How to make Spain a leader in economic freedom

Daniel Lacalle and James M. Roberts

The Rafael del Pino Foundation organised, on 6 March 2019 at 19:00, the dialogue "How to make Spain a leader in economic freedom" on the occasion of the presentation of the "2019 Index of Economic Freedom" published in Spain by the Faes Foundation and Foro Regulación Inteligente. James M. Roberts, Daniel Lacalle and Diego Sánchez de la Cruz (moderator) took part in the event.

Daniel Lacalle (Madrid, 1967) is an economist, international advisor and Chief Economist at Tressis. He holds a PhD in Economics, a degree in Business Studies from the University of Madrid, a CIIA (Certified International Investment Analyst), a postgraduate degree from IESE (University of Navarra) and a Master's degree in Economic Research. His career in portfolio management and investment began at the hedge fund Citadel, in the United States and London, and continued at Ecofin Limited, covering equities, fixed income, private equity and commodities, and later at PIMCO. He has been voted for five consecutive years in the Top 3 best managers in the Extel Survey, the Thomson Reuters ranking, in the general, oil and power categories. Prior to his time as a manager, he worked as a financial analyst at ABN Amro (now RBS), and held various responsibilities at Repsol and Enagas, where he received the award for best IPO (IR Awards 2002). Daniel Lacalle writes regularly for El Español and is a regular contributor to La Sexta, CNBC, CNN, Epoch Times, Hedgeye, Mises, The Commentator and The Wall Street Journal. He is also a lecturer at the Instituto de Empresa, UNED, OMMA, IEB and the London School of Economics and Political Science. He has also written the books Nosotros, los mercados, Viaje a la libertad económica, La madre de todas las batallas, Acabemos con el paro, La Pizarra de Daniel Lacalle and La Gran Trampa, all of them published by Deusto and bestsellers both in their original Spanish edition and in their translations into English and Portuguese.

James M. Roberts is a Research Fellow in Economic Freedom and Growth at the Heritage Foundation. As the Heritage Foundation's leading expert on economic freedom and growth, he produces the Index of Economic Freedom. An influential analysis of the economic climate of countries around the world, the Index is co-published by Heritage and the Wall Street Journal. Roberts also studies economic and political issues in Latin America and Europe, contributing to public policy debate on topics ranging from development advice and nation building to corporate social responsibility and global economic governance The Heritage Foundation. Prior to joining Heritage in 2007, Roberts served at the State Department for 25 years. During that period he worked at the American Embassies in Mexico, Portugal, France, Panama and Haiti. He has also worked on a wide range of international trade issues and helped coordinate major U.S. aid programmes, including efforts to reform Eastern European economies and rebuild Iraq.
Diego Sánchez de la Cruz is an economic journalist, writer and university professor. He directs Foro Regulación Inteligente, a think tank specialising in regulatory and fiscal issues. He is an associate professor at the Instituto de Empresa and the Camilo José Cela University. As an economic analyst, he is a frequent contributor to various media (Libertad Digital, Actualidad Económica, esRadio, Intereconomía, Movistar+). He is the author of several books and his latest essay, Por qué soy liberal, was published in 2017 by Deusto (Grupo Planeta). Sánchez de la Cruz holds a degree in Information Sciences (Nebrija University and exchange programme at the University of San Diego), a postgraduate degree in Political Communication (ICADE) and a master's degree in International Relations (IE Business School).


On 6 March 2019, a dialogue took place at the Rafael del Pino Foundation between James M. Roberts, Research Fellow for Economic Freedom and Growth at the Heritage Foundation, and Daniel Lacalle, PhD in Economics and Chief Economist and Manager at Tressis, on the occasion of the presentation of the "Economic Freedom Report 2018". James Roberts explained that the Heritage Foundation began producing the Index of Economic Freedom in 1995 because, after the fall of the Berlin Wall and the end of the Soviet Union, it had been shown that socialism was not a political regime that could work. It was a regime that resulted in the death of millions of people and the suffering of millions more. The creation of the index was promoted by liberals who, reflecting on what had happened in the Cold War, began to study the foundations of what had been the greatest phase of prosperity in human history. With these elements, the index was constructed. Another reason for doing so was the need to respond to the development aid projects organised by the left. There was more and more government intervention in these projects. We, however, said that this was not the solution to lift underdeveloped countries out of poverty. The solution, on the contrary, lies in all those things that are more related to economic freedom, because they are the most beneficial. The countries that are presented as models of welfare are the ones with the highest rates of economic freedom. As countries improve, there are small changes in the role of legislation, justice, government, etc. which, in turn, drive further improvements. What the index does is to show clearly that economies that are more favourable to business and wealth creation offer more benefits to everyone. The index of economic freedom, therefore, is really a social index. The world average of economic freedom has improved as a result of globalisation and as more and more countries have moved away from communism. This is a fairly consistent trend from the Cold War onwards, although with the financial crisis there was a fairly significant setback. The United States responded to the crisis with a policy of expanding public spending and budget deficits, while the Federal Reserve responded with a huge increase in its balance sheet. This year there has been some small retreat from economic freedom as a result of Brexit and some of the other changes taking place on the global scene. Some governments have chosen to use these events as an excuse to intervene and increase public spending. The countries that have the most economic freedom are those that have the greatest levels of freedom. Europe still leads the way, but it is never enough. You have to bear in mind that once economic freedom is gone, it is very difficult to get it back. In Africa, because of this, they are lagging behind and have to work much harder to catch up with other countries. In the United States, economic freedom fell over the last ten years and has only been restored with Trump's reforms. Daniel Lacalle commented that Spain, by implementing supply-side reforms, started to achieve growth well above the European average and the maximum level that Spain was expected to be able to achieve. As a result, employment growth was double what was expected. What needs to be done is to let the economy breathe. It is easy to think that the government has to do something when things go wrong, but, in reality, when you let businesses prosper and families enjoy their incomes, you see better results. This is true not only in Spain, but also in the United States, which is now growing at a rate that is supposed to be half that. James Roberts emphasised how impressive a little bit of disruption can be, what is achieved by defying consensus. That's why economic freedom is successful in eradicating poverty in many places. The United States is a case in point with Trump's measures, which are already yielding positive results. Of course, this goes against all the rhetoric that says that the intensity of poverty in the developing world can only be tackled by government interventions. In Spain we also see the same thing. For the Spanish case, Daniel Lacalle pointed out that, when there is more openness, the unemployment rate is reduced. Inequality and poverty improved when economic freedom began to improve. Creating economic freedom implies a very important improvement in the economy and in the real distribution of wealth. Creating employment reduces inequality, but this cannot be done through government measures. Demand-side policies are increasingly ineffective while supply-side policies create a potential positive effect, which is what has happened in Spain between 2013 and 2017. In relation to public intervention in education and healthcare, Lacalle commented that not only efficiency is lacking, but also quality, as shown, for example, by the fact that the top 100 schools in Spain are all private. Public-private partnerships are essential to improve health, education and the environment. James Roberts said that the most polluting companies in the world are public. If we care about these issues we need to support greater economic freedom, because there is also a correlation between economic freedom and the environment. Regarding the best and worst countries, Daniel Lacalle stressed that Venezuela is second to last, followed by North Korea. This shows, precisely, the success of economic freedom and vice versa. In the top twenty we have countries that for some time implemented socialist policies and failed with very strong government-imposed interventions. Having learned from their failures, they decided to implement supply-side measures and economic freedom. At the bottom of the list it is always the same: expropriate, print money like there is no tomorrow. These are not poor countries, but countries impoverished by the policies of their governments. Sweden and Denmark are not socialist: they have governments that redistribute wealth because they have governments that are not corrupt and therefore people trust them. James Roberts points out that many people confuse public service with government funding and this need not be the case, as public vouchers, such as the school voucher, show. With this, parents from poor families can fight for their children to go to the best possible school thanks to the school voucher. Australia and Denmark are moving in the direction of the school voucher. Venezuela is a case that is almost unprecedented in Latin American history of so many people having to emigrate, Roberts added. Fortunately we have new centre-right governments in Brazil and Colombia. If there were no such governments, Maduro would not be failing. His people, with the help of those two governments, are going to be the ones to oust them. For Lacalle, Venezuela is a clear example of how socialism impoverishes a rich country, of how the right to private property is extremely important. Expropriations have made such a rich country so poor. The government has totally destroyed the oil company, which was one of the most efficient and best in the world. It is the only OPEC country with hyperinflation. And estimates of what Maduro, Chaves and their cronies have stolen amount to $300 billion. Chaves' daughter alone has taken $4 billion. Now, some of these people are going to have the opportunity to make deals with the judges to get Maduro out, says Roberts. Maduro is a puppet of the Cuban dictatorship. All the leaders are also all drug traffickers. There are more than two thousand generals, who are the uniforms of a criminal mafia. Daniel Lacalle also explained that Venezuela's ills have to do with monetary policy. If Ecuador had had its own currency and Correa had decided to print money, the same thing would have happened there as in Venezuela, which multiplied the money supply tenfold. In the end, the purchasing power collapses completely and the currency is worthless. In fact, wages in Venezuela have fallen to less than 20 dollars a month. In contrast, James Roberts pointed out, former communist countries are rising sharply. These countries started at a very low level and have made tremendous progress. In Georgia, reforms have been maintained. Lithuania is also a good success story. It is important to promote this. Singapore and Hong Kong have a lot of economic freedom, which is very important given their geographical environment. In the United States, on the other hand, it is very important to rebalance the court system because the progressives have been imposing their will through the courts. Unfortunately, in the field of trade, we do not support Trump's protectionist measures. We don't like the tariff system and we are calling on the administration to take a step back. What has led to these measures is the rise of China and its strategy of not following the rules and trying to dominate the world. Beijing is doing well because its investments have geopolitical and military significance. But one can deal with it through measures of a different kind, not only the United States but also European countries. The answer cannot be to punish American producers and consumers with taxes that, in the end, they have to pay. The Chinese do not care so much about the United States, they are not so affected by these tariffs. Daniel Lacalle added that protectionism has been growing in recent years, but tariffs are not the way to deal with the issue. It can be tackled through diplomacy, or by opening financial markets. Trump won in states that had suffered and voters were led to believe that these policies would benefit them. On Spain, James Roberts notes that there has been a small improvement in recent years, moving from 65th to 57th place, but it is below the European average. This score reflects policies and their impact. This is Rajoy's legacy. With small adjustments, says Lacalle, a very significant improvement in the Spanish economy could be achieved. We need to return to a less onerous level of taxation. We also need to improve the regulatory, bureaucratic and fiscal framework. We can make many improvements that can attract capital. We need to build on and refine the improvements that have been made. Small changes could have a major impact, for example, by drastically reducing unemployment and allowing SMEs to grow. For Roberts, the situation in Spain is worrying, but hopeful. The message needs to be conveyed that the country would benefit from further liberalisation. In this sense, decisions such as the increase in the minimum wage are worrying. Lacalle pointed out that three very logical measures should be taken in Spain: making the tax system much more attractive, facilitating administrative procedures by reducing bureaucracy and offering more and better incentives to families so that they can have the education, health and type of family they want. In other words, it is a question of giving families back the power to decide about their lives. In this sense, Roberts warned that in a world where robotisation is eliminating so many jobs, young people must be protected. But you don't do that by raising the minimum wage. That was just a subterfuge to increase employer contributions. Young people and women have lost out as a result of these measures. Lacalle explained, in this respect, that greater intervention does not mean greater job security, but just the opposite. Spain is the only country in the world that has had three times the 10% unemployment for more than three quarters. This is due to an irrational view of the labour market that results from an ogre that does not exist. It is a return to the mistakes of the past. The socialists are not doing this out of incompetence, but because what they want is to control the population, they do not want progress, but control of the citizens. With regard to public spending, Lacalle pointed out that there are countries that have introduced very effective reforms of public spending without passing the bill on to taxpayers. The issue of spending must be tackled and non-compulsory spending, political spending, must be reduced.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.