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What is this "Economic Renewal" thing?

by Colman Mon Oct 17th, 2005 at 11:20:31 AM EST

In today's Financial Times Wolfgang Munchau writes a dirge for economic renewal in Europe. Apparently those pesky voters have confounded good Mr Blair's plans to save them from themselves by failing to give Angela Merkel a free hand in Germany. Poor Tony's " European Union summit on the future of the European economy" is to be derailed by nasty Mr Schröder.

It is no accident that what was once hailed as a “make-or-break” summit has now been reduced to a low-key, one-day working session. The renewal of Europe’s economy will have to wait for another day. The tragedy of Britain’s approach to the European economy is that it is right on so many aspects, yet incapable of translating this into policy success.

Last week, Gordon Brown, the UK chancellor of the exchequer, produced what I would consider one of the most coherent texts on the impact of globalisation on Europe. His pamphlet Global Europe: Full-Employment Europe* is a sophisticated analysis of the type of policy changes needed for Europe to prosper in the 21st century. It deserves to be widely read.

We'll have a look at this sophisticated analysis after the fold, but in summary it uses questionable comparisons to establish that the EU is underperforming and them proposes further "free-market" reforms in order to improve the situation.


The title of the document is "Global Europe: full-employment Europe".

In the summary on it's website the Treasury says:

The paper highlights that Europe is losing ground on its global competitors in growth, labour markets, skills, innovation and enterprise; and calls for action in three areas to create a Global Europe that becomes more competitive as the route to delivering full employment:
  1. Boosting productivity and competition: speeding up the process of completing the Single Market in key sectors; opening up the market for services; eliminating untargeted and distortive state aids that prevent full and fair competition; implementing pro-active competition policies; and a sustained commitment to regulatory reform.
  2. Skills and Employability: the development of modern social and labour market policies to help those without work find new jobs; childcare to help parents overcome barriers to work; reform of tax and benefits to make work pay; and national education and skills policies that equip people to adapt to change work in new areas of comparative advantage.
  3. Openness: Europe to take a leading role in the forthcoming Hong Kong trade talks and beyond to reject protectionism and to press for the conclusion of an ambitious trade deal that will completely open markets to exports from poorer countries.

I've read the document through and it seems to me that the enumeration of the the problems is the normal hotch-potch of stuff, with the Yellow and Brown menace coming to steal Europe's lunch on one page and becoming a massive new market on the next. Innovation is measured by patent applications whatever their merits, growth by the ever dodgy real GDP per capita - which makes Ireland look great even though a lot of the wealth flows directly to corporate HQs in the US - and low labour participation among the over 55s is necessarily a bad thing. A statistic I find curious is that, according to the OECD, only 20% of the French population between 25-64 have education to a 'tertiary level', whereas 45% of the corresponding US population does. The relevant report isn't publicly available, but appears to define tertiary education in such a way as to include "university-level education and high-level vocational programmes".

The one part of their analysis that rings unreservedly true for me is the lower level of entrepreneurial activity in the EU, which I put down to much less support of failure. I'll have to write a diary on that sometime.

As for solutions, we can rest easy that Mr Brown holds that we don't all have to become peasants in order to survive:

There are some who argue that the only way Europe can retain its unique balance of prosperity and fairness is to retreat from globalisation into a new protectionism and act at the EU level to erect new barriers to global trade and investment. Others look at the rapid pace of change and argue that nothing can be done in the face of globalisation and technological advance, that it is impossible in the modern world to sustain prosperity and fairness together, and that individuals must be left alone to adapt to far-reaching change.

We reject both. Protectionism cannot work in a global economy where production processes are increasingly spread across continents, and businesses and consumers depend on international trade and investment links. In a world of global capital flows, protectionism can only bring about higher unemployment and higher prices. At the same time a laissez-faire approach leaves people defenceless against change when we should be enabling them to master that change.

Some thoughts on the solutions bit:

  • Benefit and tax reform is phrased in terms of "making work pay". This sounds like code for forcing lazy bloodsucking welfare recipients into the workforce.
  • He's in favour of promoting childcare to help parents get back to work. I wonder if that's whether they want to or not?
  • "flexibility matched by fairness" is another watchword.
  • Budget reform away from the CAP towards research.
  • Free markets for all. Reduce regulation, introduce "competitive" tax systems. Tax harmonisation is a no-no.
  • "inefficient state subsidies" must go. Does this mean that efficient ones are ok?
  • The document uses "pro-active" several times. This is not a good sign in any document.

After reading this I am left with the impression that Brown is a true believer: he is trying to make the world a better place for everyone. He is also deeply committed to the conventional economic wisdom. He also makes no reference at all to any of the energy or environmental related changes that will have to be faced. Not a word. A true believer with an unrealistic view of the world and a great deal of power.

There are few more dangerous things, as Blair has shown.

Update [2005-10-17 13:44:7 by Colman]: Changed the last paragraph of the intro.

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I'm not sure that Brown replacing Blair will necessarily be an improvement.
by Colman (colman at eurotrib.com) on Mon Oct 17th, 2005 at 12:59:25 PM EST
I think sometimes more people would like to comment about economics issues...but if they are anything like me, I read, and then I'm a bit thunderstruck...

Nonetheless, I will read and ponder this...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Mon Oct 17th, 2005 at 12:59:56 PM EST
I know, and that was a pretty superficial run over the issues - that thing took ages to read.

Actually, one thing that interests me is that 50% of Americans aged 25-64 with tertiary education.  I strongly suspect that it's one of those statistics that doesn't mean exactly what it says, but I don't have a basis to attack it. It sounds like it's saying that half of Americans have college degrees, which isn't true, or "advanced vocational training" - which to me would mean something like proper tradesman or professional qualifications. That doesn't seem right either. Any of you Americans care to enlighten me?

by Colman (colman at eurotrib.com) on Mon Oct 17th, 2005 at 01:07:18 PM EST
[ Parent ]
It doesn't sound right to me either, and I'm an American.  Typically, the percentage we hear thrown around in the states, as to the proportion of the workforce with college degrees, is about 30-35%, steadily climbing.  I have no idea about vocational-training numbers, but, in my experience, America is severely lacking in vocational schools and programs.

Basically, if a person does not have the grades (or the money, but there are many ways of dealing with that issue, difficult though it may be) to go to college, he or she simply enters the workforce at a low wage and tries to gain skills through experience.  It may be different in other regions of the country -- I live in North Florida -- but I don't see a lot of investment, private or public, in vocational training.

Now, if "tertiary education" includes community/junior college experience, then, yes, it's probably about 50%.  But, no, nowhere near 50% of Americans hold Bachelor degrees.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Oct 17th, 2005 at 02:36:52 PM EST
[ Parent ]
I'd agree about the lack of investment in vocational training, but there are still an awful lot of jobs that require schooling and licensing or certification depending on the state.  Do those things count?

I only know about California, but there, they license tons of people and they have schools that can be quite pricey.

In California they have set amounts of schooling and training hours plus passing a state board test for stuff like hairdressers and manicurists, massage therapists, truck drivers, mechanics, welders, medical equipment technicians, law-enforcement stuff like lab assisstants -- just a ton of stuff.

Also, with the welfare to work requirements there's been an increase in schools which cater to that market -- offering loans for numerous storefront colleges and handing out certificates for data entry, typing, accounting, those sorts of things.  And those schools are accredited so I imagine they'd be counted, too.  Alot of these schools make the students eligible for personal student loans, but not for grants.

And many jobs do require a B.A. that really shouldn't.  In fact, I think all of these requirements are one of the things that hinders upward mobility at this point.  We do have really well-educated upper and middle classes -- and some of this stuff is good and/or necessary -- but I think this system also creates a barrier for some people who can't afford the training, testing, and licensing fees.

Maybe we can eventually make language a complete impediment to understanding. -Hobbes

by Izzy (izzy at eurotrib dot com) on Mon Oct 17th, 2005 at 03:24:07 PM EST
[ Parent ]
I'm not incredibly familiar with California, honestly.  The state government in Cal. is much, much larger than that of Florida -- the latter has no income tax and is in session for only a month or two each year, aside from the occasional "emergency session" of the legislature.

But good catch on the the institutions that cater to various markets.  There is some of that going here, as well, though not nearly to the extent that you'll find in Cal., I'll bet.  California has an enormous economy -- over a trillion dollars, I believe -- and so they can afford to push ahead on these sorts of issues, and there is more incentive for the sorts of institutions you've listed to pop up.

California also has the benefit of much stronger higher education, which will help to sustain those sorts of programs, in  the long run.  (Florida, on the other hand, has elderly people.)  The best schools in Florida are probably Florida State University and the University of Florida (creative names, I know), whereas California is home to Stanford, UC-Berkeley, UCLA, Cal. Tech., and a number of other incredibly strong schools.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Oct 17th, 2005 at 06:13:21 PM EST
[ Parent ]
Two words: college dropouts.

The story told to me at the university by those who came home from post-grad work in the US was: as universities are paid for the number of students enrolled, they generally make it very easy for students to enter - and progressively difficult to progress. My ex-collagues said that while a US post-grad is something prestigious (and a PhD very much so), a bachelor degree is barely above highschool level at home.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Oct 17th, 2005 at 04:29:46 PM EST
[ Parent ]
I should add my ex-collagues' judgement was based on very direct evidence: they had to teach "pre-grad" (don't know the right term) students there, and they taught us here.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Oct 17th, 2005 at 05:55:04 PM EST
[ Parent ]
I would guess they are counting people with a 2-year Associate's Degree from a Community College or University Extension Centre. This is vocational training equivalent to the old Spanish "FP 3" and maybe the higher end of the German vocational (non-Abitur) secondary education.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Oct 17th, 2005 at 04:43:57 PM EST
[ Parent ]
These are the sort of guesses I was making. I suppose that I'll have to go and look into it properly, which is going to make me sad. Especially if I have to dig a physical report out of the library.
by Colman (colman at eurotrib.com) on Mon Oct 17th, 2005 at 04:49:11 PM EST
[ Parent ]
I've seen data that says that tertiary education attianment in France is more like 35%, but I'm not sure what standards that particular study used (and I can't get to the source now either).

The outlier was Germany with only 22%, but then they have the apprenticeship programs too.

by TGeraghty on Mon Oct 17th, 2005 at 09:54:09 PM EST
[ Parent ]
A tangential addition: contrary to received knowledge, the USA is falling behind in science. A year and half ago, the Christian Science Monitor carried an article on this - here is a graph from it:



*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Oct 18th, 2005 at 07:40:00 AM EST
[ Parent ]
After a bit more reading it's clear that they're cherry picking numbers. If you choose current graduations rather than overall attainment the US doesn't look so good at all.
by Colman (colman at eurotrib.com) on Tue Oct 18th, 2005 at 02:31:21 AM EST
[ Parent ]
I've chewed through this crap and I think I know what is going on - see the front page!
by Colman (colman at eurotrib.com) on Tue Oct 18th, 2005 at 09:50:14 AM EST
[ Parent ]
I've chewed through this crap

Do you need a toothbrush?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Oct 18th, 2005 at 09:56:39 AM EST
[ Parent ]
No, but I could do with some damn fancy mouthwash.
by Colman (colman at eurotrib.com) on Tue Oct 18th, 2005 at 10:05:33 AM EST
[ Parent ]
Finally read this through...good article, thanks. But...uhhh, what's so new and good about what Brown is saying? Sounds like the same old free market horse shit of another color (...how's that for mixing metaphors!).

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Mon Oct 17th, 2005 at 03:39:48 PM EST
Not much that I can see. I was mostly interested to see a detailed proposal of what all this horse-shit is.
by Colman (colman at eurotrib.com) on Mon Oct 17th, 2005 at 03:44:11 PM EST
[ Parent ]
Maybe you all can fill me in on this, because Brown seems to waffle a great deal on economics.  Everything I've read here in the states says that he's very much to the left of Blair, though not completely divorced from the principles of New Labour -- whatever those are.  (Perhaps I'm just not paying enough attention.)  Yet, here he is, preaching what really sounds like libertarian/free-marketeer economics, despite having launched what I've read is a fairly large spending spree over the last couple of years.  What is Brown's story?  

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Oct 17th, 2005 at 06:27:24 PM EST
[ Parent ]
My feeling about this is that Blair (by his own positioning in UK and world politics) forces him to talk the right-wing talk. It's been very notable of late (since the build-up to the party conference last month) that Brown has upped, not only his profile, but its economic-liberal edge. If he takes a more lefty line, even moderately, he'll be mercilessly rubbished by the formidable Blair bully communications machine.

Blair, by being a neocon neoliberal, has this effect on British politics. He also forces the Tories to struggle to sound more rightish so they can appear to exist in their own "right" (they fail). And the whole problem is he seems intent on hanging on. Brown is stuck with having to -- what's the car-racing expression? tail-streaming him?

This said, Brown may end up drifting to the right anyway... Sigh.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Oct 18th, 2005 at 01:40:21 AM EST
[ Parent ]
Indeed, beware: this is exactly how Bliar took us to the right, by having surrogates suggesting to the Left at every step that it is a tactical move in order to save some other leftist goal (which is given up in the next step). Brown might be no different from Bliar at all.

Also, as we discussed on these pages, Brown's tenure as chancellor was a questionable success - a spin-coated melange of Keynesian and neoliberal policies, leading to the same bubble-sucked credit-financed trade deficit economy the USA has. (I wonder if Brown realises that transforming all of Europe into the same thing will leave Europe vying for financial imports with the USA - but from whom?...)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Oct 18th, 2005 at 07:37:26 AM EST
[ Parent ]
Also, as we discussed on these pages, Brown's tenure as chancellor was a questionable success - a spin-coated melange of Keynesian and neoliberal policies, leading to the same bubble-sucked credit-financed trade deficit economy the USA has.

I wouldn't worry too much about that.  The British economy looks much stronger than the American one.  Wages are rising in Britain, while American wages are falling.  The FTSE is moving in the right direction.  The Dow has been stagnant.  (Actually, I believe it's been down for two or three quarters in a row.)

I don't know how someone can produce policy that is both Keynesian and Neoliberal, but given our discussion and Brown, and what little I've seen of him -- the American press is, as you all know, completely ignorant when it comes to other countries -- it does seem to make sense.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Oct 20th, 2005 at 09:02:40 AM EST
[ Parent ]
...but given our discussion and Brown....

That should say, "...discussion of Brown...."

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Oct 20th, 2005 at 09:05:38 AM EST
[ Parent ]
Evan Davies, Economics editor, BBC, Brown's battle plan for Europe:

Chris Patten always says that when you read Gordon Brown, you think the only decent thing to do is to send food parcels to the poor continentals.
(...)
Undoubtedly, some will say the chancellor timed his message badly - after all our economic growth is slowing down.
(...)
The growth we've enjoyed in recent years looks as though it might have reflected less a strong economy and more one driven by consumer spending, fuelled by debt and high house prices.

The rest of Europe could do with a bit more consumer spending - but they may not envy the inevitable spending slowdown we're now facing.
(...)
However, there is a more important critique of the chancellor's argument.

And that is that only one thing really matters when it comes to China, India, and global competitiveness; only one thing determines how rich you are in the very long term - how productive you are or how much value each worker creates for each hour at work.

It's called productivity, and darn it, Britain does not score very well.

In the OECD report, Britain is ranked in the bottom half of the developed world on productivity and on workforce skills. Per hour, British workers produce 20% less than the Germans and a third less than the French.

If we are as rich as them, it's mainly because we work more people for longer hours.

From EurActiv, this summary of a piece from the FT:

In a satirical commentary, the Financial Times criticises the rather patronising tone of Brown's paper. In a fake letter from fellow European finance ministers to the UK chancellor of the exchequer, the FT points out that Brown was not the first person to have noticed the new challenges in a global economy. Moreover, the piece questions the UK's position as the self-appointed leader in boosting European competitiveness: "But we're having trouble explaining why, if macro stability and flexible markets are what it takes, Britain is still mid-table on income per head?"
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Oct 18th, 2005 at 04:41:38 PM EST


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