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Europe Starting to Boom is Going to Shatter Some American Myths



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


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