In recent weeks, multiple politicians from the Spanish Socialist Worker’s Party (PSOE) and Podemos (some of these politicians being members of the current government) have spread through their media arms the intolerable lie that the coronavirus pandemic has demonstrated the infeasibility of liberal policies and, in turn, the need for greater state intervention paired with the strengthening of the welfare state. This is a crude act of manipulation, based only on the fallacies to which we have already become accustomed.
In this article, we will start from a theoretical base, and then gradually descend on a scale of abstraction (as Sartori would say). Thus, we will be able to understand (1) why what some politicians and journalists say is flatly false and (2) why now more than ever it is necessary to apply liberal policies to reactivate the economy so that it can get afloat.
Private Healthcare: Necessary Now More Than Ever
Undoubtedly, the complete, or at the very least mixed, liberalization of healthcare is one of the proposals made by liberals most reviled by liberticidal politicians. It is also the one of those proposals that is being questioned most since the emergence of this economic and public health crisis. Additionally, many are blaming the overflowing nature of the current situation on the supposed spending cuts of the People’s Party (PP). However, the crisis caused by the coronavirus in Spain has not occurred as a consequence of the lack of public spending, but as a result of an evident lack of foresight and prevention.
Private healthcare must first of all defend itself on moral grounds. Ludwig von Mises said, «It is important to remember that government interference always means either violent action or the threat of such action.» The configuring of modern nation-states was completed through a long process of expropriating freedoms that civil society previously possessed and ultimately, creating (almost without our knowledge) a state monopoly. This monopoly could then be managed by the government who argues that their legitimacy comes from the majority (in the case of a democracy).
It is precisely when we live in critical moments like these when one of the greatest fears a liberal can imagine begins to emerge: When the State decides against reallocating to the people those freedoms it initially extracted from them to fight the virus and assert the right of non-aggression (more specifically, the right of a person not to be infected by a third party or that any of their other freedoms are also not violated).
This government intervention takes shape, for example, in the control it asserts over the economy. The only feasible solution to prevent prices and costs from increasing accordingly is to allow the price mechanism to function without any alteration. As Mises perfectly describes in Human Action, consumers, with their limited rationality, will always try to satisfy their demands at the lowest cost. As a result, they will seek the cheapest healthcare option to meet their needs. Knowing this, the providers of this service will compete among themselves through innovation to lower their costs and prices in order to attract a greater clientele. Additionally, this innovation will increase the effectiveness and efficiency by which treatments are administered, making the benefits twofold: They will be cheaper and of substantially higher quality.
Another way in which the state’s interference in the economy manifests is that of licensing. One of the most pressing justifications that is made on behalf of these licenses (according to many) is that they have the power to protect consumers. However, this constitutes a true fallacy. In reality, they only serve to restrict market entry, as professionals and providers are now forced to obtain a license before actually getting to practice. And yet, as logically follows, a license granted several years ago does not guarantee that those who still possess it will continue to practice the profession in those same good conditions. Their incompetence or outdatedness are variables that are not accounted for in this mechanism.
Private Solidarity Exists and Austerity Should Have Been Applied
Therefore, this crisis far from proves that the liberal model is unviable. In fact, on the contrary: It has indeed proven its viability. All those who were skeptical about the private solidarity advocated by liberals were able to verify in their own experience that it not only exists, but is actually much more efficient than «state solidarity.”
We have seen that reputable entrepreneurs like Amancio Ortega, Elon Musk (who yesterday announced that he will offer Tesla-manufactured respirators to all hospitals in the world), and many others are generously allocating their own private capital to alleviate the havoc wrought on the economy and the day-to-day lives of the citizenry.
Civil society, therefore, can function perfectly as a giver of charity (through charitable organizations) and perform this service even better than the state ever could. For example, in the case of Spain, the masks and other sanitary equipment donated by Amancio Ortega arrived before the ones that the government had purchased (and to add insult to injury, they arrived late and were of poor quality).
Now more than ever we understand why it was and is still necessary to clean up public spending accounts in times when it could be done, allowing for the ability to borrow when it is required. Currently, we find that Spain and Italy possess more liabilities than Germany and the Netherlands, who since 2013 made efforts to sustainably reduce them, while the former nations kept them essentially unchanged. We must take into account that the public deficit has grown again in 2019 with the government of Pedro Sánchez.
Spain and Italy (among others), as a result of not balancing their budgets, are now finding themselves increasing their debt margins. This has led them to ask Germany and the Netherlands, who did manage to balance their budgets, to “gift” them easy public financing at practically no cost and with no conditions attached. Once again through this example, we can see the need to adopt liberal policies, which require keeping budgets balanced and (above all) the necessity to not squander public money in a way that increases debt or results in tax hikes (which can make doing business impossible).
This Is Not a Problem of Spending, but of Prevention and Foresight
In recent weeks, we constantly hear that hospitals have collapsed due to spending cuts in the private healthcare system that the PP allegedly undertook some years prior. This is a total falsehood. Rather, the opposite is actually the case. During the last years of the PP’s government, public spending on health grew significantly. Specifically, in 2011 it amounted to 71.667 billion euros, and in 2018, 75.435 billion euros; it rose, therefore, by almost 4 billion euros.
In any case, the saturation of the public health system is not a question of expense. For example, in South Korea (a nation with a higher population than Spain at 51 million inhabitants) has dedicated 30% of total public expenditures on health (compared to Spain’s 41%), and has in fact registered a significantly lower number of deaths and cases of infected persons (at time of writing this article: 139 deaths and 9,332 cases of infection). Singapore, together with South Korea, as some of the most liberalized countries, spends 18% of their total public expenditures on health. And, although Singapore has fewer inhabitants than Spain (only 5.6 million people), it has become an example to the world in crisis management with only 3 dead and 1,000 cases of infection at the time of writing this article.
Therefore, we must ask ourselves why these two countries have been successful. The answer is very simple: They put in place an agile and effective prevention and analysis system. Singapore used so-called «disease detectives» to determine where the virus had been present. Thus, with this sophisticated contact-tracking program, the country managed to cut their chains of infection from their sources.
In the case of South Korea, its triumph against the virus comes from carrying out nearly 10,000 tests per day. This made possible the isolation of the asymptomatic population, which as we know, contributes greatly to the spread of the virus. Korea also regionally implemented drastic and effective isolation measures.
Therefore, the blockade of the Spanish health system in the face of this crisis did not come from an issue related to public spending on health (which, as stated before, has increased in recent years), but from disastrous management and a genuine lack of foresight on the part of our PSOE and Podemos-run administration.
The Great Economic Crisis to Come
The expectations we have on the economic front are quite alarming. It is estimated that close to a million (or even two million) companies could disappear in our country (this does not go without saying that more than 900,000 were already in debt in moments before the crisis even began).
The Spanish government is committing multiple errors with respect to the economy and as a result, is now looking for solutions. The errors, amongst all, include these: (1) the Government is not taking into account the slowdown that was already taking its toll before the crisis began, (2) the Government does not understand that our companies (most of them small, with one or two workers) cannot endure several months with no income while also facing the obligatory payment of taxes and fixed costs that are continuing to accumulate (the average cash available to these businesses to cover these costs will, at best, last them 35-60 days), (3) the Government believes, or at least lets the public know that they believe, that when the state of alarm ceases, companies will be not only be able to recover what they lost, but can actually come out ahead, and the core problem (4) the Government is not taking charge of the situation in which we find ourselves. Unfortunately, the latest data shows that we are not facing a crisis in the shape of a “V”, but actually that of an “L”, implying a sudden collapse of the economy accompanied by a slow and very difficult recovery. It seems that the situation will even produce structural problems, leading us to face a recession even worse than the one that began in 2008. For all of these reasons, the Government is incorrectly addressing both the diagnosis of the problem and the solutions that follow.
With the well-known measure of “prohibiting layoffs” or as it is known in Spanish, “prohibir los despidos” having been established, companies as a result are now being forced to close, significantly increasing the unemployment rate. A company that does not earn any income in a month that still has to pay taxes and other fixed costs cannot stay afloat as if nothing happened. Temporary collective layoffs (known in Spain as ERTEs) by definition are not permanent. However, as a result of the current situation, businesses may be led to not only temporary layoff some workers, but actually terminate entire workforces as a result of having to cease all economic activity.
The state, who wants to maintain the current taxation structure by any means necessary, is digging the tomb by which the economy will be buried. As stated before, now more than ever, liberal policies and labor flexibility are needed so that (1) companies can survive and (2) new business projects can enter the market without being hampered by the burden of taxation and labor market rigidities.
The implementation of tax exemptions on investment and work (and not only its postponement) should already be in force, since it is nonsensical to ask companies that do not earn income to pay taxes. You can not extract something when there is nothing to extract.
Likewise, the state would have to carry out a comprehensive review of its superfluous expenses (which are plentiful) and obtain from there, together with the line of liquidity made available by the European Central Bank (ECB) and the European Stability Mechanism (ESM) for the countries that need it, the resources to carry out essential policies. This should not be done through taxation.
However, why does the current Spanish government not want to finance itself through the ECB and the ESM and would rather do so through the system of taxation? Because he who pays the piper, calls the tune. Despite the fact that the ECB announced that it would acquire financial assets for up to 750 billion euros in the coming months along with the fact that the ESM is creating the capacity to extend loans of up to 500 billion euros to those countries that request it (which would then also be carried out at long-term interest rates below 1%), the Spanish government is reluctant to resort to this route because if it does, it would be forced to abide by its conditions.
It is well known that the ECB tends to temporarily paralyze debt purchases when a national government begins to borrow too much (as Spain tends to do). In the case of ESM funds, conditionality appears explicitly on its website. That being said, how could our government carry out its progressive social spending policies if it accepts the budgetary balance that its creditors oblige it to maintain? It is clearly because they are not interested in actually doing it. They would rather keep rates of taxation exorbitantly high, suffocating companies and self-employed people who are already up to their neck in payments.
If then this crisis has demonstrated anything to us, it is the need to liberalize many sectors like that of healthcare (or if this is not possible, to make it mixed), to adopt a more flexible labor policy, and to balance our spending accounts which could mean nothing more than cleaning them up.
