22 enero 2019

The State as a Monster Advances on the Private Sector

Like Leviathan, the State devours everything that comes its way, and today advances mercilessly on the whole private sector, exhausting it with a huge tax pressure, a hike in utility rates and recession.

Published in El Cronista on January 22, 2019
The answer came quickly: most companies, with a few of exceptions, have decided to reformulate their business in Argentina, imposing business restrictions, reducing their structures, keeping just one representative office or simply withdrawing investments from Argentina, resorting to imports from more competitive markets to cover needs.

This Leviathan State is not by any means like the book by Thomas Hobbes (1651), whereby man abandons their natural condition to create a social contract to live in society and co-exist in harmony enjoying freedom and rights. In his book, Hobbes reaffirms political absolutism even though his thinking includes fundamental concepts of liberalism such as individual rights, natural equality among persons, conventional State different from civil society, political legitimacy through a representative and popular government. The human being depending on the laws of the matter and the materialistic movement are essential values, such as the notion of human collaboration based on personal interests.

Far from deep philosophical discussions about the role of the State and its powers, with the current rules where the structural reforms once promised have never been made, fiscal deficit is in the red, public spending soars in an electoral context, taxes and tax pressure rise in a country with legalized usurious loans, the final outcome for investors may be summed up in one word: downsizing. This means undergoing a systematic and systemic reorganization process, a last resort when financial, economic and technological conditions make the production of goods and services unviable in a given country or region, like ours.

Uncertainty, recession and high inflation (stagflation), lack of legal security, unexpected changes in tax burden and significant currency devaluation have completed the circle of perspectives.

The truth is that more than two thirds of the companies doing business in Argentina have started to shut up shop, selling business units, reducing their structure to avoid larger exposure to bankruptcy and irreparable losses out of control.

At small companies the numbers are really incomparable in terms of closing of branches, offices and even manufacturing centers.

Medium-sized and big corporations, who have more backing, are offering voluntary retirement plans, undergoing crisis proceedings and productive reorganization procedures.

Leading companies in the development of productive establishments are selling their businesses to local companies, who after the merger implement a significant reorganization plan, or directly shut down their manufacturing centers to leave it all in the hands of the global supply of imported goods.

Gradual layoffs over time, production shifts simplification or elimination, reduced working hours due to the crisis, reformulation of collective bargaining agreements, paid suspensions, outsourcing, work on order, and the elimination of temporary employment services, are all the first steps before a greater adjustment. Actually it can be seen how those companies that are undergoing big reorganization processes have already scheduled their shutdown in the short term and organized the supply of imported products through distributors or representatives.

In the next few months, companies from widely different sectors, even when they are usually industrial or providers of primary products or commodities, will undergo a restructuring process that will adversely impact unemployment and underemployment rates.

Layoffs under legal procedures will be on the rise. Remember that for more than seven years the total number of workers at the private sector registered by ANSeS [National Social Security Administration] has not exceeded 6.2 million workers.

The only sector that is growing in a context of inefficiency and partisan activism is public employment.

If work off the books increases, it is impossible to check. There is no doubt that employment will still be frozen. The amounts paid as welfare allowances have increased. This situation is expected to impact collective bargaining as well; nowadays 2018 wages are being adjusted according to the revision clauses contained in collective agreements.

This scenario affects the first half of the year, and only a miracle can change the trends, in particular considering the space that will be taken up by the stories of the electoral campaign.

There is still a last chance of making significant structural reforms to change the course of the economy, including the integral labor reform that may lead to an increase in activity levels and genuine job promotion.

By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.