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Differences in regulatory norms are increasingly seen as the key barriers to the growth of regional and global markets, and regulatory disputes make up some of the most contentious issues in world politics. Negotiations among the most developed economies of the world about regulatory synchronization have made little progress in the last decade, and nearly all harmonization attempts failed when they had involved economies at lower levels of development.

The post How to make regulations a common good? appeared first on OUPblog.

In times of economic crisis, politicians and analysts alike are typically quick to call for structural reforms to stimulate economic growth. Job security regulations are often identified as a policy area in need of such reforms. These regulations restrict the managerial capacity to dismiss employees to allow for downsizing or to replace workers and use new forms of employment such as fixed-term contracts when hiring new workers. Mainstream economics typically blames such regulations for the sclerosis of European labour markets, in particular in southern Europe. But so far, European countries have mostly failed to reform dismissal protection – despite the economic crisis and pressure from international organizations. Why are these regulations so difficult to reform (i.e. dismantle)?

The easy answer is, of course, that some powerful groups, in particular trade unions, oppose these reforms. However, opposition to reform is costly, and unions have been under massive political pressure in recent years to assent to such structural reforms. Why are unions so adamantly opposed to structural reforms and in particular the reduction of dismissal protection in case of open-ended contracts? What is so special about these regulations?

Job security regulations are more important to trade unions than one might think at first sight. In fact, trade unions have at least three reasons to fight the reform of dismissal protection in case of open-ended contracts. The first reason is rather straightforward: unions need to represent their members’ interest in statutory dismissal protection. The two other reasons, however, are often overlooked: unions have an organizational interest in retaining dismissal protection because these regulations prevent employers hostile to trade unions from singling out union members in workforce reductions. Put differently, protection against arbitrary dismissal also involves the protection of the local union organization against anti-union employers. In addition, unions have an interest in protecting their involvement in the administration of dismissals because this involvement allows them to influence management decisions at the company level. In many countries, job security regulations give trade unions important co-decision rights in case of dismissals (e.g. Swedish regulations award unions the right to co-decide the selection of workers in case of dismissals for economic reasons). Put simply, job security regulations often make unions relevant actors in the workplace.

Of course, these three reasons don’t have the same weight in all European countries. For instance, the fear of employers hostile to unions is probably more important in southern European countries characterized by conflictual industrial relations (in most of these countries, employers were not required to recognize local union representations before the 1970s), while the involvement in the administration of dismissals is particularly important in countries characterized by long traditions of cooperative industrial relations (e.g. Germany and Sweden). Everywhere though, unions have sufficient reason to fight any reform of dismissal protection.

Facing such union resistance, governments have typically resorted to the deregulation of temporary employment. Unions have been more accepting of such two-tier reforms because temporarily employed workers are underrepresented among the union rank-and-file and because in the case of temporary employment unions have no organizational interests to defend. The deregulation of temporary employment (while the protection awarded to workers on open-ended contracts has remained more or less constant) has become a prominent example of so-called dualization processes, which are characterized by a differential treatment of workers in standard employment relationships (‘insiders’) and workers in more precarious employment relationships (‘outsiders’). Arguably, in some countries like Italy, the share of workers benefitting from (overly?) strict dismissal protection is now lower than the share of workers benefitting from hardly any dismissal protection at all.

So where are we standing after about three decades of calls for structural reforms such as the deregulation of job security? The three aforementioned reasons for unions to oppose the reform of dismissal protection in case of open-ended contracts are still there. The average union member still benefits from these regulations, unions continue to be worried about employers taking advantage of collective dismissals to rid themselves of unionized workers, and the institutional involvement in the administration of dismissals continues to be an important source of union power – in particular in times of dwindling membership.

Today, however, unions have a fourth reason to oppose structural reforms. For three decades they have reluctantly assented to two-tier reforms only to be confronted with further calls for numerical flexibility. By now there are as many workers on precarious contracts as there are workers on regular open-ended contracts – in particular in the countries that are said to be in greatest need of structural reforms. Nevertheless, calls for reform focus almost exclusively on dismissal protection of workers on open-ended contracts rather than on measures to improve the lot of the disadvantaged young, women, or elderly on precarious contracts. You don’t have to be a radical Italian trade unionist to find this one-sidedness a little bit odd.

The post Why are structural reforms so difficult? appeared first on OUPblog.

        

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Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America.  In this article, Zelinsky discusses the federal government’s promotion of common stock investments for 401(k) participants. He suggests that, in light of the Crash of 2008, that promotion constitutes misguided paternalism.

Even as we contemplate the financial carnage of the Crash of 2008, the federal government sends a strong, paternalistic and, ultimately, misguided message to 401(k) participants: Invest your retirement savings in common stocks.

Congress, in the Pension Protection Act of 2006 (PPA), directed the Secretary of Labor to promulgate regulations specifying the “default investments” to which 401(k) funds will be directed if participants fail to make their own investment choices. Under the regulations issued by the Secretary of Labor, a plan fiduciary obtains immunity from liability for a participant’s investment decisions only if the plan’s default investment constitutes a “qualified default investment alternative.” Among other requirements, a qualified default investment alternative must satisfy one of three mandatory patterns: a “life-cycle” pattern under which “a mix of equity and fixed income” investments changes for the individual participant as the participant ages, a “balanced” portfolio under which each participant has the same “mix of equity and fixed income” investments “consistent with a target level of risk appropriate for participants of the plan as a whole,” or a “managed account” under which an investment manager allocates a particular participant’s account to “a mix of equity and fixed income” assets.

When one cuts through the bureaucratic verbiage, a strong message emerges: 401(k) funds, particularly the funds of younger participants, should be invested in common stocks.

At one level, the PPA and the DOL regulations which implement it reflect a plausible investment theory, namely, that common stocks, for the long run, do better than do more conservative investments. The PPA and the DOL regulations also respond, in light of this theory, to two accurate perceptions about the 401(k) world: First, unless participants direct otherwise, 401(k) plans have historically placed participants’ resources into conservative, low-yield investments like money market funds. Second, 401(k) participants often fail to diversify their holdings out of these conservative default investments.

Hence, the PPA and the DOL regulations channel 401(k) funds toward common stocks by effectively requiring that at least part of passive participants’ accounts be invested in such stocks.

Surveying the wreckage of the Crash of 2008, this looks like misguided paternalism. Many investors who buy common stocks in the current bearish environment are likely do well in the long run. But, as they say, past performance is no guarantee of future success. And some, particularly smaller investors, may sincerely and (from today’s perspective) rationally prefer to avoid the volatility associated with common stocks.

There is, as we have just seen, a reason that the extra projected profit associated with common stocks is labeled a “risk premium.” The passive 401(k) participant who leaves his funds in conservative, low-yield investments looks more reasonable today than he did when Congress passed the PPA in the bull market of 2006.

A defender of the PPA and the DOL regulations could retort that they do not require participants to invest in common stocks, but merely send 401(k) funds to equity investments unless the participants direct otherwise. True. But the PPA and the DOL regulations nevertheless reflect a father-knows-best attitude, taking it as the federal government’s responsibility to privilege its preferred approach to investing and enshrining that stock-based approach in the law.

Before the Crash of 2008, such paternalism looked plausible. At an as yet unknown date in the future, such paternalism may look plausible again. Today, it looks misguided.

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Mark V. Tushnet is William Nelson Cromwell Professor of Law at Harvard Law School. He is the author of fifteen books, most recently Out Of Range: Why the Constitution Can’t End the Battle Over Guns. Out Of Range is an honest guide to both sides of the 2nd amendment debate and an insightful analysis of how our view of the 2nd amendment reflects our sense of ourselves as a people. Part of Oxford’s Inalienable Rights Series, Tushnet’s book challenges our views of one of our most controversial freedoms, the right to bear arms. In the article below Tushnet helps us understand this week’s oral arguments in the District of Columbia v. Heller case.

What should interested observers look for in this week’s oral argument in District of Columbia v. Heller? The issue in the case is whether the District’s complete ban on private ownership of handguns – coupled with a requirement that long guns (rifles and shotguns) in private homes have trigger-guards – violates the Second Amendment. The Amendment reads, “A well-regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” (more…)

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