Western Europe Is Cursed By Philosophy of Economy

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By Steven Pearlstein
Friday, July 8, 2005

Before terrorism tragically intervened, London's victory over Paris in snaring the 2012 Olympics threatened to become the latest victory for Anglo-American capitalism over the more civilized "social market" preferred by Western Europe. Bitter French officials complained that British Prime Minister Tony Blair had lobbied Olympic officials into the wee hours before the big vote, as if the rest of the world had somehow agreed to abide by the 35-hour workweek.

Unfortunately for French officials, Blair is becoming a hero to business leaders throughout the continent after his decision to scuttle the European Union budget and force a debate on the future of European capitalism.

Blair was an unseen presence last week at a high-toned economic conference in La Baule, France, where top European executives listened incredulously as the French industry minister argued that France was now a magnet for investment and hotbed of reform. The harsher truth was delivered the day before by the chairman of Fujitsu, who had flown in to accept an award for the substantial investments he had made in Europe. Naoyuki Akikusa stunned the audience by declaring that in terms of productivity and quality, the results were "not what we had come to expect."

The economies of Western Europe are cursed by self-defeating public attitudes about markets, wealth and work.

After a two-week tour, what sticks is my mind is a meeting with union workers in Lyon who believe that despite rising unemployment, the new 35-hour workweek has created jobs and that a 20-hour workweek (with no cut in pay) would create even more.

I recall the bright and articulate students at the University of Cologne who said they'd probably go to a talk by Bill Gates -- only to understand better how the capitalist "enemy" thinks.

In Milan, I heard of the dozens of workers that Alitalia airlines must fly in from Rome each day because seniority rules prevent hiring local replacements.

And in all three countries, I heard executive after executive complain of the chasm between university and corporate research because of the refusal of academics to get their hands sullied by commerce and corporate support.

The second curse on the European economy is the gap between every euro a company spends to employ a worker and the 40 cents that the worker actually takes home. The rest goes for taxes and social charges that pay for health care, pensions and unemployment insurance, along with an overstaffed public sector that justifies itself by perpetrating regulations that stifle competition, entrepreneurship and innovation.

It is untrue that most Europeans are overpaid. What is true is that they've allowed the public sector to get so large, and government-dependent workers so numerous, that it is now politically impossible to reverse course. The exorbitant costs of the public sector are slowly strangling export industries that have been the source of European wealth and prosperity.

The third curse is the widespread belief that the best way to "fix" the economy is for government to do it directly rather than create the right environment for a robust private sector.

The new French cabinet, for example, has promised a 100-day plan to cure the country's unemployment problem. And its answer to lagging R&D is to push ahead with government-financed mega-projects such as the new nuclear fusion reactor or the European version of a global positioning system. And now that years of government subsidy have created a world-class aerospace industry around Airbus, the instinct is to use the model to create a biotech cluster and a nanotechnology industry.

The problem with that approach is not only that government-directed efforts are prone to failure. More significantly, by diverting so much money, energy and attention, the initiatives make it unlikely that the private sector will ever develop those capabilities on its own.

It is these issues that Blair is determined to put on Europe's agenda, despite reluctance from Italy and Germany and the outright opposition of France. The reality in those countries is that while the economic crisis is real and acknowledged among the elites, things are not desperate enough to prompt a fundamental shift in attitudes and policies.

"The only thing I see that can change things now is a big shock," said Italian financier and industrialist Carlo DeBenedetti. "Otherwise, people will not accept significant change."

Steven Pearlstein's e-mail addresspearlsteins@washpost.com.


© 2005 The Washington Post Company

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