What has competition done for us?

The alternative to free competition is to let politicians and interests groups make all the decisions, argues Nima Sanandaji, of the Captus think tank.

During the Summit of the European Union’s head of governments, June 2007, French President Nicolas Sarkozy asked the following question: “Competition as an ideology, as a dogma, what has it done for Europe?” Sarkozy’s response seemed to be “not very much”. The phrase “an internal market where competition is free and undistorted” was replaced in the new proposed EU Treaty with “a single market”. This remark was of great political importance. But was Sarkozy right?

As Swedish author Johnny Munkhammar explains in a policy paper published by the European Enterprise Institute, the issue of free competition has had great significance for Europe for the past few hundred years.

Europe’s journey from poverty into wealth occurred in tandem with the expansion of property rights and free competition. The first such system emerged in the Renaissance cities of northern Italy and southern France, giving rise to a level of wealth that could support works of art that we still treasure today, but also to the development of technologies and financial institutions such as banks. Free markets and private ownership were further established in the Netherlands, helping the country to become a thriving economy and for a short period a colonial superpower. Similar policies were built upon in the United Kingdom, giving rise to the industrial revolution.

As Munkhammar points out, free markets are a cornerstone in economic development. Ireland, which until recently was an impoverished nation, has risen to become one of the world’s richest by reducing government expenditure and liberalizing its economy. The countries of Eastern Europe suffered greatly during communism but those of them that were willing to open up their economies have grown rapidly.

The basic issue of competition is not whether it fosters economic development or not. Although even a French centre-right president might challenge this notion, history and economics as a science clearly indicate that the response to this question is “yes”. Munkhammar explains that the fundamental questions are whether anybody should be allowed to compete in order to satisfy the demands of a consumer? If not – who should be allowed and who should determine that other than the consumer? And what should be created?

The alternative to free competition is to let politicians rather than the consumers decide. In countries where politics decides which companies may compete and which may not, there is little need to satisfy the demands of the consumers, or compete by giving workers a good deal. Companies thrive on buying the favour of politicians rather than being effective and subsequently they spend their time and effort in doing the former.

The alternative to free competition is a system where political interest groups even dominate policy formation even more than today, as unions and industry groups try to get permission for their business and hinder their competitors through legislation and government handouts. Limiting competition would be to challenge, or fundamentally break, one of the most important cornerstones of Western civilization – the free market. In order for Europe to continue to prosper The European Union must persist to uphold the value of free competition.

Nima Sanandaji is the president of the Swedish free market think tank Captus and publisher of the weekly online Swedish magazine Captus Tidning.

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Explained: Why is Sweden so worried about the EU’s minimum wage plan?

EU labour ministers meet in Brussels on Monday to discuss the European Commission's planned minimum wage directive. Why is the proposal causing such unease in Sweden?

Explained: Why is Sweden so worried about the EU's minimum wage plan?
Customers visit a branch of McDonalds in Stockholm. Photo: Stina Stjernkvist/TT

What’s happening on Monday? 

EU ministers responsible for employment and social affairs, including Sweden’s Eva Nordmark, will meet in Brussels for a two day meeting at which they hope to adopt a European Council position on a directive imposing “adequate minimum wages” on all EU countries. Once the Council, which represents member states, has agreed a common position, it will begin negotiations with the European Parliament and the European Commission. 

What’s Sweden’s position on the minimum wage directive? 

Sweden has been, along with Denmark, one of the most vocal opponents of the directive, arguing that it threatens the country’s collective bargaining model, in which unions and employers set wages without government interference. 

But on Friday, the government dropped its opposition, together with country’s umbrella union, the Swedish Trade Union Confederation, arguing that a compromise proposal put forward by the European Commission would protect Sweden’s wage autonomy. 

A majority of the members of the Swedish parliament’s employment committee are backing the government’s new stance, but three opposition parties, the Moderates, the Christian Democrats, and the Sweden Democrats, are opposed to the change in position. 

“I am extremely happy that there is broad support and majority backing for us to continue with the negotiations, to stand up for what we have come to so far, and do everything we can to protect the Swedish wage-setting model,” Sweden’s employment minister Eva Nordmark (S) said after a meeting with the employment committee on Friday. 

READ ALSO: Why Sweden doesn’t have a minimum wage and how to ensure you’re fairly paid

Why did Sweden make its dramatic last-minute u-turn? 

Sweden’s government judges that, after the compromise, the directive will no longer mean that Sweden is forced to bring in a statutory minimum wage. 

“I consider, together with experts in the civil service and experts in the unions and employer organisations, that there is no requirement for Sweden to bring in a statutory minimum wage,” Nordmark told TT. 

She added that agreeing to sign up to the directive would give Sweden the ability to take a deeper part in the negotiations giving it the power to make sure that important exceptions are made for Sweden. 

Denmark, however, is still resolved to say ‘no’ to the directive. 

Surely a minimum wage is a good thing? Isn’t Sweden supposed to be a high-wage economy? 

Sweden is certainly a high-wage economy, but that is largely thanks to its model of collective bargaining, under which wages are generally set by negotiations between employees and employers for each sector. 

If the directive sets a precedent allowing governments, either at a national or EU level, to interfere in this process, or for those who disagree with the result of the collective bargaining agreement to appeal to government entities, it could undermine the Swedish system. 

Who is still worried? 

More or less everyone. While the Swedish Trade Union Confederation is supporting the government’s decision, its vice chair Therese Guovelin, described the European Commission’s compromise proposal as simply “the least bad compromise proposal” the union had seen.

She has previously described the European Parliament’s position that the directive should apply to the entire European Union as “a catastrophe”.

“That would mean that a disgruntled employee who is not part of the union, could take their case to court, and would then end up at the EU Court, and it would then be them who would decide on what should be a reasonable salary,” she explained. “In Sweden, it’s the parties [unions and employers’ organisations] that decide on that.”

Tobias Billström, group leader for the Moderate Party, said he was concerned at the role of the European Court in the directive. 

“There are big risks with this,” he told TT. “The EU court might decide to interpret this directive as applying across the board, and then we might end up with what we wanted to avoid. The Moderates have as a result been against this development, and it’s important that Sweden gets to decide itself on the Swedish labour market.”

What might happen now? 

The European Parliament might try to remove the wording and the exemptions which Sweden hopes will allow its employers and unions to retain control of wage-setting. 

Mattias Dahl, chief executive of the Confederation of Swedish Enterprise, which represents employers’ groups, said that the government needed to stand its ground in the upcoming negotiations, reiterating that he would have preferred that the European Commission had not sought to give itself such a role in the Labour Market.  

Nordmark said that Sweden did not intend to back down to the parliament. 

“These are important red lines for us. If there are demands from the European Parliament that push in a different direction, we can lean on the Swedish opinion and what we stand for,” she said.