Opening Remarks: David Lipton, First Deputy Managing Director, IMF
Moderator: Martin Wolf, Chief Economics Commentator, Financial Times
Speakers:
Alberto Alesina, Professor of Political Economy, Harvard University
Paschal Donohoe, Finance Minister, Ireland
Felipe Larrain, Finance Minister, Chile
Lídia Pereira, Member of the European Parliament
Luca Visentini, General Secretary of the European Trade Union Confederation
While there is broad agreement on the economic benefits of structural reforms, they often carry short-term costs while most of the economic gains from reforms only materialize over the longer term. On this background, the panel discussed the political economy of reform and the challenges with implementing structural reforms.
Key Points:
- Reform priorities. While panelists agreed that the goal is to achieve sustainable growth, there were different views on reform priorities. Alesina called for reforms to focus on labor market flexibility, trade liberalization, pensions, and social mobility, while Visentini underscored the need for reforms focused on social protection and wage inequality. As Pereira and Visentini noted, reforms should prepare the economy and society to challenges ahead. Donohoe highlighted that reform design is not neutral but reflect social values and political judgments.
- Reform implementation. Timing, allocation of benefits, as well as the public narrative are important considerations in reform implementation. Donohoe noted that the political and economic cycle matter, as the ability to make the case for reform are greater during economic booms. Larrain underscored the importance to present the benefits and the need for change in a constructive narrative. In this sense, Donohoe and Pereira, and Visentini emphasized the crucial role of social dialogue.
- Political-economy challenges. Panelists noted the challenges associated with the political process in approving reforms, highlighting possible electoral costs to the incumbent. Alesina stressed the problem with vested interests and lobbies blocking reform. Donohoe noted that the absence of political consensus may overwhelm the reform agenda. In this sense, reform implementation may call for a mix of legislation and regulation, as noted by Larrain.
Quotes:
“There is no template how to carry out successful structural reforms.” David Lipton
“The key is identifying the binding constraints on growth and design a comprehensive reform agenda where reforms complement and reinforce one another” David Lipton
“Social dialogue is key for implementing any kind of reform”. Lídia Pereira
“In academia, you win the argument, in politics, you can win the argument and lose the vote.” Felipe Larrain
Contributor: Daniela Alcantara
