IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
“A recession can be a good time to grow a business”. Thus is the opinion of Lord Young, a British cabinet minister under late Prime Minister Margaret Thatcher and still having his own office in Downing Street. Lord Young’s comments are stated in a report to be published this week and addressed to Prime Minister David Cameron. It is obvious that Lord Young stands for a “creative destruction” and is actually stating an economic truth. But truth is not always welcomed by unions and especially by the Trades Union Congress.
In his words, Lord Young stated that “the rise in the number of businesses in recent years shows that a recession can be an excellent time to start a business.” He explained why: “Competitors who fall by the wayside enable well-run firms to expand and increase market share. Factors of production such as premises and labor can be cheaper and higher quality, meaning that return on investment can be greater.”
Lord Young is also pointing out that since the public-sector employment was dramatically cut in 2010-2012, the private sector has expanded, as Nicolas Lecaussin had pointed out recently in one of his comments.
The Trades Union Congress is chocked. Frances O’Grady, the TUC’s secretary general, tried to dismiss Lord Young’s comments: “The 2.5 million people still out of work will wonder what planet Lord Young is living on when he claims recessions bring economic gains” adding that the government’s “advisers are revelling in the jobs and wage squeeze that is pulling people’s finances under strain.” A Downing Street spokesman reacted to this and declared that “Lord Young doesn’t say a recession is a good time, he says it can be a good time to start a business, which is borne out by statistics”, adding that “the TUC is deliberately misrepresenting his report to suit their political agenda.”
Above all, the TUC’s statement shows a lack of economic understanding that can be found in any collectivist unions. There is no revelling nor satisfaction in Lord Young’s remarks. His statement is linked to an obvious economic principle: strong businesses will survive and expand their market shares while weak businesses will disappear: that is the “struggle for life”. This business destruction also opens opportunities for new businesses.
As for workers, the law of market, i-e supply and demand, is applied. Since there are more job demands but fewer positions available, wages may be lower depending of what kind of jobs we are talking about. Unions may think that is not fair. But running a business is not a question of being fair or not: it is about making money. And never forget that the more a business is making money, the more jobs it is going to create. Even if wages are lower than before the crisis, it is better to have a job and a regular income than nothing at all.
Ignoring economic realities, the TUC, as would any unions in Europe, wish to maintain the pre-crisis income level and does not acknowledge that companies’ benefits are a prerequisite to maintaining and creating jobs. But such a stand would have prevented British private companies from creating jobs as they did in previous years. Making money is not a shame: it is the very mean that provides a living. The truth is that unions’ claim would feed unemployment and that is not fair!
Sylvain Charat, Ph.D