Unsustainable Spanish Practices

(Note that by 2015 many of the generous social benefits described below have been removed by the conservative government of Mariano Rajoy.) 

Like those “blood-red”, conservative Americans, South Europeans hate to pay taxes. The only difference is, they don't talk about it. Unlike US conservatives, South Europeans have never raised their anti-tax convictions to the level of ideology. When it comes to VAT, they just don't pay. Other taxes are shunned if possible. That's why Greek, Italian and Spanish practices are undermining public finance and becoming a threat to US investors and other international financial market operators that “decide” whether the euro survives.


Beyond this paradox, however, there is a truth to be faced by the South Europeans. Their generous welfare states are built on sand. Spain, probably the best organized of the three, proves the point.

Who wouldn't like to have free medication for all chronic illnesses and heavily subsidized prices for practically all medicine? What insecure 20-year-old wouldn't jump for joy at the chance of having a free nose job or breast implant? Who wouldn't love to have Spanish job security, with up to 45 days of severance pay for each year worked? Who indeed, except employers – who in turn survive by ignoring the obligatory value-added tax (VAT) on their sales.

For that matter, who wouldn't like to be a government employee in a regional government like that of Valencia or Catalonia, where mid- to upper level employees have an official car at their free disposal - on or off duty, including vacations? Who would be afraid to be unemployed in a country where (provided you have had a steady job until then) you have two years of unemployment benefits to the tune of 500 euros per month for a single person and 1200-1400 euros for a family? Where you can turn down a job offer from the employment office and still retain your benefits? And where you, after receiving your unemployment benefit, could buzz off to your black-economy job around the corner without a chance of getting caught?

Surely, all of this cannot be true? But as far as I can tell, it is.* Of course, the unemployment benefit will only keep you minimally afloat; you will need some other assistance or income. And, naturally, it happens that the VAT is paid. In larger companies income tax and social benefit contributions are regularly withheld by employers. But in the Spanish medium-sized town near where I live, only the cafés and restaurants and bigger stores seem to pay VAT. Very few of the other shops and businesses give you a receipt unless you ask for it. Plumbers and electricians never even mention VAT unless you ask. Gardeners, who are still among the busy people in Spain, apparently never ask for VAT. To pay by bank transfer is unusual.

Today 4,5 million Spaniards are registered as unemployed, and a general strike is on to protest their plight. A study published by the Spanish savings banks' association FUNCAS last year estimated that the Spanish black (unofficial or “submerged”) economy provides jobs for 4 million people, and stands for 17% of the GDP. The study was conducted by economists at the Universidad Rey Juan Carlos, near Madrid. (Source: Typically Spanish, March 3, 2011.) 

Of course, this is unsustainable. In an article entitled “Don't forget my invoice!” (la Informacion, March 12), the Federation of Municipalities and Provinces of Valencia was quoted to the effect that “practically all” the municipalities of the region were asking for the bailout offered by Madrid to cover their unpaid bills, money owed to local businesses and self-employed people. A printed version of the same story said more starkly that without this aid, 80% of the municipalities in the Valencia region would go broke during 2012. Pharmacies are no longer able to furnish many brands of medication because their bills have not been paid by the regional government. The city of Valencia has not paid its own electricity or gas bills in years.

The general strike that started March 29 (2012) protested the labor reform of the conservative Partido Popular government of Mariano Rajoy. His measure is (inter alia) to draw down the severance pay from 45 to an average of 33 days per year worked. If you have worked 5 years for your employer you get 5 x 33 days' extra pay when you are laid off. The EU standard is nowhere near that high. A welfare state like Norway offers no more than one month's pay in a similar situation.

When workers are neither paid nor dismissed because there is no money for either – and they continue to work just to maintain their salary claim (BBC World, March 29, 2012) – things are not what they seem. Something is fundamentally wrong. A glance at similar tendencies in Italy and Greece tell me it will not be easily corrected.

Am I too pessimistic? A Sunday last summer my wife and I stopped for coffee in a little town in Valencia's Ebro Delta and were puzzled by the sight of a big official car from the city of Barcelona (clearly marked) – far away from home – that tried to park at the curb next to us. The car, loaded with beach gear and children, was clearly not there on official business. Bystanders were not slow to react. In a flash, jeering locals told the driver what they thought of his audacious presence and chased him away. Some sense of moral obligation evidently survives, in other words, at least when it comes to conspicuous over-consumption of “public” goods. Let's hope it grows to a broader vision encompassing more of Southern Europe.

*Until the Rajoy government started its reforms.

Hierarchy, Unity and Democracy

The welcome death of Gaddafi last week – and the unchecked, frantic killings by Bashir al-Assad - may bring us once more to reflect on the difference between dictatorship and democracy. Politics is said to be all about power. Democracy harnesses power; dictatorship monopolizes it. Gaddafi's death just as Tunisians went to the urns this weekend illustrate the span. Monopolize power or share it.

Yet the meaning of power remains elusive. Power is what it takes to deal with widespread conflict, public disagreement that is not easily otherwise resolved by compromise. The French say “trancher”, literally “slice through” a problem, as with a butcher's knife or an axe (Norwegians say the same, “skjære igjennom”) where compromise is unavailable. All societies have to find methods to handle public disagreement. In one way or another, all thinkable solutions involve what may be called the principles of (a) hierarchy and (b) unity. The principle of hierarchy says the top leader decides. The principle of unity says only one hierarchy is allowed; the domain in which decisionmaking applies must be preserved.

Complete hierarchy places all members of society in a rank order of levels where decisions for each level is made by the levels above, and one individual or small group at the top is the ultimate decisionmaker. China today is one example, Iran another, Burma a third. Within given functional areas sub-hierarchies may exist, like Chinese state-owned companies often posing as commercial ventures.

Nevertheless, hierarchies may be more or less complete or stringent. Dictatorships strive for complete hierarchy. But even democracies are hierarchies! All societies have to decide public disagreements; there is not room for everyone to participate in the making of every decision. Perfect democracy is a chimera. Democracies are always to some extent hierarchical, in that they define which representative assemblies and other publicly controlled bodies shall make which kinds of decisions, and prevent unauthorized decisions. Hence, although democracies strive for minimal hierarchy, they are not anarchical; they insist on the need for government to be given a mandate to make decisions for all. Implied here is also the legitimacy principle, the requirement that all must accept the decisions made, even if they disagree.

Here is where Greece makes a mockery of their own ancient invention – they elect a parliament and then take to the streets for months on end to oppose the parliament's decisions. And the Greek parliamentarians respond by similar betrayals, by increasing their own salaries while cutting everyone else's, and (most recently) by voting themselves new state-funded cars (!) after deciding on increased austerity for the citizens.  (http://www.grreporter.info/en/greek_parliamentarians_privileges/5216 )

Here is where the opening for grey areas and sham democracy appears – like Iran's and Russia's circumscribed democratic systems, or even Gaddafi's “green socialism” run by “people's committees” without any decisionmaking authority.

Here is also where the unity principle enters: The legitimate right to make decisions for a society includes a prohibition against mass escape. If you disagree, you cannot just take part of the country with you and leave, setting up shop for yourself. This was Lincoln's defense against the Southern secession 150 years ago. Provided you or your ancestors have agreed to a voluntary federation, you cannot just leave. (If you were forcibly annexed, like the Baltics in 1940, it's a different matter.)

The ingeniously simple formulation by Albert O. Hirschmann (1970) comes to mind: Exit, Voice or Loyalty. In every economic or political project, party, association, company - even nations - disaffected members (customers, affiliates, citizens) have three choices – they can leave (exit), they can complain (voice), or they can shut up, stay put and be loyal. National governments, of course, insist on unity along with hierarchy. That is why governments of hierarchically run countries with centrifugal forces (e.g. China or Russia) refuse to let the UN Security Council endorse humanitarian intervention in places like Syria (though they stepped aside by abstention to allow the Libyan intervention, a decision in hindsight not likely to be repeated any time soon).

That is also why the new governing systems about to be established in Tunisia, Egypt and Libya should consider that absolute principles of government – like those deriving from literal readings of Islam – must be tempered by the need to minimize hierarchy and find solutions in maximum tolerance. The easiest solution is to revert to hierarchy, or by another name, dictatorship.

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