in Sweden.
Personally, in 2012, I drove through Sweden to Gothenburg and could still feel an atmosphere of decay that was markedly in contrast with the energy I had felt in 1977 when I first visited the country. This was not an impression simply due to my aging. The OECD figures below for GDP per capita also confirm the relative decline until 2005 and a minor recovery thereafter.
There are two important lessons that one can draw from the Swedish experience. First, that there is a limit on how much the weight of the state in the economy can go. Using as an indicator the level of public expenditure as a percentage of GDP, that limit seems to set in when its value reaches 55%. Second, and probably most importantly, capitalism cannot dispense with the profit motive as a driver of innovation and entrepreneurship.
The attempt to socialize profits through state pension funds and the tax system might have contributed to a high level of equality in Sweden but its cost in terms of entrepreneurship was severe. In the end, the pursuit of profit motive always implies a certain degree of inequality. So, the challenge for Sweden, as it moves towards market capitalism, is to find a fair balance between a socially acceptable increase in inequality and the growth of the private sector initiative.
Friday, 13 March 2015
Wild west and “crony” capitalism
Capitalism without rules and capitalism with rigged rules are the two sides of the same coin. In fact, despite claiming to be capitalist, such economic systems violate its basic foundations, namely free markets and the rule of law.
The absence of any form of regulation, whether on working conditions or environment, is often associated with the early days of capitalism in XIX century England. However, Anderson and Hill in their “An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West”, re-interpreted the wild west history as an experimental libertarian society. They claim that “Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved. These agencies often did not qualify as governments because they did not have a legal monopoly on "keeping order."”
This is a mistaken reinterpretation of facts. Indeed, all historical experiments quickly have shown that someone (the government) stepped in with a monopoly over law and its enforcement before the country collapsed from civil war or banditry. This has happened in all revolutionary processes as well as in the development of private law experiments (e.g. securities law in XVII century Amsterdam or the merchant courts in medieval Europe).
Presently we may find examples of wild west capitalism in failed states (e.g. Somalia or Libya) or in special territories enjoying reduced or non-existent regulation (e.g. the special enterprise zones in China).
However, the most common is to find situations where, although private property is protected from extortion by law, the law itself and its enforcement may be twisted in favor of the rulers and their acolytes. Like in “wild west” societies, business is carried out under the law of the jungle but this time the strongest is protected by the state. This type of “crony capitalism” is common in dictatorships but exists also in democratic societies.
The “cronies” typically use their control of the state to raid other people’s property, to get rid of competitors, to get favorable tax treatment, privileged access to financing and to secure government procurement contracts and concessions. Often, these advantages are also secured through protection against corruption charges.
Crony capitalism exists to some extent in most capitalist economies but only when favoritism is rampant can we talk of a “crony capitalistic” system.
Unfortunately, there are too many past and present examples of crony capitalism. Among the most extreme historical examples we may mention the Suharto and Mobutu families in Indonesia and Zaire, respectively. Presently, Putin’s Russia or Chaves’ Venezuela are also two of the most extreme examples, although the later would be better described as crony socialism. Obviously, the more regulated a sector is the greater the scope for crony capitalism. For instance, in sectors like banking, real estate, utilities, telecoms, natural resources and casinos. So, not surprisingly, in 2014 the Economist ranked Hong Kong, Russia, Malaysia, Ukraine and Singapore as the top five countries in terms of crony-sector wealth.
The antidotes to crony capitalism are the rule of law and free markets. Indeed, as long as these are upheld, as they should in societies with representative democracy and constitutional liberalism, market capitalism will never degenerate into “crony capitalism” as is frequently anticipated by Marxists and other anti-capitalist movements.
It is important to remember that in their initial stages countries under crony capitalism economies often experience substantial economic growth driven by public or speculative investment. However, when such levels of unsustainable investment comes to a halt due to losses and lack of financing the economic miracle always collapses with huge amounts of debt, abandoned investments and unemployment.
That is, even when apparently successful, one should not be fooled because in the end crony capitalism will always bring misery and a huge misallocation of resources.
Likewise, the frequent examples of crony capitalism under systems of state and managerial capitalism should not be used to confuse these systems with crony capitalism, because such systems have a deliberate policy to change the workings of capitalism.
The absence of any form of regulation, whether on working conditions or environment, is often associated with the early days of capitalism in XIX century England. However, Anderson and Hill in their “An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West”, re-interpreted the wild west history as an experimental libertarian society. They claim that “Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved. These agencies often did not qualify as governments because they did not have a legal monopoly on "keeping order."”
This is a mistaken reinterpretation of facts. Indeed, all historical experiments quickly have shown that someone (the government) stepped in with a monopoly over law and its enforcement before the country collapsed from civil war or banditry. This has happened in all revolutionary processes as well as in the development of private law experiments (e.g. securities law in XVII century Amsterdam or the merchant courts in medieval Europe).
Presently we may find examples of wild west capitalism in failed states (e.g. Somalia or Libya) or in special territories enjoying reduced or non-existent regulation (e.g. the special enterprise zones in China).
However, the most common is to find situations where, although private property is protected from extortion by law, the law itself and its enforcement may be twisted in favor of the rulers and their acolytes. Like in “wild west” societies, business is carried out under the law of the jungle but this time the strongest is protected by the state. This type of “crony capitalism” is common in dictatorships but exists also in democratic societies.
The “cronies” typically use their control of the state to raid other people’s property, to get rid of competitors, to get favorable tax treatment, privileged access to financing and to secure government procurement contracts and concessions. Often, these advantages are also secured through protection against corruption charges.
Crony capitalism exists to some extent in most capitalist economies but only when favoritism is rampant can we talk of a “crony capitalistic” system.
Unfortunately, there are too many past and present examples of crony capitalism. Among the most extreme historical examples we may mention the Suharto and Mobutu families in Indonesia and Zaire, respectively. Presently, Putin’s Russia or Chaves’ Venezuela are also two of the most extreme examples, although the later would be better described as crony socialism. Obviously, the more regulated a sector is the greater the scope for crony capitalism. For instance, in sectors like banking, real estate, utilities, telecoms, natural resources and casinos. So, not surprisingly, in 2014 the Economist ranked Hong Kong, Russia, Malaysia, Ukraine and Singapore as the top five countries in terms of crony-sector wealth.
The antidotes to crony capitalism are the rule of law and free markets. Indeed, as long as these are upheld, as they should in societies with representative democracy and constitutional liberalism, market capitalism will never degenerate into “crony capitalism” as is frequently anticipated by Marxists and other anti-capitalist movements.
It is important to remember that in their initial stages countries under crony capitalism economies often experience substantial economic growth driven by public or speculative investment. However, when such levels of unsustainable investment comes to a halt due to losses and lack of financing the economic miracle always collapses with huge amounts of debt, abandoned investments and unemployment.
That is, even when apparently successful, one should not be fooled because in the end crony capitalism will always bring misery and a huge misallocation of resources.
Likewise, the frequent examples of crony capitalism under systems of state and managerial capitalism should not be used to confuse these systems with crony capitalism, because such systems have a deliberate policy to change the workings of capitalism.
Friday, 6 March 2015
The role of the voluntary sector
What we call voluntary sector is often referred to as NGOs, third sector, associative sector, non-profit sector, social economy and similar words aimed at differentiating it from capitalism. Non-profit sector would be a better label if it was not used by entities with special incorporation statutes (e.g. cooperatives) to claim preferential treatment under the pretence of being of general interest rather than for the self-interest of its members, promoters and sponsors.
It is important to understand the difference between self-interest and profit. The first can be achieved through cost minimization or service maximization for its members while the second is separate from the services delivered by the providing entity and can only be achieved through profit maximization.
Let me use as an example the motor associations we find in many countries. When I lived in the UK there were two such associations and I joined the AA after comparing the two in terms of their breakdown and other motor services. The price of these two services was bundled in a single annual fee. So, when assessing its value for money I had to weight simultaneously three different services the insurance premium for the cost of recovery and the quality of the recovery service and the extra services provided. The first I wanted it to be as low as possible and the other two as high as possible. So, the AA directors had no way of knowing how to maximize the members welfare except indirectly through their vote during elections. Indeed they probably did not know whether to maximize the number of members or the welfare of the existing members.
However, later on the AA decided to transform into a corporation and issued shares to its members. So I became a shareholder as well as a client subscribing to their services. Now, the directors had a clear mandate – to maximize my profits. Does it mean that they had an incentive to do it by charging me more or reducing the quality of my services. Quite the contrary. While they needed to focus on getting me profits they also had to keep me pleased to avoid losing a customer and attract more clients by offering a better value for money than AA’s competitors. I was also better off because, instead of being tied up to the AA, if I was not pleased with the profits I could sell my shares and still continue as a client as long as the service was worthwhile.
So, in general, whenever a service or product can be produced on a profit basis the capitalist option is preferable. The few exceptions usually involve cost-minimization situations where members are few and compete among themselves so that they may end up being served by a single monopolist service provider that they co-own. For instance, in the banking industry the banks in small countries may find it advantageous to set up a joint non-profit company to run a single national network of ATM machines. As long as this monopoly is not given any privileges by the state and can be challenged by anyone willing to set up a competing service free competition is preserved, despite the lack of profit-motive.
However, as the activity expands, sooner or later a profit-driven corporate will come to challenge the incumbent and non-corporate entities may find it necessary to transform into a profit-seeking corporation. This can be done overnight or through a long and tortuous process of transformation.
Due to economies of scale, bundling requirements and similar conditions, there is always a reasonable number of activities pursued for self-interest by non-profit entities which do not qualify as part of the capitalist sector. However, in a lively capitalist environment such organizations should aim to transform into corporations, instead of adopting an anti-capitalist stance and chasing state privileges. That is, like the informal sector, they should be a nursery for future capitalists.
Now, these non-profit self-serving entities should not be confused with truly altruistic (non-self-interest) organizations. We find these pursing activities where the state or the capitalist sectors are present and as well as in activities of no-interest for both. They use various institutional forms ranging from associations and clubs to charities and foundations. However, their real distinctive feature is whether they are self-serving or not, a differentiation that is not easy to define when they are active in the fields traditionally associated with the government or enterprise sectors.
From the middle ages we inherited charities and mutuals set up to aid the poor with medical, educational and financial services. Many remain to this day, even when their initial motivation has largely disappeared.
For instance, in the past the small savings of the children and poor were too meagre to be of interest for banks. So, when my first child was born I decided to open an account in a Portuguese mutual that gave children a nice money pig to save coins to deposit later with the bank and earn a little interest. Equally, it allowed its members to open a retirement savings account with as little as one Euro monthly and provides nice retirement homes for its members. All these services are subsided by sharing the profits obtained by a mortgage bank owned by the mutual.
However, a well-informed friend of mine, told me that the profits could be much higher if it was not for the fact the banking staff earned on average 30% more than their colleagues in the for-profit banking sector. Obviously, the staff and directors are strongly against the demutualisation of the institution, despite the fact that now all banks offer similar services to small savers. Moreover, I have noticed that many of the beneficiaries of the profit sharing products are indeed middle class. So, this institution is more properly qualified as an hybrid institution self-serving its employees and clients, but with a significant philanthropic activity.
Indeed, today there are an increasing demand for the state to outsource some of its functions to such hybrid organizations. This could be an alternative to the privatization of natural monopolies and other non-sovereign activities carried out by the state. However, this “third-way” has its own governance and agency problems. Although it is reasonable in aid programs one should be careful to avoid stimulating rent-seeking and anti-competitive behaviour.
In conclusion, there are a wide range of activities where cooperation may substitute market competition and humans may voluntarily mobilize to pursue selfless objectives. However, regardless of how well intended their objectives are, their activities and practices should be carefully scrutinized to avoid confusing self-interest with selfless organizations.
It is important to understand the difference between self-interest and profit. The first can be achieved through cost minimization or service maximization for its members while the second is separate from the services delivered by the providing entity and can only be achieved through profit maximization.
Let me use as an example the motor associations we find in many countries. When I lived in the UK there were two such associations and I joined the AA after comparing the two in terms of their breakdown and other motor services. The price of these two services was bundled in a single annual fee. So, when assessing its value for money I had to weight simultaneously three different services the insurance premium for the cost of recovery and the quality of the recovery service and the extra services provided. The first I wanted it to be as low as possible and the other two as high as possible. So, the AA directors had no way of knowing how to maximize the members welfare except indirectly through their vote during elections. Indeed they probably did not know whether to maximize the number of members or the welfare of the existing members.
However, later on the AA decided to transform into a corporation and issued shares to its members. So I became a shareholder as well as a client subscribing to their services. Now, the directors had a clear mandate – to maximize my profits. Does it mean that they had an incentive to do it by charging me more or reducing the quality of my services. Quite the contrary. While they needed to focus on getting me profits they also had to keep me pleased to avoid losing a customer and attract more clients by offering a better value for money than AA’s competitors. I was also better off because, instead of being tied up to the AA, if I was not pleased with the profits I could sell my shares and still continue as a client as long as the service was worthwhile.
So, in general, whenever a service or product can be produced on a profit basis the capitalist option is preferable. The few exceptions usually involve cost-minimization situations where members are few and compete among themselves so that they may end up being served by a single monopolist service provider that they co-own. For instance, in the banking industry the banks in small countries may find it advantageous to set up a joint non-profit company to run a single national network of ATM machines. As long as this monopoly is not given any privileges by the state and can be challenged by anyone willing to set up a competing service free competition is preserved, despite the lack of profit-motive.
However, as the activity expands, sooner or later a profit-driven corporate will come to challenge the incumbent and non-corporate entities may find it necessary to transform into a profit-seeking corporation. This can be done overnight or through a long and tortuous process of transformation.
Due to economies of scale, bundling requirements and similar conditions, there is always a reasonable number of activities pursued for self-interest by non-profit entities which do not qualify as part of the capitalist sector. However, in a lively capitalist environment such organizations should aim to transform into corporations, instead of adopting an anti-capitalist stance and chasing state privileges. That is, like the informal sector, they should be a nursery for future capitalists.
Now, these non-profit self-serving entities should not be confused with truly altruistic (non-self-interest) organizations. We find these pursing activities where the state or the capitalist sectors are present and as well as in activities of no-interest for both. They use various institutional forms ranging from associations and clubs to charities and foundations. However, their real distinctive feature is whether they are self-serving or not, a differentiation that is not easy to define when they are active in the fields traditionally associated with the government or enterprise sectors.
From the middle ages we inherited charities and mutuals set up to aid the poor with medical, educational and financial services. Many remain to this day, even when their initial motivation has largely disappeared.
For instance, in the past the small savings of the children and poor were too meagre to be of interest for banks. So, when my first child was born I decided to open an account in a Portuguese mutual that gave children a nice money pig to save coins to deposit later with the bank and earn a little interest. Equally, it allowed its members to open a retirement savings account with as little as one Euro monthly and provides nice retirement homes for its members. All these services are subsided by sharing the profits obtained by a mortgage bank owned by the mutual.
However, a well-informed friend of mine, told me that the profits could be much higher if it was not for the fact the banking staff earned on average 30% more than their colleagues in the for-profit banking sector. Obviously, the staff and directors are strongly against the demutualisation of the institution, despite the fact that now all banks offer similar services to small savers. Moreover, I have noticed that many of the beneficiaries of the profit sharing products are indeed middle class. So, this institution is more properly qualified as an hybrid institution self-serving its employees and clients, but with a significant philanthropic activity.
Indeed, today there are an increasing demand for the state to outsource some of its functions to such hybrid organizations. This could be an alternative to the privatization of natural monopolies and other non-sovereign activities carried out by the state. However, this “third-way” has its own governance and agency problems. Although it is reasonable in aid programs one should be careful to avoid stimulating rent-seeking and anti-competitive behaviour.
In conclusion, there are a wide range of activities where cooperation may substitute market competition and humans may voluntarily mobilize to pursue selfless objectives. However, regardless of how well intended their objectives are, their activities and practices should be carefully scrutinized to avoid confusing self-interest with selfless organizations.
Tuesday, 3 March 2015
Notas preliminares sobre a evolução recente da despesa pública
No início do programa de ajustamento em Portugal alertei neste post para a necessidade de corrigir a trajetória da despesa pública, em especial no que diz respeito à evolução da segurança social.
Hoje podemos fazer uma avaliação preliminar do que mudou, pois já dispomos dos dados apresentados na tabela seguinte relativos aos dois primeiros anos 2011-2012.
Relativamente aos dados de 2009 tinha estimado que os cortes necessários em pontos percentuais do PIB seriam 6.0 na proteção social, 1.8 na saúde, 1.2 na educação e 0.7 nas forças de segurança. Como podemos ver na tabela acima a proteção social aumentou 0.8, a saúde reduziu apenas 0.6, a educação baixou 1.4 e as forças segurança tiveram uma diminuição de 0.2 pontos percentuais. Entretanto, o serviço da divida aumentou 1.6 pontos percentuais.
Isto é, nos sectores onde devia ter havido ajustamento, apenas na educação as reduções de despesa atingiram (e até superaram) a correção desejável. Outros sectores também contribuíram para o ajustamento, em particular os transportes com 1.4 e a defesa com 0.9 pontos percentuais, mas tais contribuições não foram suficientes para compensar a ausência de ajustamento nos restantes sectores.
Este ajustamento desequilibrado resultou da redução da despesa ter sido feita sobretudo através dos cortes salariais e do investimento e teve custos significativos em termos de crescimento e equidade. Por exemplo, o agravar dos desequilíbrios na despesa pública ocorreu num contexto em que o PIB caiu mais de 6 mil milhões de Euros em valor nominal.
Pior ainda, a ausência de ajustamento no peso do sector social não significou que os beneficiários deste sector tenham sido protegidos, antes pelo contrário. O crescimento das despesas sociais ficou a dever-se sobretudo ao aumento extraordinário dos beneficiários resultante do empobrecimento da classe média-baixa e do aumento das reformas antecipadas.
Uma das principais explicações reside na continuação do regime de incentivos às reformas antecipadas que foram utilizados por mais de 30 mil funcionários públicos nesses dois anos. Isto é, em vez de se optar por uma política de dispensa de funcionários que devidamente apoiados rapidamente se integrariam no mercado de trabalho privado, optou-se por comprometer de forma permanente a sustentabilidade da segurança social e não se fez qualquer reforma do Estado.
Em conclusão, a redução de 4.1 pontos percentuais no peso da despesa pública (ou 5.4 se considerarmos o efeito combinado do aumento da divida e da diminuição do PIB) foi excessiva para um período de apenas dois anos. Os 8 pontos que dissemos serem necessários podiam e deviam ter sido implementados ao longo dos três anos do programa. Mas, sobretudo, foram muito menos eficazes do que teria sido um corte generalizado de 5 pontos percentuais no orçamento de cada ministério, para já não falarmos numa política de cortes seletivos direcionada para uma verdadeira reforma do Estado.
Hoje podemos fazer uma avaliação preliminar do que mudou, pois já dispomos dos dados apresentados na tabela seguinte relativos aos dois primeiros anos 2011-2012.
Relativamente aos dados de 2009 tinha estimado que os cortes necessários em pontos percentuais do PIB seriam 6.0 na proteção social, 1.8 na saúde, 1.2 na educação e 0.7 nas forças de segurança. Como podemos ver na tabela acima a proteção social aumentou 0.8, a saúde reduziu apenas 0.6, a educação baixou 1.4 e as forças segurança tiveram uma diminuição de 0.2 pontos percentuais. Entretanto, o serviço da divida aumentou 1.6 pontos percentuais.
Isto é, nos sectores onde devia ter havido ajustamento, apenas na educação as reduções de despesa atingiram (e até superaram) a correção desejável. Outros sectores também contribuíram para o ajustamento, em particular os transportes com 1.4 e a defesa com 0.9 pontos percentuais, mas tais contribuições não foram suficientes para compensar a ausência de ajustamento nos restantes sectores.
Este ajustamento desequilibrado resultou da redução da despesa ter sido feita sobretudo através dos cortes salariais e do investimento e teve custos significativos em termos de crescimento e equidade. Por exemplo, o agravar dos desequilíbrios na despesa pública ocorreu num contexto em que o PIB caiu mais de 6 mil milhões de Euros em valor nominal.
Pior ainda, a ausência de ajustamento no peso do sector social não significou que os beneficiários deste sector tenham sido protegidos, antes pelo contrário. O crescimento das despesas sociais ficou a dever-se sobretudo ao aumento extraordinário dos beneficiários resultante do empobrecimento da classe média-baixa e do aumento das reformas antecipadas.
Uma das principais explicações reside na continuação do regime de incentivos às reformas antecipadas que foram utilizados por mais de 30 mil funcionários públicos nesses dois anos. Isto é, em vez de se optar por uma política de dispensa de funcionários que devidamente apoiados rapidamente se integrariam no mercado de trabalho privado, optou-se por comprometer de forma permanente a sustentabilidade da segurança social e não se fez qualquer reforma do Estado.
Em conclusão, a redução de 4.1 pontos percentuais no peso da despesa pública (ou 5.4 se considerarmos o efeito combinado do aumento da divida e da diminuição do PIB) foi excessiva para um período de apenas dois anos. Os 8 pontos que dissemos serem necessários podiam e deviam ter sido implementados ao longo dos três anos do programa. Mas, sobretudo, foram muito menos eficazes do que teria sido um corte generalizado de 5 pontos percentuais no orçamento de cada ministério, para já não falarmos numa política de cortes seletivos direcionada para uma verdadeira reforma do Estado.
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