Skirting the abyss
The last hours of the previous year and the first ones of the current one were truly historical. On the morning of New Year’s Day the U.S. Senate, and the House of Representatives on the following day, managed to avoid a fiscal cliff with a precarious and temporary agreement, a calamity that might be a reality by the time this document is published. No explanations should be needed in order to understand the aforementioned concept, but it should be noted that it is not only the markets that generate uncertainty in the field of business management, but the risks are also now created by the lack of foresight, partisanship and irresponsibility of the political class, even in the most established and mature democratic countries. As an example, if the deficit adjustments were to be accepted –higher taxes, abolition of social subsidies and cuts in investment– the United States would have entered a clear path of recession which would have had an impact on Mexico, China and the EU, clearly worsening the situation of the arms and energy industries, entailing a huge consumption restriction.
Legal uncertainty is reflected in the regulatory uncertainty, retroactivity, lack of unity in the market, changes in taxation and lack of continuity in relation to State policies
Risks assessment in business management calls for an analysis of the political contexts, only achievable through the multidisciplinary instruments from the field of corporate intelligence. Companies have lost a huge part of their autonomy and have to introduce the variables of uncertainty, unpredictability and even improbability, among others in order to make strategic decisions. After decades of deregulation, of a certain detachment between public powers and business management, the great crisis has brought politics back –and with it the abysses– to the daily life of companies. Does this statement seem to be obvious? Not at all. So far, it seemed unquestionable that investments could only be made in markets where legal certainty was guaranteed. Not anymore. Even the most consolidated markets are now defined by two uncertainty factors. On one hand, regulatory uncertainty (for both sectors such as the energetic, highly regulated, and others traditionally less normalized), and on the other hand, the implementation of retroactivity both regarding administrative decisions and legislative or regulatory dispositions.
Risks assessment in business management calls for an analysis of the political contexts, only achievable through the multidisciplinary instruments from the field of corporate intelligence. Companies have lost a huge part of their autonomy and have to introduce the variables of uncertainty, unpredictability and even improbability, among others in order to make strategic decisions. After decades of deregulation, of a certain detachment between public powers and business management, the great crisis has brought politics back –and with it the abysses– to the daily life of companies. Does this statement seem to be obvious? Not at all. So far, it seemed unquestionable that investments could only be made in markets where legal certainty was guaranteed. Not anymore. Even the most consolidated markets are now defined by two uncertainty factors. On one hand, regulatory uncertainty (for both sectors such as the energetic, highly regulated, and others traditionally less normalized), and on the other hand, the implementation of retroactivity both regarding administrative decisions and legislative or regulatory dispositions.
Knowledge has been globalized, the economy is experiencing a globalization process, but politics remain unchanged
The lack of concern of assemblies and parliaments, which completely modify regulatory frameworks depending on the circumstances at the request of the governments currently in power or by legislative initiative of the groups that comprise them, is truly lethal to long-term investments that require lasting commitment rules. This regulatory uncertainty exists in many strategic sectors of a variety of countries. Certainly, this is the case in Spain, but also in other countries with old guaranteeing tradition. An increasingly common form of regulatory uncertainty is the transformation into a regulated sector of what usually was not regulated. The reasons behind these modifications –sometimes inconsistent– are not always predictable, but sometimes implemented for debatable or political reasons (populism?). The transformation that retroactivity has undergone, conceived as a factor of legal certainty, has gradually volatilized in such a way that situations prior to the date of issue of the regulations or adoption of governmental decisions are not consolidated.
Another factor of uncertainty should be noted, along with regulatory uncertainty and retroactivity: the growth in the tax “appetite” of governments, which have even doubled taxes –So many double impositions!–, created new fees and incredible tax levies in order to replenish the state coffers, complicating the business strategies in the medium- and long-term, these being based on the certainty in relation to a solid applicable taxation. Even worse: not even within the States themselves –many of them composed, federal, divided in autonomies, regional– has this desideratum been achieved, a condition that a modern economic system seeking to function properly needs: a unified market. The heterogeneity of conditions, requirements, guarantees, paperwork, licenses… applied in regional spaces characterized by political cultures with high degrees of homogeneity –as occurs in Western countries– is a handicap that has not been met yet. This creates huge uncertainties in the expansion of companies into other markets. We could add to all these abyssal factors –huge cliffs that could make any business management crumble– the lack of continuing policies, particularly industry-related, due to democratic alternation. It seems logical that economic programs of different parties are not identical, but politics –beyond ideological criteria– should always take into account that the State is a continuum and that a change in government should not entail radical revisionism.
Currently, public powers –executive and legislative– with their erratic behaviors against the crisis create a very serious problem of uncertainty in the handling of business management, both by action and omission. By action, as their permanent legislation alterations modifies the status quo in a continuing manner. By omission, as they do not resolve the vacuums which create uncertain legal “limbos”. The business must be forward-looking, and this is achieved by making coherent decisions. If this philosophy is not applied, the enterprise would not fulfill its goals and the market would make it a failure. Policies have been –without major distinctions– bewildering during the last years. It has created the aforementioned uncertainty abysses –whether fiscal or not– which make any type of medium and long-term planning impossible. And precisely, in critical times as the ones we are experiencing, politics –i.e., public politics– should promote certainty, with gradual and predictable changes, using safety measures for the economic activity, in order to put an end to the feeling of vertigo that many entrepreneurs, managers and directors are suffering.
Uncertainties are not merely generated by the markets, but also by partisanship and irresponsibility of the political class
Knowledge has been globalized, the economy is experiencing a globalization process, but politics remain unchanged. It is true that there are processes of standardization, there is more transparency, more equalization… but political management is still trailing behind in the creation of supranational contexts which support economic and financial activity based on legal certainty. The North American fiscal abyss, as an example of a political system that starts showing important malfunctions, and the known effect Depardieu as a citizenship case –in this case high purchasing power and a taxation close to confiscation– are extreme examples of the uncertainty abysses that have to be skirted nowadays.