When Government Gets Involved with Private Business

In the United States we are constantly discussing the limits of government in the free market system.  Without defining the differences between liberal and conservatives we can see there are two sides of the argument.  More involvement and regulation to maintain a certain level of "fairness" and less involvement and allow the market to regulate and police itself.

In the next three weeks, El Salvador will pass a law that has been passed in many other Latin America countries.  (See Here in Spanish - La Pagina) This law requires employers to pay severance to any tenured (2 years) employee and equates to two months worth of pay.   Of course there are some rules, like you must give 15 days notice, etc.  But essentially if an employee wants to leave they can and you have to pay for it.  El Salvador already has many laws that complement this new one, like required christmas bonuses for all employees, severance for employees who are terminated, etc.    Though the cost to operate here maybe lower than the United States, it is filled with rules and laws that actually can make it more expensive.

Tonight at a party I had a discussion with a local business owner, he has offices in Honduras, Nicaragua and El Salvador.  His father started the business 37 years ago and it is still going strong today.  I asked his opinion on this new law and he immediately explained he was all for it.  Stating that El Salvador is behind, everyone else already is doing this and it isn't fair to not give people money for there time.  He talked how this would inspire people to work harder or to quit the job they hate and get paid for it so they can go to a new job.

Then I asked him a simple question that changed his mind, I said, "If your father was here today, starting his business for the first time and then three of his tenured employees decides to quit just when he starts making money, what would have happened to his business?"  He replied, "He would have closed down."

This was the lightbulb moment for him realizing having government tell him how needs to run his business and how needs to pay people may seem fair upfront, if we are looking to make things fair for everyone (even the bad employees) but it creates a situation for the employer where they could lose everything just because someone isn't happy at work.  Why take a risk on a new venture if in two years your employees can run away with everything.  I predict this will hurt overall investments and small business in this country.  Employers will start looking for ways to avoid employees even reaching tenure status and keeping wages low to avoid higher payouts.

Seeing how a socialistic government operates and how a country that is essentially one big union functions has given me the chance to really reflect on the blessing of freedom and the free market system.  It also hurts to see when government constantly thinks it knows better how to run business in the United States, Latin America or any country.  Venezuela is now moving towards profit caps and price caps placed on everything to control what is considered too much greed.  (See Wall Street Journal Here).

I say keep government out as much as possible, work together to pass meaningful laws that are win/win for both side; but let business operate and grow as freely as possible.  Regulations that keep things sanitary and free of discrimination I understand, but don't tell me how to handle my employees when they quit or that I have to pay for their insurance.  That should be my decision to make as a company not the governments.

Comments welcome.