October 11, 2015

Economic Nationalism

I enjoy reading The Economist because it contains a wealth of insights in every issue. In the February 13-19 issue, which has a cover entitled “The Return of Economic Nationalism,” the Charlemagne column has a commentary on how the economic downturn in Europe is creating threats to the single-market philosophy deeply imbedded in the EU charter and in the treaties and policies that have been put into place over the last 50 years.

The most insightful comment was in the last sentence of the first paragraph: “…the biggest threats to the single market are those hidden from view.” I saw this repeatedly as Pitney Bowes attempted to expand in Europe, and we had to deal with small, but significant, obstacles to our expansion. Our postage meters require postal and government approval in every country, but the approval processes and criteria vary from country to country, which, by itself, is inconsistent with the single-market philosophy. Postal services which saw us as a potential competitor used small, but effective, tactics to keep up from entering or progressing in markets. For example, the seemingly rational and neutral requirement that we get our systems certified by an independent testing agency operated as a significant barrier when the testing agency limited its tests to one or two days a month, and applied standards that were not disclosed to us in advance. The seemingly reasonable requirement that we produce a clear, machine-readable image on an envelope was used to delay approval in a particular country by a postal service that used machines with different readability software systems from other postal services.

Product development decisions that were based on promised financial incentives from postal services became less economical when the financial incentives were delayed or discontinued. In one country, the postal service had the effect of keeping us out of the market by requiring us to work with a particular executive, and then firing him shortly before he was to give us the approval.

We do not have problems with these postal services because they do not like or respect us. The postal services have many very competent and actually very honest and trustworthy leaders. However, they operate in a highly-politicized environment in which they are expected to promote the increase of domestic jobs. The problem with our technologies and services, from their point of view, is that we enable them to reduce the labor-intensity of many processes. While a private firm would welcome the ability to redeploy workers to more productive tasks, government-owned postal services are under horrific pressure to keep workers employed in the jobs they hold. The postal services are expected to employ a particular quota of workers in many countries.

What the average person does not understand about what motivates governments is that postal services in Europe provide middle-class jobs to many individuals. The belief that the government can walk away from the responsibility to provide a certain number of middle-class jobs, even if it eliminates “waste” or improves “productivity” does not recognize the political reality that governments are most vulnerable when they cannot keep people employed.

The economic nationalism we are seeing today is a natural outgrowth of an economic environment in which unemployment is reaching dangerously high levels. Individual businesses cutting thousands of jobs are acting rationally, but the cumulative effect of tens of thousands of businesses making these decisions is devastating to the overall social fabric. It is truly the reverse of what Adam Smith believed when he argued that the self-interest of individual firms would produce the greatest good for the greatest number. Today, that self-interest is producing the greatest misery for the greatest number, and it will accelerate a reduction in the collective purchasing power of each country’s group of consumers.