Does President Obama want to make America more like Europe? And if so – which part of Europe? North or South?
Northern Europe is a region of market-friendly welfare state region of market-friendly welfare states, such as Denmark. Back in March of 2008, Robert Kuttner, the co-editor of the liberal American Prospect, wrote an article for Foreign Affairs, “The Copenhagen Consensus,” in which he expounded on the virtues of the Danish model:
The World Economic Forum’s Global Competitiveness Index ranks Denmark third, just behind the United States and Switzerland. Denmark’s financial markets are clean and transparent, its barriers to imports minimal, its labor markets the most flexible in Europe, its multinational corporations dynamic and largely unmolested by industrial policies, and its unemployment rate of 2.8 percent the second lowest in the OECD.
Kuttner’s article seemed like a proposal to a future Democratic administration. Here was a country that had achieved the best of two worlds. On the one hand the benefits of a highly competitive free economy that generates growth and low unemployment. On the other hand a pretty generous welfare state that guaranteed that everybody got a good public education, healthcare and effective job retraining that produced “skilled and adaptive employees.”
It would have been at least an interesting model for team Obama. A model that would be able to accommodate his left wing base and at the same time assuage the fears of a right of center nation about loss of competitiveness, entrepreneurial drive, high employment and growth.
A Denmark like model would have to be based on the following principles:
- A tax system favorable to businesses that focuses on income rather than payroll taxes. It’s a strategy that the Danish have found necessary in order to keep their corporations competitive in a globalized economy.
- Reality based trade unions. Kuttner was surprised when a union leader told him: ”We need to convince Danish industry to do more outsourcing,” adding that “We are a small country and we survive by exporting. . . . If a Danish multinational manufacturing corporation can be more competitive by outsourcing components, we will be more competitive as a nation.” It’s a pragmatic union leadership that focuses on cooperation with management and the maintenance of a highly competitive Danish economy.
- Minimal state interference in businesses. The state does not try to pick winners or losers in the market place. As it was recently published in the Economist “the World Bank ranks Denmark fifth in the world for ease of doing business.” In addition “Denmark is already home to about 20% of Europe’s biotech companies. It also has thriving clean-technology, fashion and design industries. As a proportion of GDP, Danish companies attract more venture capital than any other European country.”
- A heavy emphasis on employees’ productivity. The Danish state tries to limit its intervention at the level of the individual employee. As Kuttner notes, the Danish state spends “an astonishing 4.5 percent of Danish GDP on initiatives such as transitional unemployment assistance, wage subsidies, and highly customized retraining.”
- Consumer choice in the supply of public goods. In Denmark “private and religious schools can get 85 percent government financing.” And in an effort to limit costs and expand choice recent Danish governments have pushed for a greater role of private insurance in the healthcare sector. (By the way, Switzerland and the Netherlands have a market based system of healthcare and Sweden uses a school voucher system to finance education)
- Competence. There are high standards and expectations when it comes to the administration of the state.
But there is another model of European statism: ramshackle and dysfunctional bureaucratic states like Italy and Greece. And ominously, to date the Obama administration’s initiatives seem to point the US toward a Greek rather than a Danish future.
Obama’s policy shares four characteristics with the economic models of the European south:
- Public Debt: Both Italy and Greece are highly indebted. And both countries have little to show for it. Vast amounts of debt accumulated over time due to onerous public spending for public works, bloated public sector payrolls and payoffs to special interest groups.
The situation now has become so dire that as the Economist reported “Italy’s infrastructure is creaking: roads, railways and airports are falling below the standards of the rest of Europe, and public and private buildings are looking ever shabbier.” At the same time Greece is unable to pay the suppliers of the National Healthcare System and many of them remain unpaid for years. In some hospitals the patients are asked to bring their own medical supplies.
Likewise the Obama administration is creating huge amounts of debt. By 2019 the U.S. government debt will more than double and reach 82.4% of GDP. When debt rises to such high levels and it remains there for extended periods of time it does force the government to make some hard choices about its spending.
- Bloated Bureaucracies. Both Italy and Greece are notorious for their large numbers of public sector employees and their inefficiency. A quarter of the Greek workforce is employed in the public sector. When an official of the previous Greek government visited Sweden (of comparable population size to Greece) he was surprised to see that the Ministry of Education employed around 2oo people. The Ministry of Education in Greece employed at the time more than 2,000. (2004)
The Heritage Foundation estimates that the Obama administration’s plans will add more than a quarter million in the public sector payroll.
- Hostile unions. Unlike their Danish colleagues the unions in south Europe have developed a confrontational and uncooperative culture that continually places them in a struggle with management. Although the vast majority of union members are employed in the public sector, strikes and street blockades are often able to paralyze the whole economy.
The Obama administration seems to favor this kind of labor movement considering the effort and arm-twisting that it put into the GM bankruptcy deal. In essence it rewarded one of the most intransigent and destructive unions in the land.
- Political corruption. According to Transparency International, which “measures the perceived levels of public-sector corruption in a given country,” Italy and Greece are placed in positions 55 and 57 respectively (the lower your position the higher your perceived corruption). Denmark came in first.
Certainly, endemic cultural norms play the most important role here but the vast size of the state and its practically unimpeded power have institutionalized and cemented bad old habits.
The U.S. always had a political class prone to corruption. But thanks to the limited size of the government, the separation of powers and the reforms of the progressive era, these Tammany Hall instincts were contained. In a new era of glorification of state power we should expect an unleashing of those old instincts.
Perhaps the most important area left which would determine into what kind of Europe President Obama wants to turn the U.S. would be his position on entitlements reform and government regulations. This is that other area where the European south distinguishes itself. Through outrageously generous pensions schemes (Greece by 2040 will have to devote 25% of its GDP to cover the pension system’s liabilities) and labor regulations that protect those who already have work, the European south has created a system of huge intergenerational wealth transfers and job insecurity for the younger generation.
In the first months of the Obama administration all the indicators point to a European direction for the U.S. Nevertheless, it’s not the kind of Europe that we would expect. It’s not the kind of Europe that for many years American liberals have dreamed and fought for.
It’s a Europe of high unemployment, economic stagnation, societal and intergenerational conflict.
11 responses so far
1 barker13 // Jul 10, 2009 at 8:07 am
Thought provoking contribution, Mr. Linardatos.
My only quibble… in America it’s the CONGRESS which spends money, which controls the purse strings.
Yes, President Obama is moving to create an Imperial Presidency of the like Nixon or George W. Bush could only dream of, but for now Pelosi and Reid are the dominant players in the spending game.
If only Boehner and McConnell were up to the job of controlling their caucus’ the GOP might be able to blunt the Democrat assault upon individual freedoms and individual responsibilities, but alas… Boehner and McConnell are clowns.
(*SIGH*)
BILL
2 ottovbvs // Jul 10, 2009 at 9:45 am
“Nevertheless, it’s not the kind of Europe that we would expect. It’s not the kind of Europe that for many years American liberals have dreamed and fought for. It’s a Europe of high unemployment, economic stagnation, societal and intergenerational conflict. ”
…….I’m sure most Americans will interested to learn that that despite the wide disparities in efficiency and economic performance amongst European countries (and I’ve lived in two and visited most of the others) the models that we are certain to follow are Greece and Italy. Not Sweden which has the highest tax rates in Europe; not Britain which has probably the most socialized system of medicine; not France whose public sector employment levels are about the same as Italy and whose retirement packages are even more generous; not Germany where the institutional role and power of the trade unions is probably greater than in any country in Europe; not the Netherlands that has the most liberal laws on drugs and women’s abortion rights. No we because of our incompetence and idleness are destined to look like…….Greece! Elsewhere on this Blog David Frum bemoans exaggeration and hysteria…..well join the club Mr Linardatos. And btw in about a month I’m going to wallow in the squalor and inefficiencies of Italy for three weeks which has the misfortune to governed by the “conservative” administration of Signor Berlusconi. Unfortunately he’s unlikely to invite me to one his parties with the scantily clad nymphets.
3 sinz54 // Jul 10, 2009 at 9:48 am
I want America to be more like Singapore.
They run a tight ship over there.
They have a free market; in some ways, freer than America’s markets.
And if you do something antisocial, you can be flogged.
4 ottovbvs // Jul 10, 2009 at 10:05 am
sinz54 // Jul 10, 2009 at 9:48 am
“And if you do something antisocial, you can be flogged.”
………Like spitting gum on the sidewalk…..I’m not kidding……How Sinz longs for the good old days….That anyone can claim to be a democratic (small c) American and want this country to look remotely like Singapore which is a tiny city state with two ethnic groups, run by a self perpetuating conservative oligarchy, is fairly amazing but that unfortunately is the prevalent authoritarian mindset in the GOP today.
5 barker13 // Jul 10, 2009 at 10:49 am
Re: Sinz54 // Jul 10, 2009 at 9:48 am –
“And if you do something antisocial, you can be flogged.”
(*THUMBS UP*)
BILL
6 Oneon1isto // Jul 10, 2009 at 11:18 am
I like the information in the article, but what’s the point? Your whole thesis rests on “if Obama wants to make us like Europe”.
That’s fallacy. His end goal isn’t to turn us into Europe. I don’t think he could even if that was his goal–and no ones ever heard him utter it. It’s to fix problems that are affecting America–that (because of our society, culture, politics, population, etc.) are going to require a distinctly American solution.
Whether or not the end solution is effective FOR AMERICA is what is up for debate, not whether we’re turning into Europe, and which part. This is just a thinly veiled version of the socialism diatribe.
7 sinz54 // Jul 10, 2009 at 11:35 am
Oneon1isto sez: “It’s to fix problems that ….are going to require a distinctly American solution.”
So far, nothing Obama has proposed is a “distinctly American” solution.
Cap-and-trade is the same nonsense that has failed to produce significant reductions in greenhouse gases in Europe. An “American” solution would be a combination of a carbon tax (of which Milton Friedman would have approved) and expanded nuclear power.
The health care reform package is (as every left-winger + ottovbs well knows) a steppingstone toward the eventual dismantlement of the private health insurance market and its replacement by single-payer. And single-payer is exactly what they have in European nations like France.
Don’t forget, I read the left-wing blogs too. And over there, they look down on America for its alleged “backwardness” and “primitivism,” look longingly at the “civilized” societies of Canada and Europe, and can’t wait for America to “catch up” to those other nations.
8 Oneon1isto // Jul 10, 2009 at 12:20 pm
I think you’re just putting your filter in place of “American”. Common mistake.
My point essentially was his thesis is misguided. If you want to talk comparisons, fine. But “which Europe?” is attention grabbing but insipid.
And we are not. We cannot be. I’ll be attacked for this analogy, but screw it. It’s like our Chinese food. Aint the same. Couldn’t be the same if we tried.
You put any idea through the churn of politics and culture and it’s going to come out different. Waxman is distinctly different from any European plan. Europe actually has some pro-nuclear chunks, a very forward looking fusion development program, and is upping like 260% or so their funding for nuclear energy. They must be adopting a distinctly “American” plan then.
9 balconesfault // Jul 10, 2009 at 12:47 pm
sinz: “and expanded nuclear power”
Wait – isn’t that a French solution?
Oh – and by the way … France doesn’t have a pure single payer system. Rather, complimentary health insurance policies are offered by mutuelle’s (non-profit providers) and complémentaire santé’s (which sound a lot like the co-ops that a bunch of politicians keep advocating for).
America is pretty damned entrepreneurial. I have no doubt that the free market will come up with plenty of unique American solutions to fill the need of people wanting more coverage than a public option can pay for. And I have no doubt that the freedom-loving American people will resist any regulations that prevent those solutions from being legal.
Andy you know what – thanks in no small part to those religious righters who you yourself decry from time to time, America most certainly DOES have pockets of “backwardness” and “primitivism”. Hell, circulating the internet these days is a video of a Republican state congresswoman in Arizona declaring in a committee meeting, with no sense of irony or humor, that the world has been around for 6,000 years. Is it elitism, or “Europhilia” to point out that she and by extension her constituents are pretty damned backwards? How about whole states that elect people like Huckabee and Brownback who dispute evolution. You’re really saying that’s not more akin to a primitive belief system, than a modern one?
10 ottovbvs // Jul 10, 2009 at 1:50 pm
balconesfault // Jul 10, 2009 at 12:47 pm
“sinz: “and expanded nuclear power”
Wait – isn’t that a French solution?
Oh – and by the way … France doesn’t have a pure single payer system.”
……..You’re right about nuclear power which several European countries have as part of their energy mix, and the French healthcare system……… but you have to remember we’re living in Sinz’s right wing , demonized, little world in which the US is faultless, Europe=bad, Obama is conspiring to create a single payer system of healthcare, and the ignorant are despised by elitist liberal bloggers for having a somewhat shaky grasp of the facts.
11 dacookson // Jul 11, 2009 at 1:43 am
I looked at this last night and thought I’d respond in the morning but notice it’s gone from the front page. Probably because it’s a silly article. Let’s take the easy one corruption. There’s corruption and then there’s corruption. The US does not have a problem with mafia style corruption, just old fashioned political corruption that exists in every country. ‘Perceived corruption’ isn’t a water-tight measure anyway. The public debt argument is preposterous. Obama’s public debt is down to the policies of the previous administration and the fact that he isn’t going to allow Republican fiscal irresponsibility to hold healthcare reform hostage. Ultimately he intends to pay down debt, something that the Democrats are better at than Republicans. The point about unions is also a poor one. France has militant unions but isn’t included in your list of shame. Unions in southern Europe are way beyond anything in the US. The left in that part of the world had direct links to Moscow. They aren’t the phantom communitsts that you hear hysterical Republicans talking about, they’re real ones. Add that to all kinds of socio-economic factors that differentiate the countries you mention from the US and this article revals itself to be another bit of Republican red flag waving.
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