Daniel Lacalle: "The European Union's reconstruction plan is stillborn"
Economist Daniel Lacalle was interviewed on the eighth program of Atalayar on Capital Radio, broadcasted this Monday from 22:05 to 23:00. Author of the book 'Freedom or Equality: The Key to Prosperity Through Social Capitalism', where he explains why capitalism is the key to social progress and equal opportunities, he addressed the current economic scenario in the world with the outbreak of the coronavirus and the response to the pandemic that has launched the European Union, two issues that mark the international agenda at this time.
Are freedom and equality of opportunity antagonistic, irreconcilable concepts?
Equality is a consequence of freedom. The problem we are facing is the constant use of demagogy by the most interventionist politicians, who, by making equality a priority, destroy freedom and, furthermore, do not achieve prosperity, economic growth or job creation, which are, in turn, the factors that improve equality. We cannot make equality itself a priority, because government can only level it down. Therefore, when we are promised equality, what we are being promised is egalitarianism, which is not only morally unacceptable, but also devastating in its consequences.
Are freedom and equality of opportunity antagonistic, irreconcilable concepts?
Equality is a consequence of freedom. The problem we are facing is the constant use of demagogy by the most interventionist politicians, who, by making equality a priority, destroy freedom and, furthermore, do not achieve prosperity, economic growth or job creation, which are, in turn, the factors that improve equality. We cannot make equality itself a priority, because government can only level it down. Therefore, when we are promised equality, what we are being promised is egalitarianism, which is not only morally unacceptable, but also devastating in its consequences.
Does the economic crisis coupled with the coronavirus pandemic mean the disappearance of the concept of capitalism and liberalism as we have understood it up to now?
No. If there is something we have been suffering from for more than a decade it is not liberalism at all, but the most aggressive statism. The constant government intervention, the constant increase in the percentage of annual wealth accumulated by governments, the financing and monetisation of that privilege... We have experienced nothing but a policy of constant nationalisation. This crisis has shown us that what has failed, especially in those countries where intervention has been greater, has been the emergence of government as a decisive factor. Governments that have first foreseen and mismanaged the pandemic have then imposed the most devastating thing that can be done to an economy, which is the forced closure of the economy for a period of time, and are now presenting themselves as the solution.
We must think whether, in addition to the absolute disaster of the single command and management of the pandemic, not only in Spain but also in other countries, we should think about whether these people would have had control of the economy.
What we have learned from this crisis is that companies adapt much more quickly and offer real solutions much more quickly, while governments resort to three extremely dangerous factors: the first is denial of the problem; the second is to cover up mismanagement with a decision that generates an even greater impact on the economy; and the third is to use demagogy and, in some cases, repression in the face of citizens' anger.
Regarding what is going to happen from now on, do you believe that the European Union is taking the right approach to the process of economic reconstruction?
The first thing we have to do is to deny the word reconstruction, and the idea of reconstruction, which is an interventionist idea in itself. There is absolutely nothing to be rebuilt: the industrial fabric, the talent and the investment capital are intact or practically intact. It is true that there has been a huge fall in business profits and in the number of companies, but nothing needs to be rebuilt, and even less so if politicians rebuild it in their own interests.
The European Union is doing exactly the same thing, point by point, as it did in the 2009 crisis. In that year, the EU presented itself with a huge stimulus plan, in which more than 1.5% of the EU's GDP was spent, interest rates were lowered from 5% to 1%, the European Central Bank's balance sheet increased by 35%... Exactly the same thing is being done now as it was then.
The problem is that this is not a crisis of demand. There is no need here to stimulate demand, and the little demand that you are going to stimulate is going to come from the sectors with the greatest overcapacity. So the reconstruction plan is stillborn, because it is going to finance, fundamentally, the current expenditure of deficit states and, furthermore, the companies that were already overcapacity. So the big problem we are facing is that we are repeating what has already been devastating, and we have the record of the Juncker Plan with EUR 340 billion, which had zero impact on productivity and growth; and that of the 2009 plan, which was devastating for the economy. That does not mean that the reconstruction programme now is going to be devastating, but we have evidence that it is not going to boost economic growth.
And it's geared towards this interventionist view of sustainable change. What's the problem? That no government, neither the EU as a whole nor individual member countries, is really going to bring down disruptive technologies, for the simple reason that disruptive technologies have three effects: disinflation - no government wants lower inflation; lower tax revenues - no government wants lower tax revenues; and that it takes power away from national champions, and if there is one thing that this recovery plan is demonstrating, unfortunately, it is that it is geared 100% to the national champions of each country.
In short, it is very un-European and may suffer from the mistakes of the past.
At this time, is it absurd to oppose the public and the private?
Public-private partnerships are the only way to bring together social interests that maintain real economic returns with efficiency and sustainability. The government's goal is to maximize the budget, not to generate a greater return on capital employed; while the private sector's goal is to better manage scarce resources. Public-private partnerships have always worked much better, and the demonization of ownership of services is clearly ideological, because, in addition, what happens when we talk about public is that citizens may think that public means free, which is completely false.
Moreover, there is no such thing as public management per se. We must be careful when talking about nationalising companies in "strategic" sectors.
Governments and politicians do not aim at progress, but at keeping things as they are. And this is natural, but this is why it is so important to demand public-private collaboration because it is the only way in which we are going to achieve that challenges - in health, in technology, in infrastructures, etc. - are carried out without generating a huge economic depression.
Will the recovery in oil prices mark the revival of the economy?
The increase in oil prices, like many other data we are now receiving in the months of May and June, must be seen with caution. Crude oil is still at 40 dollars a barrel, and right now there is no oil-producing country making money on that price in relation to its budget. The important thing is to avoid falling into the idea that we are seeing a rebound - with the barrel falling to 10 dollars and now rising to 40 - because it is not, by far, a price which would allow us to talk about recovery, when so many indicators have collapsed so incredibly in March and April. In the automobile sector, for example, vehicle registrations have risen by 680% in the last month, but actually this still represents a fall of 70% over last year.
In the oil sector, we must also remember that there are still 3.5 million barrels per day of excess capacity in the system, which are not being used. By removing the barrels from the market, prices rise, of course, but it is an artificial rise. The moment the oil producers put the barrels back on the market, the price will remain weak.
In general, the recovery is being very unbalanced and much less powerful than what they are trying to sell us, we are seeing in the data, such as the constant requests for unemployment in the United States, or in China, where all sectors, except those dependent on the government, have recovered in the form of an "L".
So I think we have to be rather cautious about what is the evidence that the first outbreak - and not a resurgence - is still increasing.
What do you think of the Spanish Reconstruction Commission?
I am very sorry that not a single member of this commission has ever created a job. I am envious of what has happened in Italy, for example, where the committee is composed of businessmen who have no political interest whatsoever, and they already have a 102-page document with specific measures. Then, they may or may not make a mistake, either the government will incorporate these measures or it will not, but it shows that this " monster " we love in Spain, which is bureaucracy, eats everything. And even in Italy, which sometimes is heavily criticized, they have much faster and more efficient mechanisms to at least create a draft. In Italy, Germany and other European countries, they already have the structure of the projects that are going to be presented so that the European Commission can then approve them and grant the necessary aid. In Spain, nobody is talking about the projects to be made, but we are waiting for the rain of millions from the EU to fall on us.