Until recently, our business press routinely defamed European societies as economically rigid and morally bankrupt. European governments tax innovative businesses and coddle the young and the unemployed. In the
U.S., lower taxes and less regulation spurred growth. What a difference a year makes.
European banks now suffer because they imbibed the U.S. business elite’s self-congratulatory rhetoric. The “Irish miracle” is a basket case. U.S. productivity claims were inflated by counting toxic securities as services. Neither side of the Atlantic has much to celebrate. Both should think less arrogantly about the complex task of combining sustainable growth with social justice.
The U.S. accusations never withstood close scrutiny. During the immediate post-World War II period European nations inaugurated universal health care, improved unemployment insurance, expanded public transit and fostered broader educational opportunities. These egalitarian policies spurred rapid and broadly shared eco-nomic development.
Only as their economies became more global did European social democracies face problems. Nations spending money to stimulate their economies saw free-riding neighbors benefiting as much as they did. World currency traders responded to the least suggestion of expansionary fiscal policy by punishing the offending nation’s currency. In the ’70s, currency markets and International Monetary Fund policies forced British Labor to devalue the once mighty pound.
More recently, European unification was premised on the narrow demand, most strongly expressed by the Germans, that the European Central Bank remain politically independent and accept inflation control as its sole
mandate. The ECB has been more hawkish on inflation than Paul Volcker and Alan Greenspan. The central bank has depressed job creation as much as any labor market regulation.
Fortunately, Europeans never fully repudiated welfare state traditions. Their supposedly inflexible labor markets look a little more inviting today. The German government provides partial compensation, funded by corporate taxes, to companies that reduce hours for all rather than resort to layoffs. These policies may slow upward growth, but also cushion economic declines. In the U.S., not only are such programs unheard of, our basic unemployment compensation system is sadly deficient. It varies considerably by state — with Maine having one of the better ones — but fails to cover part-time workers and is limited in weeks of coverage.
The European welfare state, however, hasn’t by itself restarted their economies. Economist and New York Times columnist Paul Krugman argues, correctly, that Europe needs broader stimulus measures like those in the U.S. not only to save their banks and economy but also to ease social tension. Many who work resent taxes paid to support the long- term unemployed.
Though Obama pushed Europeans to expand their stimulus, he underplays the inadequacy of our welfare state and our limited stimulus.
Over the longer term, even an adequate stimulus package will not sustain prosperity if wages don’t keep pace with productivity gains. For many observers, robust employment and strong unions raise the specter of ’70s inflation. Workers are often accused of demanding raises that exceeded productivity growth and thus fostering inflation. Yet such one-sided analysis neglects OPEC and the oil companies, monopoly pricing power, and the role of the Federal Reserve in creating asset bubbles. Furthermore, labor critics overlook the inefficiency and injustice of a Fed policy that controls inflation by throwing workers out of their jobs.
Even in the light of such concerns, business elites prefer granting unelected central bankers responsibility for steering the economy. The nature of corporate governance demands more attention. With the continued ineptitude if not outright fraud by many CEOs, there may be more inclination to re-examine the structure of enter-prise. A recent Rasmussen poll indicates that about two-thirds of those under 30 question the validity of capitalism.
These numbers do not mean they would embrace government-run business. In both the U.S. and Europe there are promising examples of nonstatist models of economic enterprise. Power within the enterprise is dispersed.
Workers have a say in financial and enterprise planning, pay scales and an ownership stake. They receive fair wages but also have an incentive to assure that wage demands do not erode profits used to finance further
business investment. Such enterprise, coupled with generous safety nets, coordinated spending for health, education, and conservation, and international financial regulation would deepen social democracy, a worthy project for both sides of the Atlantic.
John Buell is a political economist who lives in Southwest Harbor. Readers may reach him at email@example.com.