Europe
Starting to Boom is Going to Shatter Some American
Myths
By JONATHAN
POWER
August 18, 1999
LONDON- Continental Europe, that fabled land of
sclerosis, high unemployment, over-taxation, weighed down by
rigid labour practices and over strong unions and with
mainly left of centre governments presiding over low
economic growth, looks as if it is ready to give America a
big surprise. It's about to bounce back. The Euro, the
single currency of most of the members of the Economic
Community, appears to be on the mend. After falling since
the day of its inception at the beginning of the year, it is
now turning up against the dollar. Inflation and interests
rates are at historic lows. Growth rates are beginning to
find their stride.
Seen from this vantage point in Nordic Europe the only
question that seems relevant is when will the Americans and
their British partners in the world of ultra free market
doctrine come to understand the inner strengths of
continental Europe? Have they been so busy deriding it and
mocking it, all the while buoyed up by their own very real
successes of recent years, that they've given up doing their
homework on what is really going on in many parts of
Europe?
Why don't Anglo-Saxon business executives, asked
Professor John Kay, director of the Said Business School at
Oxford University, at a gathering here recently, read books
like "The Coming Economic Powerhouse- Denmark" or
"Entrepreneurs of Norway" or "Iceland- Europe's Tiger
Economy" or "Sweden, the Dynamic Socialist Economy"? Apart
from the fact no one has written them, no Americans- or
British, for that matter- would buy them. Yet not only do
the Nordic countries all have high levels of national
income, they have low crime, a relatively well educated
working class ( I was talking in English to my
mother-in-law's garbage man this morning, trying to persuade
him to take away more than the statutory allowance of
rubbish- but that's another story.), little poverty,
excellent free or almost free national health services and
an equitable distribution of income. Their rates of
unemployment are as low, or lower, than the U.S. and their
rates of economic growth high. Since 1993 and the return to
power of a Social Democratic government, Denmark has grown
at the same rate as the U.S.. Yet all these countries have
strong trade unions, regulated labour markets and taxes (in
Denmark's case) that take 60% of national income.
For some, the Nordic countries, individually small,
though collectively packing a punch above their weight, are
unrepresentative of most of Europe. None of them, apart from
Finland, it is pointed out, are yet members of the Euro
zone. However, this is to miss the point. All have aligned
their currencies and their monetary policies with the Euro
and the similarities with the EU powerhouse, Germany, in
particular, are pronounced.
Germany's national income, measured over a decade to
adjust for the economic cycle, has risen by about 1.6% a
year, the same as the U.S.. The U.S. may have highly
efficient labour and capital markets but these are offset by
its run down public infrastructure, its poor primary and
secondary schools and its inadequate savings rate- all areas
in which Germany scores well. Germany in some areas of
social policy, unemployment pay, for example, is more
generous than the Nordic countries. Wage differentials are
not pronounced, if not quite as even as the Nordics.
Even in the prized field of job creation, where the U.S.
appears to have stormed ahead of its European rivals, all is
not so simple. While young unemployed men in Germany or
Denmark might be watching tv or hanging around the street,
in the U.S. a good many of them are behind bars. If there
are 1.7 million people in jail in the U.S. (and only 3,000
in Denmark and 52,000 in Germany) is it not surprising that
America's official unemployment figures look so low?
Anglo-Saxon think tanks (on both sides of the Atlantic)
have had a field day the last few years scolding the
Europeans for being antiquated capitalists. Yet, as with the
unemployment figures, it is often based on a superficial
reading. Take Norway where the large state oil companies are
state owned. It has not evidently slowed the economy- Norway
over the last decade has produced the second fastest rate of
economic growth in the developed world. It has relied on the
efficiency imposed by the highly competitive product market
to compensate for any distortion there might be in state
ownership. In Sweden natural monopolies- water, gas etc.-
have been disciplined not by following Mrs Margaret
Thatcher's notions of privatization, modified by price cap
regulation, which has merely produced a game in which
utilities try to outsmart the regulators. Instead in Sweden
the utilities have been disciplined by the debt market. This
ensures that management serves only one master, the
consumer, without having conflicting obligations to the
shareholder.
France, in its attempt to reduce its unemployment rate,
is now introducing the 35 hour work week. For this it has
been laughed out of court by the Anglo-Saxons. Yet as it
goes into practice it does not seem to be either undermining
business confidence nor cutting into France's healthy growth
rate. In fact, one of the law's perhaps unintended
consequences is that big firms have managed to extract
greater flexibility from the unions in exchange for a
shorter working week.
It appears there are alternative ways of running a
successful capitalist economy. The American way and Mrs
Thatcher's way have their points, but it's clear that many
European countries have found the path to just as good
growth rates, but with far less social cost and with not too
much of that supposed ailment, Eurosclerosis.
Just as Europe may be entering a period of renewed high
growth, it may be that America's long boom may begin to wind
down. Could this be a good time for the Anglo-Saxons to
revise some of their narrow opinions? Or are they too
beholden to false images of economic correctness?
Copyright © 1999 By JONATHAN POWER
I can be reached by phone +44 385 351172 and e-mail:
JonatPower@aol.com
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