The myth of job security

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The unions are on strike in Bolivia. The protest has to do this time with the announcement that the government is planning on closing a few public companies that have been unprofitable and bankrupt for quite some time now. Not a very surprising outcome. I have argued before that, apart for notable exceptions, public companies in Latin America are typically condemned to fail as soon as they are established.

In an interview with Pagina Siete, the president of the unions claims that the strike is legitimate because the actions of the government attempt against the sacred concept job stability: “our Constitution is being perforated with the new law [which mandates the termination of the public companies mentioned above] because there are no longer guarantees that workers won’t lose their jobs – this threat sets a bad precedent for the entire economy.”

The real bad precedent here is the pervasive concept of “job stability” (estabilidad laboral), which remains highly prevalent in Latin America. Under this philosophy, jobs come to be viewed as “rights” and not as what they really are: temporary opportunities. Let me explain. Jobs are created when countries grow and companies (including public ones) see profitable investment opportunities. But when those opportunities disappear due to the natural progression of business cycles, some of those same companies exit the market and, inevitably, some jobs are destroyed. At the same time, however, as the cycle and technology  change, other investment opportunities arise for other companies and some other jobs are created. That is the natural progression of economic growth. Schumpeter called it “creative destruction.” Notice that the underlying principle of the process is the exact opposite to job stability. A healthy economy grows when companies are free to destroy and create jobs as they search for profitable opportunities.

Insisting on job stability will only stiff the economy and undermine the process of economic growth. For once I hope that the government of Evo Morales carries with the new law. I have strong doubts though. Populist and lefty regimes like Evo’s are typically the prisoners of unions.

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