To a majority of Western Europeans, the outside world appears more like a threat than an opportunity. In France, Germany and Italy, the creation of wealth takes a back seat to its distribution—more often than not, from those with a little to those with a lot. Several Western European nations have become zero-sum societies, with winner-take-all welfare states and loser-suffer-all labor markets. The “European Social Model,” associated with the “Old European” nations of France, Germany and Italy, is becoming an anti-model, a lesson of what not to do. (Meanwhile, the Scandinavian model of “flexisecurity,” combining healthy economic growth, flexible labor markets, high labor force participation rates, reliance on trade, and a supple welfare state geared towards job creation and retraining, is being studied by social policy experts and reform-minded politicians across Europe). If Old Europe continues on its current course of stagnation, the sky will not fall, but protectionist barriers will probably rise, and the world will be a poorer place for it.
It is difficult to believe that only thirty to forty years ago, Western Europe was in the midst of a massive social and economic transformation—a rural exodus involving tens of millions of people, the arrival of millions of immigrants to fuel dynamic economies growing at 5% per year, and social and occupational flux of the highest order.
Today stasis is the order of the day. As Theodore Dalrymple notes, in Old Europe the public purpose is geared toward the protection of existing jobs and wealth; meanwhile, wealth creation has disappeared from the radar screen. The general population sees immigrants and their children as threats to their share of a dwindling system of spoils. Starting in the mid-1970s, Western Europeans attempted to freeze the postwar economic miracle in its tracks, as they shut their borders to immigrants, and shut their factories to new workers. Europeans lost the focus on economic growth and instead concentrated on the distribution of existing wealth. They began to over-regulate labor markets in order to “humanize” capitalism. The drawbridge was raised and the moat was dug around the comfortably employed “insiders,” to the detriment of aspiring workers, a disproportionate share of whom are of recent immigrant origins. This is a colossal waste of human potential, not to mention the racial discrimination involved. Low economic growth rates coupled with relatively low birth rates and a reluctance to open up the borders amounts to a recipe for the long-term decline of Europe’s weight in the world. Western Europeans, of course, are free to choose such a future. But is this really what they want?
In order to avoid answering this question, politicians, intellectuals and labor leaders invoke the specter of “globalization” to wash their hands of responsibility for the problems they have created. Many Western Europeans proclaim their desire for social democracy, but they forget that without full employment, social democracy is impossible. Middle class Germans and Italians are certainly in favor of helping the poor and the unemployed… provided they don’t have to make a personal sacrifice. They are willing to consider every remedy except the proven, successful one: the deregulation of labor markets. This—and not necessarily the level of social spending—is the key to Old Europe’s problems.
Dr. Dalrymple is correct to argue that Western Europe’s obsession with stability and social security is a barrier to growth and a millstone around the neck of future generations. Dr. Dalrymple argues that Old Europe suffers from a loss of cultural confidence. He is correct. The entire European project has become defensive in nature: its key purpose is to serve as a buffer against the apparent American menace. Meanwhile, nuclear weapons proliferate, civil wars smolder in Africa, AIDS marches through Asia… and millions of Europeans are more concerned about the spread of McDonald’s and Coca Cola. The USA is resented due to its wealth, its dynamism, and its inconsistent projection of its power. Western Europeans dream of a “multipolar” world to counterbalance U.S. power but they are not willing to spend their own money or risk their own skins to make it happen.
Dr. Dalyrmple is correct to note that Western Europeans have forgotten that social solidarity rests upon constant change and economic growth. Without full employment, there can be no social solidarity. The Swedes understand this, but the French do not. There are too many comfortable people in France, Germany and Italy with too much to lose. As Daniel Bell observed over thirty years ago, the virtues which made capitalist development possible in the first place—savings, hard work, innovation, risk-taking—were collapsing under the weight of capitalism’s comforts. Bell’s conclusions ring a little hollow in the USA, but contemporary Western Europe is proving the professor prophetic: the organized working class fights not for the “right to work,” as it once did, but for the “right not to work”: state-sponsored comforts including short working weeks, long paid vacations, lavish spa treatments, and precocious pensions.
All of this comes at a cost, but, as Dalrymple notes, “Old Europe” is not on the brink of collapse. What does not kill European business makes it stronger: jungle statism, with its regulatory thickets, predatory taxmen and capitalist-bashing “intellectuals,” makes those European corporations which do survive even fitter. This explains why Western European productivity levels outshone American ones in the 1980s and into the mid-1990s. But productivity has now slowed down in Western Europe, and this is a bad omen. Still, Old Europe’s key problem is not low productiviy or the failure to create new wealth; it is its failure to allow the market to distribute new wealth in the form of new, private sector jobs. This is why French youth of immigrant origins riot but their Canadian counterparts do not.
In one regard, Dr. Dalrymple’s cogent analysis of Europe’s malaise does not give credit where credit is due: Europe’s powerful intellectuals are united in their opposition to change, in their demonization of globalization, and in their reflex-like defense of all things “social.” They bear a heavy share of responsibility for Old Europe’s current malaise. As Dalrymple observes, three times as many people in France have warm feelings towards socialism as towards capitalism. France, Germany and Italy are indeed in denial regarding the source of their current wealth. Here are three of the world’s top ten economies, whose current comforts rest upon centuries of capitalist wealth accumulation, yet the majority of the population in each nation is anti-capitalist. We can thank the European intellectual class for this. France and Italy have never had a reckoning with Marxism: self-styled “Trotskyistes” abound in the academy; former Trotskyites become prime minister of France; extreme right and left wing parties win over 8 million votes in national elections, and parties like the “Communist Revolutionary League” of France are treated as legitimate actors and not the crackpot extremists that they are. “Intellectuals” continue to stoke the fires of nineteenth-century class conflict. Armed with a language that does not correspond to the reality on the ground, they fight phantom menaces, wasting energy and distracting the public from the true origins of their economic problems. The French working class abandoned the Socialist Party a long time ago: it has nothing to offer them but joblessness.
Western European labor leaders and intellectuals tend to see the world in black and white terms: the market is uniformly inhumane, in need of taming by wise politicians. But the state is inherently good and wise, by definition an instrument of “solidarity.” There are no shades of gray and no place for paradox. The idea that a bit more job insecurity would lead to more job creation is simply unacceptable in Old Europe (but the Danes and the Finns have accepted this and that’s why they are in better economic shape). The notion of “creative destruction” would strike most denizens of Old Europe as a bizarre right-wing American concept, even as the concept plays itself out every day in any successful capitalist economy—from the USA to Sweden. Intellectuals have only got time for the pain; they never speak of the gains from trade. Unlike their Swedish and Danish counterparts, the French Socialist party cannot countenance the idea that private sector job creation might be the solution to the country’s woes: all efforts have focused on building up the state sector, which further taxes the private sector. And the vicious circle goes on and on. Until this circle is broken, Western Europe will continue to stagnate.
I have just one criticism of Dr. Dalrymple’s excellent essay: he charges that the British government “is in the process of destroying” the economy through “ever-closer regulation in the French centralist style.” It is certainly true that taxes have increased on Blair’s watch, but Britain is still one of the most business-friendly environments in the rich world. Barriers to entry are few. The British economy is not at the mercy of corporatist vested interests with the power to block economic change. The British have accepted the Thatcher adjustment to labor markets. No one wants a return of Arthur Scargill-style trade unionism, which put the comforts of the few on the shoulders of the many. The British have displayed an enviable amount of pragmatism in recent years: where else in Europe has a government introduced substantial fees to reinvest in the university system?
The idea that higher taxes in the UK will lead towards Eurosclerosis is off the mark: if high taxes per se killed jobs, then how do the Scandinavian economies thrive? It’s not the level of tax that is crucial, it is the type of tax. Sweden has punishing income taxes but very low corporate taxes. Denmark and Sweden are ranked among the most attractive places to invest and build new businesses. Britain’s tax structure is not nearly as harmful to job creation as is the French or German. Higher spending will not necessarily cripple the British economy. Above all, British labor law is still relatively weak and flexible. I am mildly optimistic about Britain’s future. Consider the pension issue: the problem in Britain is that they are not generous enough—the complete reverse of the German, Italian and Frence scenario. British finances are in relatively good shape: debt-to-GDP ratios are relatively low, and until very recently Britain was, along with Canada, in the best shape of any G8 nation. It’s true that there are still too many people on “disability” benefits in the UK, but in comparison with Old Europe, Britain is doing well. Child poverty is decreasing. Does anyone really believe that the National Health Service was funded adequately when Blair came to power eight years ago? (Every time I meet a British medical doctor-refugee in Kingston, Ontario, I find the answer to my question.) There is precious little demagoguery to be found in British politics outside of the loony left and the Conservative Party’s Europhobic backbench boys. Neither camp wields very much power. The French take to the streets to oppose policies which might reduce unemployment; the British reserve such protests for more important issues such as the right to hunt foxes! Thatcher brought vested interests to their knees; vested interests continue to bring Paris and Rome to a standstill several times a year. Old Europe is distinguished by its politicians’ failure to propose and carry through reforms which will, in the short term, be painful, but without which long-term decline is the only alternative.