Tue Jun 20th, 2006 at 03:00:11 PM EST
A defense of Social Democracy and a Criticism of Europe's version(s) of it.* .
You've had the argument before. You're discussing health care, unemployment insurance, childcare, or low-income housing with one of your "moderate" colleagues. You point out the strengths of Europe's social safety net, how most Western European nations have efficient and relatively cost-effective universal, single-payer health care, how you don't necessarily lose your home if you get laid off in the core EU, how homelessness among families is virtually unheard of and where state-sponsored pre-schools promote early childhood development and socialization and make it easier for both parents to fully and equally participate in the workforce.
Your colleague agrees with you that all of these things are wonderful ideas, and agrees that it'd be nice if we had them in the US as well. But then your colleague "reminds" you of "massive" unemployment, stagnating wages and sluggish economies in Europe. "Do you not know that it is precisely because of the cost of those wonderful social programs you are describing that Europe is slowly becoming a shithole?" your colleague avers. And small wonder, given that this point of view is, in the US, one of the most ubiquitous bits of received wisdom which have entered into public attitudes in the past few decades. (And I'll let you guess from which source this wisdom has generally been received.). Unfortunately, as with much received wisdom, this particular bit is complete bullshit.
Fact is, America does have something to teach Europe to get its moribund economy moving towards more full employment and greater participation in the fruits of sustainable expansion. But it has little to do with slashing the welfare state, and far more to do with greater, not less, income re-distribution. This may seem counter-intuitive, for much of the received wisdom described above decries the so-called socialism of the European welfare state illegitimately robbing the rich to feed the poor (which alas is no longer a phenomenon which captures the popular imagination these days, note to would-be modern Howard Pyles).
But the truth is, much of Europe in fact does precious little of the sort of redistribution which has made US economic growth so relatively robust in recent decades: regional redistribution.
In many ways, the US Federal government acts as an income transfer spigot, taking money from rich states like New York, California, Connecticut, Massachusetts and Minnesota and transferring it to poorer states like Alabama, Mississippi, or the Dakotas. And, while an increasing amount of these transfers are invested in non-productive assets like the bridge to nowhere, the history of this process is an indisputable success: economic re-vitalization of large swathes of heretofore poor parts of the country. The result? Once the poorest part of the US by a country mile, the South East, and the Rockies and Dakotas have caught up or are catching up, and growing at a faster pace than the US as a whole.
Contrast this with Europe's pitiful Regional Development fund, the EU's only true mechanism to inter-regional public investment transfers, whose transfers amount to a measly 0.46% of GDP.
It is not because the US has gutted its social welfare system and Europe needs to do the same which explains why the US has grown faster than Europe in the past two decades. It is precisely because the US has done a better job at a macro-economic level than the EU in promoting development in its poorer regions that its growth has outstripped that of the EU. European values only appear to be socialist in contrast to a putatively laissez-faire America. On closer examination, the US is far less Randian than meets the eye, while Europe's socialism is decidedly of the bourgeois type and therefore far less effective than it might be.
As Galbraith, Conceição and Ferreira argue in a studied published in NLR, (subscription only and well worth it) a while back, the Wall Street Urinal's view that labor rigidities and the high cost of the Welfare state hold employment back in Europe is just dead wrong. Instead, they argue, high-income countries in Europe typically have higher rates of employment, while labor rigidities and the size of the welfare state tend to positively correlate to income. The richer, more vibrant parts of Europe tend to have the most elaborate welfare states and the lowest unemployment.
How do they do it?
High-income countries subsidize and support the pay of low-productivity people. They do not rely on markets. They provide high minimum wages, buyers for farm produce, jobs in vast public bureaucracies, free health care and higher education. As a result, low-productivity people stay put in their low-productivity jobs. They do not migrate in large numbers toward the high productivity sectors, in the pursuit of higher pay. The pay in such jobs is not so much higher, all aspects of living accounted for, to make the trouble of earning it worth their while. This is the secret, it appears, of fuller employment in richer countries. This suggests that the real and relevant rigidities of today's Europe are entirely different from those proposed by the conventional view. Indeed, they have nothing to do with supposed inflexibility of relative wages inside any particular country. On the contrary, increasing relative wage differentials would only cause even more low-roductivity people to abandon their present employments in favour of the job queue and the dole.
What snags the EU in moribund levels of economic growth? Why, the same rigid neo-liberal orthodoxy which encourages us to do away with minimum wages, increase worker "flexibility" (neo-liberal code for reducing living standards) and gut the welfare state:
The relevant rigidities are to be found in the thinking of Europe's central authorities on two levels. First, these authorities are unable, or unwilling, to foster the development of macro-economic policies that can effectively build Europe's peripheral economies through national programmes of full employment--and that, indeed, once did so in the heyday of national Keynesianism from 1945 to 1970. Second, they have been unwilling to make the vast income transfers, across national lines, that would be required to make rural or servicesector
or even civil-service life in Spain as attractive as it is in Sweden.
(And which the US continues, after a fashion, to pursue, if not as efficiently as it might).
In fact, present European policy is designed to work in just the opposite direction. Through monetary union and the Maastricht treaty, Europe has moved to restrict the autonomy of both monetary and fiscal policies and to impede the achievement of full employment on the national scale. Meanwhile, barriers to migration and resettlement obstruct the citizens of the European periphery from taking full advantage of the more generous social welfare systems to their north.
And, it should be noted, EU enlargement made sure these rigidities were accentuated for the new member states.
This concentrates unemployment in Spain, Italy and Greece and reduces the pressure on Northern Europe to pursue full employment policies. And, of course, European fiscal policy places relentless pressure on individual countries to cut back on their welfare states.
In sum, there are good reasons why lower incomes and more inequality should mean more unemployment--and why, therefore, present European policy is a formula for continued failure to reduce Unemployment. There is, undoubtedly, a long-term, structural aspect to the European unemployment problem. It does not consist, as characteristically in America, of short-term involuntary displacement-- a phenomenon that places unemployment in the causal drivers' seat. In European conditions, rather, inter-regional inequalities cause unemployment. The latter is, indeed, in part a `voluntary' response to an unfavourable set of choices facing low-income people in the low-income countries. Better the dole and the grimy suburb than life in the village or on the farm. But structural conditions are policy driven; these inequalities are, also, created.
It isn't because Europe is too "social" that it's growth lags. It is because it is not social enough, and the US is. And the US' brand of social spending and wealth transfers promotes the sort of regional flexibility that the EU, for political reasons, has attempted to quash.
As for the United States, it is true that the 1970s and the early 1980s were a time of sharply rising wage inequalities by national-historical standards. But one must recall that, as late as 1970, the US was viewed, and had been for a century, as the pre-eminent country of the middle class. While lacking European socialist traditions, America also lacked European fascist traditions. And it did experience a vast expansion of the role of government during the New Deal and Great ociety, as well as a sharp reduction in wage and earnings inequalities during World War ii. Again, contrary to much received belief, and in contrast to Europe, American policies have remained open to the joint reduction of inequality and unemployment. Measures of earnings dispersion for manufacturing show a steady decline after 1994, alongside the reduction of unemployment to rates just above 4 per cent.
Note: this study was published in 1999; some reversal of this trend has no-doubt occurred.
...the true American advantage is not inequality, which by our measures is lower than that across the whole of Europe, but America's national policy means for income redistribution and the pursuit of full employment, and perhaps the pressure for full employment brought to bear by a mobile population on the richer regions. Indeed, one can argue that, compared to Europe, the United States may be the true social democracy today, a social democracy founded on liberal access to credit, on a national social security system, and, since 1994, on a rapidly expanding Earned Income Tax Credit that has bolstered the real earnings of lower-income Americans and may therefore have played a critical role in lowering unemployment. Americans take the low-wage jobs because the gaps are not in fact that high, and because the after-tax gaps are even lower--particularly when one considers that Americans pay a federal progressive income tax and not the regressive European vat.
We are not, by any stretch of the imagination and despite the depradations of the past half decade, behind the Europeans in being social and efficient. Despite the advertised libertarian values of the wealthy class of Americans, our values are arguably more demonstrably egalitarian and social than those of the EU. And it is precisely because of this egalitarianism and our unspoken and unavowed socialism that we are stronger than Europe in most measures. Sure the US doesn't have an efficient and government run health-care delivery system, adequate worker protections, early childcare education or enough low-income housing. But this is nothing that a decade of solid Democratic control of Washington can't solve: look what we did with the Great Society.
On the other hand, policy elites in Europe enforce a brand of market fundamentalism which has now condemned not one but two generations of its citizens to a precarious situation of alternate periods of unemployment and low-wage temporary employment. It is just this fundamentalism which brought students into the streets in France not so long ago, and which brought me to the US ten years ago.
In conclusion, maybe it's time to admit that the EU isn't all lefties in America think it's cracked up to be. Maybe you friend had it half right. Europe's economies are by and large lagging their potential. And unemployment is far too high, especially for young people. But the reason for this isn't because Europe has too much socialism. It's because it doesn't have enough. The wingnuts are right about Europe. They're just wrong about the reasons why.
How could this be? Maybe because helping one's fellow man and increasing the common wealth isn't just the right thing to do. It's also an excellent investment.