Competitiveness versus equity

Fernando Gomez-Bezares


The 2007 crisis has left deep traces in our economy and our society; One of the least desirable is high economic inequality. Since the crisis occurred when we were already in the Eurozone, it was not possible to proceed with a devaluation, as we did with the old pesetas, that would allow our products to become more attractive to our foreign customers; and to increase our competitiveness we opt for lower wages and cuts in different benefits, which has been called an internal devaluation. The reality is that all this has caused the impoverishment of broad layers of the population, while some, not so few, have maintained or improved the volume of their income. The result is greater inequality.

But we cannot blame the crisis, history comes from further back. In the last century, after the post-World War II recovery, we lived a few years in which fiscal policies, equal opportunities, the Welfare State ... were constituting a very broad middle class within a great social permeability. But then problems arose, at different rates in different countries, which have been questioning the model.

On the one hand, new countries have been added to the market that, with lower wages and more benevolent regulations, make competition to our companies, and that puts down wages and increases unemployment, especially among the less qualified. The same goes for low-skilled immigration, which when hired for very low wages leaves those who want to charge more without opportunities; or with technology, which is increasingly replacing many jobs, decreasing the supply of employment. However, the wealthiest or the most qualified people increase their opportunities in this globalized market. All this is increasing inequalities in our environment.

I think that much of the success of some political options of the extreme right or of the extreme left, or of populisms, has its origin in the restlessness of many people when they see their decline in the social hierarchy and in their standard of living.

I think it is not good that the wage differences between those who earn a lot and very little are so great, that in the same company the best paid earns a thousand times more than the lowest paid. It is not fair, nor equitable. The problem is how we fix it. The solutions we used a few years ago work worse and worse. Thus, for example, some of our politicians propose raising taxes to those who earn the most to increase social coverage, improve education or invest in infrastructure. And the idea sounds good; The problem is that if we raise them we can reduce our economic attractiveness to the foreign investor or cause relocation of economic activity. In a globalized world, a certain consensus between states is necessary to successfully apply these measures. We need, increasingly, some form of global economic authority that supports, regulates and redistributes according to the principle of subsidiarity, as Pope Francis reminded us.

And when it comes to raising wages by raising the minimum wage or increasing union pressure, it is likely that this will decrease our competitiveness if it does not go hand in hand with an increase in productivity. The path of economic progress is the increase in productivity, and that we will achieve with better technology, with better infrastructure, with better legal frameworks ... and, above all, with better training of our workers that fosters innovation and increases added value. What happens is that these are tasks with long-term results. It is very difficult to perform economic miracles.

What I do know is that true development has to do with a balanced distribution of wealth, and this seems especially complicated in our world today.

Fernando Gómez-Bezares is Professor of Finance at Deusto Business School

Fernando Gomez-BezaresFernando Gomez-Bezares


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