The economist talked to “El Intransigente” about the need for labor reform, a tax reform and the role the justice system has in growth.
ABIGAIL LASALLE: How do you see the economic situation in Argentina?
AGUSTIN ETCHEBARNE: Argentina is currently at a crossroads and, thus, this is a crucial moment to make structural reforms and accelerate them. Until now, the government has been meek about making deep reforms, except at the beginning when it made the reforms necessary to rejoin the international markets. We went back into the world and that was extremely positive. Now, looking at the structural reforms Argentina needs, they have done very little. They’ve taken gradualism too far. Hence, I believe now is the moment for all Argentines, both the ruling party and the opposition, to think about what we are going to do. We have to face a very competitive world, in which Brasil is going through the sort of structural reforms we need. When you look at the rest of the world you see that Brasilian costs, for example, are about 25% higher than Mexican costs but Argentine costs are around 65% higher. Brasil is undergoing structural reforms to lower prices. Will Argentina do the same? Will we stay up there, alone in the world? How will we compete? If we are not able to compete against Brasil how can we compete against Mexico?
A.L.: But, should we take Brasilian reforms into account or take them as an example?
A.E.: I refer mainly the labor reform because Argentine costs are tremendous. We have to understand what is happening in the world. we are living in a globalized world, which means that, logically, businesses settle where it is more convenient for them. Furthermore, robots are quickly taking over the economy that is incorporating robots and algorithms. Hence, most repetitive and boring jobs will be carried out by artificial intelligence. If we add obstacles, this will happen even faster.
A.L.: So then we will have fewer jobs…
A.E.: We will need a highly trained workforce because now it is not just a workforce. To succeed we will need sophisticated minds that are creative, imaginative, emotionally intelligent, good at interpersonal relations … we will have to develop the sort of abilities machines cannot. We keep hearing that we have to industrialize and increase industrial jobs, but we have to forget about that. Industries will keep lowering the number of employees they hire for years. We will see a significant decrease in the industrial workforce, but the jobs we will have will be much more interesting. For example, industrial design – but not the actual device, which will be done by robots. It is interesting to see how we will deal with this transformation because labor regulations have created a very inflexible job market. This generates two things: the first is high unemployment. Countries with strict labor laws have twice the unemployment rate of those in which the labor market is more flexible. Who is worst off? Those without jobs. Labor regulations are, in, good for workers. Which may be true, as long as you are legally employed. If you are unemployed or work informally… well, that is what we have to go against. We have to reduce unemployment and informal work. This requires the flexibilization of the labor market.
MARIANO CONFALONIERI: But then you are saying that, in order to improve unemployment, current jobs would have to be more precarious.
A.E.: I’ve never said that, I believe we need much more flexibility. For example, today around the world there are many people that work from their homes. In Argentina this is very difficult because how many hours people work is very difficult to determine this way. Another example? There are Chinese boats that fish in Argentina but process the fish in South Africa. Why? Because labor laws are more convenient. You lost that job. In order to increase salaries, you need to increase the demand for jobs. Thus, if that ship comes to Argentina the salary of Argentines and the demand for jobs will increase. Instead, South Africans get the business. Why? Because you have to pay for their time while they are sleeping. To do their jobs they have to sleep on the ship, but when they arrive they fish. And they probably fish for a number of hours that is over 8. Each job has its peculiarities and when you try to regulate by industries is even harder because you have very different businesses in the same sector that may work in different ways. There is no reason to fix the same salary for every type of business, a big business may be able to pay high salaries that can be too high for smaller businesses. If the salaries are fixed by the State these small businesses may end up having to fire people. There are other systems in place around the world, even France is undergoing a labor reform.
M.C.: But how do we ensure the State protects the weaker part, in this case the worker?
A.E.: I believe we have to leave the idea that there is a confrontation between workers and capital, who really is the weaker link?
M.C.: The worker…
A.E.: People always say that, but it really depends on the number of businesses that are hiring. If there are more businesses hiring salaries increase.
M.C.: And why can’t we solve this with a tax reform instead?
A.E.: Clearly tax reform is key because one of the things we have to cut is the labor cost, we have to lower both taxes on labor and public spending. At 45%, Argentina has a level of public spending that is large when compared to most countries. This means that taxes have to be high to finance the welfare taxes, and Argentine businesses pay the highest taxes in the world except for the Comora islands in Africa. Salaries in the public sector, for example, are around 38% higher than those paid by private enterprises. Thus, higher taxes are not an option. We have to lower taxes, but this itself is a problem because we need them to finance public spending. The difference is public spending, the fact that we spend 45% of your GDP we are left with a deficit of 7 or 9 points. Thus, in order to be able to lower taxes, we have to first reduce public spending. The only other option is to continue taking foreign credits, and our foreign debt keeps increasing. This will last until credit stops. Thus, a reduction of public spending is inevitable. The crisis is coming and we have to be rational about it and avoid another devaluation of the peso. If we really want to avoid an increase in poverty we have to spend rationally and avoid increasing the foreign debt. We have to balance the accounts ourselves if we want to avoid the inevitable crisis and, the consequent increase in poverty. I hope Argentines will understand that we cannot condemn 50% of our country to poverty.
- This article was originally published at El Intransigente.