John Buell

Lessons From Across the Pond

If you read the business press -- from the Wall Street Journal to The Economist of London -- you might conclude that Western Europe is on the verge of collapse. New York Times columnist David Brooks even invokes this purported crisis as proof that US Social Security must be privatized. Europe, with more taxes and regulations, supposedly can't generate the economic growth needed to sustain its growing population of elderly citizens. Yet this conventional perspective may reflect ideological enthusiasm more than economic history on both sides of the pond.

The business press argues that Germany, the Scandinavian nations and France suffer from "overly regulated" labor markets, high taxes and high unemployment. The Washington Post charges that Europe is in a "productivity slump."

One problem with this analysis is that worker productivity is defined not as output per worker but as output per working hour. Economist Dean Baker reminds us that in terms of output per working hour, European productivity has continued to increase at the rate of 1% to 2% annually over the last six years. He adds: "The growth in output per hour has not always translated into output per worker, since workers have taken a large portion of the gains of higher productivity growth in the form of shorter work weeks. Work weeks of 35 to 37 hours are standard in the euro zone nations, as is five to six weeks a year of paid vacation." Some European nations enjoy higher absolute rates of worker productivity than the US.

Western Europe's unemployment "crisis" is also in part an artifact of how we define unemployment. The US counts part-time employees seeking full-time employment as fully employed and excludes so called discouraged workers. If the US definition of unemployment were used, the former West Germany's current unemployment stands only slightly higher than ours. Unemployment is somewhat higher than our own, but workers retire earlier, enjoy more time off and are often more productive while working.

Even with respect to the admittedly vexing problem of unemployment, conservatives have a conveniently a-historical take. The European economy became more sluggish as the European Union expanded and adopted trade regulation principles closer to US norms. Expanded business investment in and worker emigration from Eastern Europe, where worker pensions and worker protections are slight, has put downward pressure on wages. Consumer demand and business growth have stagnated.

The US has enjoyed slightly better job growth, though working-class wages have stagnated and the poor have suffered. Nonetheless, as James Galbraith points out, much of our job growth can be attributed not to deregulation and low taxes but to areas where the US government intervenes in markets more than most European nations do.

Along with massive expenditures for the military, Galbraith identifies a "soft Keynesianism" of direct and indirect support for university education and housing. Housing is subsidized not only through tax write-offs but also through federal guarantees of mortgage markets. Tax write-offs for gifts to higher education along with state and federal expenditures give the US a higher education sector that constitutes about twice as much of our GNP as in Europe. In addition, Galbraith reminds us that our much-lamented pensions for the elderly have not only served to reduce poverty but also sustain effective demand.

Even in the face of growing competition from low wage workforces within both the EU and the US and Asia, some European nations remain remarkably well off and competitive. London Guardian columnist George Monbiot points out that even by the favorite business press criteria, Sweden is one of the world's most successful nations. Its per capita GNP and trade balance far surpass its more deregulated and lower tax competitor, Great Britain.

Advocates of the US model also fail to recognize that taxes can buy goods that businesses need to thrive. Swedish taxes are higher. Though redistribution can go too far, some redistribution is needed to sustain effective consumer demand. Taxes fund health care, which US workers and businesses fund themselves -- far less efficiently -- thereby rendering US manufacturing less competitive. Stronger Swedish unions have kept wages high, fostering worker morale and encouraging technological and productivity gains.

Both sides of the Atlantic could learn a lot from each other. Galbraith suggests that Europe could stimulate both more consumer demand and greater productivity by subsidizing university education in its less developed eastern nations and by promoting a continent-wide pension system.

The US needs to consider the role that healthy unions, universal health care and employment security have played in increasing long-run productivity. But a trans-Atlantic business press mesmerized by a model the US itself has never practiced is unlikely to consider these options.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email

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