03/07/2011
Andrei Shleifer: “We are living in an extraordinary period in human history: the last thirty years prior to the crisis has seen an extraordinary period of world economic growth and general improvement. Data on life expectancy, poverty, infant mortality, education levels, democratization, and development have all shown improvement. Countries around the world have been carrying out extensive privatization programs, reducing tax rates and tariffs, and adopting massive liberalization policies. Extreme poverty has been practically eliminated in Asia. The world, including both developed and developing, has embraced capitalism”
“Financial markets are just one part of economic activity and social activity. It’s a completely incorrect to infer that we need greater regulation because of the oversight that happened in the financial markets. Indeed, the financial crisis has shown, extraordinarily clearly and explicitly, the need for deregulation and liberalization, particularly in labor markets”
“Spain remains an extremely regulated economy. According to the World Bank’s ‘Ease of Doing Business’ Report, Spain ranks below the rest of Europe’s leading countries. Spain does particularly poorly with regard to starting a small business: it takes two days and around $200 to start a business in New Zealand, while in Spain it takes a few months and a lot more money. This is a disaster for Spain”
“Spain has an extremely regulated and rigid labor market (the third most regulated in the OECD, after Luxemburg and Mexico), and has the highest growth of unit labor cost. Moreover, according to McKinsey, Spain has a very inefficient service sector, which is the most important for job creation”
“The regulation of product and labor markets, in Southern Europe particularly, has developed so as to protect the insiders at the expense of the outsiders, it has developed to protect the most privileged members of society, the members of the trade unions and the public sector, at the expense of the people who can’t get access to these privileged and protected sectors. Thus, liberalization of product and labor markets is not just a matter of economic efficiency and growth, but also a matter of social justice”
“There is also a lot of good news for Spain. Unlike Greece, it has an extremely good growth potential: it is a fantastic exporter and has several large firms that have competed successfully in the European market. In order to unleash this potential, Spain needs to have a much more liberalized economy, particularly in the service sector”
“The service sector is very important for job creation, but research and development is also very critical for the economy. The levels of research and development in the university sector in Spain remain quite low, even by European standards”
“It is a mistake to think that the welfare dependency mentality in Spain cannot be changed. Sweden managed to reform its economy and make it more dynamic. And Mrs. Thatcher managed to transform the British economy. In Spain today, there is no alternative but to rethink the social contract. Intellectuals and political leaders must guide the way toward the necessary reforms”