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Jewish World Review May 23, 2005 / 14 Iyar, 5765 European social model is limping on the runway By Robert Robb
http://www.JewishWorldReview.com |
American progressives continue to advocate that the United States should
move more toward Western Europe's larger social welfare states and greater
job protections.
Western European politicians, for their part, certainly continue to think
that what they refer to as their "social model" is superior. But there is
also increasing anxiety among them about Western Europe's economic
performance and the need for reform.
The economic paths of the United States and Europe began to diverge in the
1990s. Right now, the Eurozone economies have growth rates that are a third
to a half that of the U.S.
In the 1990s, the U.S. economy experienced a quantum increase in
productivity. European investment in information technology as a percentage
of gross domestic product is considerably less than in the United States
and is declining. The European Commission estimates that, as of this year,
labor productivity per hour in the European Union will have declined from
97 percent of the U.S. level in the mid-1990s to only about 88 percent.
The E.U. produces only about 70 percent of the U.S. GDP per capita. It has
a smaller portion of its population in the workforce and much higher
unemployment among those wanting to work.
Europeans work fewer hours per year and retire earlier. Over the course of
a lifetime, American workers put in 40 percent more hours than their
European counterparts.
There is a cottage industry on both sides of the Atlantic denying that this
growing discrepancy in economic performance is a result of the social
model, and even that the discrepancy exists and is growing.
But that defies logic and experience.
In Europe, it's harder to eliminate jobs, which makes employers more
reluctant to create them to begin with. Much more of the workforce is
covered by collective bargaining, making pay for performance wage
structures difficult. Unemployment benefits tend to be more generous and
last considerably longer.
Higher taxes and less flexible labor markets lead to less investment and
slower growth.
European leaders have a very difficult political path to tread. There
appears to be great reluctance by their publics to give up any of the
security, protections and benefits of the social model. Yet without higher
economic growth, the model is unsustainable. But higher economic growth
requires reforming the model.
The new president of the European Commission, Jose Manuel Barroso, has made
reform and economic growth his priority. His vice president, Gunter
Verheugen, has improved competitiveness as his primary portfolio.
But their first initiative — opening up the service sector to greater
cross-country competition within the European Union — has come a cropper.
France and Germany buried it, fearing the effect of competition from newly
admitted members from Eastern Europe.
France's ambassador to the United States, Jean-David Levitte, was in town
last Thursday and talked with the Arizona Republic editorial board. I asked
him about the growing discrepancy in economic performance and what, from
the European perspective, were the causes of it.
He readily admitted the need for reform, and mentioned a couple taking
place in France: slowly increasing the retirement age and adding a modest
copay for using the national health service.
But these are intended to modestly decrease the cost of the welfare state.
They don't increase output.
While France and Germany have tried modest labor reforms, they have met
with fierce resistance. France has a legislatively mandated 35-hour
workweek. Allowing the option of voluntarily working up to 48 hours, the
E.U. maximum, was highly controversial.
Supporters of the social model on both sides of the Atlantic say that
Europeans have simply decided to choose greater free time to working more
and making more.
If individuals make that decision, fine. That's their right.
I asked Levitte whether reform was really possible, or whether the people
of Europe were simply willing to accept inferior economic performance for
the economic security of the social model.
At this point, European leaders aren't willing to acknowledge that such a
choice is what confronts them. So, beyond expressing general optimism,
Levitte ignored my question — although, as a skilled diplomat, he did so
quite nicely and volubly.
In the United States, the basic choice on social policy is whether to
pursue the European model and increasingly rely on the government to
provide economic security, or enhance an American alternative in which
individuals are more empowered to obtain economic security for themselves.
The current Western European experience offers an instructive and
cautionary lesson about that choice.
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JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.
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