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European Ideas on An Interview on Investing in Human Capital with Manuel Sanchis i Marco

19th February 2013

 Prof. Manuel Sanchis i Marco is Associate Professor (Tenured) of Applied Economics at the University of Valencia since 1986 with 19 years of experience working for the European Commission, first for DG Economic and Financial Affairs and later for DG Employment and Social affairs. He was interviewed by European Ideas Ambassador Nadia Bonifacic.

 
Flexicurity and investing into human capital in times of crises

What is your experience with the concept of labour market  flexibility within the Commission ? 
 
When I joined DG Employment, my head of unit at the time asked me to think about a new concept for labour market flexibility. He wanted the Commission to provide a new idea going beyond the OECD approach of flexibility for the labour market. We instead wanted a broader concept which took into account attributes of a labour market and make it adaptable to changing circumstances. That’s why we used the word adaptability.We wanted to avoid the word flexibility, because it was associated with no social protection, low wages etc. We discussed and got a list of 10 attributes of labour market newly called adaptability. Among them are 1) availability of labour force, for instance health; 2) reconciling work and family life, 3) taxation, 4) mobility (geographical/territorial, but also functional, both internal and external), 5) flexibility of wages, and many others. We put together a more social view of the labour market . This broader view has now been taken up by the DG Employment and they have now called it flexicurity. They now take into account the interest of all stakeholders, even the unemployed, and see the different attributes not as separate but as a package. Importantly, flexicurity puts a strong emphasis on active labour market policies, education, training, on the job training etc.
 
From working within the Commission, do you think the Commission has a lot of influence on what happens in these areas in the member states?
 
They have a lot of influence, but it is a kind of soft power. It is more a kind of moral persuasion. Commission has no competences on employment according to the treaty. The only place in the treaty that is relevant is the Art. 2 where the main objectives of the Union are listed – high prosperity and employment. But employment policies remain in the hands of member states. Through the open method of coordination, the Commission can provide some soft coordination, let each member state know what the other member states are doing in this field, check the best practices, what works in one country and compare it to the origin country through the peer review exercises. It is a very soft moral persuasion, on an intellectual level. The Commission still has some influence through the European Social Fund. The concepts of flexicurity and mobility are very present, and the Commission transfers them into policies by funding programmes of training and education through the ESF which have a conceptual background of flexicurity or mobility behind them.
 
Do you agree that mobility of young people fits into the concept of flexicurity?

It fits very well for many reasons. Firstly, as Robert Mundell, Nobel Prize-winning economist, wrote in 1961: when you have an asymmetric shock to the economy like we do in the Eurozone, free movement of factors of production guarantees that a shock can be absorbed easily. We are suffering a lot in Spain and other countries because we are stuck with an immobile workforce. We need absolutely adaptable labour markets in the EU, we need a European service for employment (such as EURES) for the whole area of EU, and we need mobility among young people. Secondly, mobility of young people is important, because they are building a sense of belonging to the community which is much broader to their national feelings of belonging. In that way, legitimation of EU policies is achieved.Thirdly, the community is strengthened through mobility. I have Erasmus students in my class and they make our class more interesting, especially for my Spanish students. The way Erasmus interferes in a positive way with my teaching is because the students contribute by sharing how things are done in Germany, Denmark or other countries.  Movement makes us feel like we are very similar and differentiates us with people from other parts of the world.

As an economist, how would you justify financial investment into building identity in times of economic crisis? Some might criticise this and feel that investments into the economy may be more pertinent? 

I think this is a bis mistake. Education and training enhance human capital. Economies cannot grow without capital. Whether we are talking about a machine or human capital. And we can go even further, human capital and knowledge are even more important than the machine. When fiscal adjustment took place in Spain, they cut research, development and education funds. This is a reduction in the stock of capital in our economy. Everybody knows that with less capital you grow less. Therefore, why should we think if it’s a machine it’s fine, and if it’s a human it’s not fine. This is wrong. If it’s capital, it’s capital, whether physical or human. This is very dangerous. We are undermining the potential for growth. Future investment is important because most economic transactions happen on the basis of mutual trust. No confidence no trust. No trust no growth. As simple as this. A different question is how much we should spend. To make Erasmus the culprit of what is going on, means not having understood why the crisis happened in the first place.

Going back to your country of origin, what is your view of the youth unemployment issues in Spain? 

Not much has been done about the youth unemployment issue in Spain. Coming back to the beginning of our conversation, when we discussed adaptability and flexicurity issues, we said how important the emphasis on training, retraining and active labour market policies was. This has not been done in Spain. The last reform was very severe but very unbalanced. It put the emphasis on the narrow-minded approach of the OECD, but nothing was done in terms of active labour market policies. We need this desperately for all young people and those above 55 years of age, if we don’t want them to lose the abilities they have obtained so far become absolutely useless for the labour market.
 
Do you think there is enough willingness in Spain to make use of the European portals such as EURES and to search for work in other European countries?
 
EURES is not very well-known. They are doing a great job in the Commission, but unfortunately they are not very well-known in Spain. But despite this, youth in Spain is moving a lot. We had 60000 young people moving abroad just this year. These people are highly educated. Engineers in Germany, nurses in the UK, architects in Brasil. These are highly qualified people, so they are a part of the capital of the economy that flies away. Once you reduce the stock of  capital, your capacity to grow is smaller. On the other hand, when they go to Germany, they will contribute to the German social security system and to the German financial stability of the social security system. We spend money and time educating these people and when the time comes to gain some profitability in which the Spanish society has invested, the German society enjoys it. I admire Germany, but sometimes I think Germany should not think about what Europe can do for them, but what Germany can do for Europe.
 
It is difficult to establish the balance between young people enjoying mobility and fostering growth in their home country that trained them, isn’t it?

It’s not a question of one of the other. If we want to build Europe, we need to share pros and cons. It’s good for Europe if people are mobile, but provided that there is some kind of solidarity among countries. There are many positive economic spillovers from one country to the other that never return to the origin country.  We need steps forward towards a more common amount of funds to refund social security in each member state. Politicians don’t want to hear about this, but that is the logic of economics.  If you want mobile labour, because this is the criteria for having one currency area, we need a common budget, or at least some parts of the budget.

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