THE AMERICAN MODEL IS NOT INFERIOR COMPARED TO THE EUROPEAN

The labor market laws in many countries in Europe are outdated. In 1994, Denmark modernized a system, which came to be known as “flexicurity,” that offered American-style flexibility (layoffs, transitions into new lines of business) coupled with traditional European security. Laid-off workers were offered generous benefits, like 90 percent of their last salary for two years and opportunities to be retrained.

And it worked incredibly well. After Denmark’s unemployment rate sank to among the lowest in the world, the flexicurity model spread throughout Europe. It has been successfully implemented, in locally appropriate ways, in Norway, Sweden and Finland. But in other countries — like Germany, France and Spain — similar reforms faced stiff resistance from workers who preferred the old way.

The G.D.P. per capita (an insufficient indicator, but one most economists use) in the U.S. is nearly 50 percent higher than it is in Europe. Even Europe’s best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis (and both countries have roughly 15 percent of their populations living below the poverty line). While Norway and Sweden are richer than the U.S., on average, they are more comparable to wealthy American microeconomies like Washington, D.C., or parts of Connecticut — both of which are actually considerably wealthier. A reporter in Greece once complained after I compared her country to Mississippi, America’s poorest state. She’s right: the comparison isn’t fair. The average Mississippian is richer than the average Greek.

The European economy did not recover from the worldwide oil shock of 1973 nearly as quickly as its American counterpart. For more than 25 years, as its population aged, Europe’s economy grew more slowly than the United States’. Its active capitals belied bloated businesses that were losing contracts to U.S. competitors or growing suburban ghettos filled with a permanently unemployed underclass.

Western Europe played a remarkably small role in the computer and Internet revolutions. (On the other hand, Estonia, with less than two million people, gave the world Skype.) When the economic forecasts were written the Continent looked destined to become a decrepit old-age home with too few young people around to pay the bills.

Increasingly since the mid-1990s, European leaders have been trying to figure out how to keep up with this new globalized digital economy. To compete with the U.S., China, India and Brazil, Europe focused more intently on broadening its internal market. It’s easier for businesses to stay competitive when there are a few hundred million potential customers using the same currency and not requiring customs forms.

Many now believe that Europe’s decision to create a common currency ended up pushing much of the Continent further behind. Greece, Italy, Spain, Ireland and Portugal would arguably be much better off if they could simply devalue their old currencies and sell exports at a relative discount. Instead, they’re stuck with a euro whose value is largely based on their more successful neighbors.

European leaders like to mock the U.S. There are claims that there is inequality and lack of social safety net. Though, for now, it looks as if Europe is headed for a two-tier society without any plan for improving the lot of the lower tier. How can Brussels excite a generation of ambitious young people — the ones who will determine Europe’s future success — when too many of them are offered low-wage, short-term work in stagnant industries to pay for the far more generous benefits their elders receive? How can Europe compete if its youth experience the flexibility while the old get the security?

Comment: Some of the views above were presented in an article in the NYT Magazine on January 8, 2012 (“The Other Reason Europe is Going Broke”). It points to several important reasons for the present economic problems of Europe. The basic reason is of course that the elites closed their eyes both in Brussels and in southern Europe to the fact that the figures presented to the EU on application for membership in in the union and in the Eurozone were false. The NYT Magazine article, however, reveals other problems. The youth unemployement in Europe is terrible. The figures in both northern and southern Europe are staggering. The present day youth in Europe could be a lost generation. Young people are the future of Europe and youth unemployment should be lower than that of the general population. The elites in Europe, however, seem not to understand that.

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One Response to “THE AMERICAN MODEL IS NOT INFERIOR COMPARED TO THE EUROPEAN”

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