This is the weekly roundup of The WorldPost, of which Nathan Gardels is the editor in chief.
Just as the welfare state was born out of the upheavals of the Industrial Revolution, so too a new social contract must emerge today as the economic ground shifts again with the dislocations of globalization and the steady disruptions of digital capitalism.
The paradigm for such a contract, rooted in the idea of “flexicurity,” is beginning to take shape in reforms around Europe. This approach, coined by the Danish government in the 1990s, combines flexibility in the workplace to accommodate the robust dynamics of trade and innovation with a universal safety net and opportunity web that catches those who fall in the cracks and helps them move on and up. Above all, it seeks to support the overall well-being of workers instead of protecting specific jobs. The present French reforms under President Emmanuel Macron and earlier efforts in Germany over a decade ago are versions of the successful Nordic model attempted in larger nations.
Although flexicurity removes the barriers to innovation and job creation and tempers the consequences of precarious employment, experience so far has shown that it alone does not dramatically reshape the landscape of growing inequality. If digital capitalism continues to divorce productivity and wealth creation from employment and income, as intelligent machines displace labor, more is needed. The next piece of a new social contract thus must not only entail investment in public higher education to provide the skills required to navigate the new economy but also must include a scheme through which all citizens own an equity share in the robots creating all that new wealth. Though not yet on the drawing board, that is the inevitable next step.
The WorldPost this week focuses on the present French reforms and compares them to similar German reforms under then Chancellor Gerhard Schröder back in the early 2000s.
Jean Pisani-Ferry, widely regarded as the “eminence grise” behind Macron’s labor proposals, explains the new approach in an interview. “The reforms currently under discussion,” says Pisani-Ferry, “combine a broadening of the access to unemployment insurance that would eventually turn it into a universal safety net for all those suffering an income drop as a consequence of economic disruption, irrespective of their status.” Under the current system, unemployment insurance is tied to those who have been employed for a vested period.
Reforms already implemented by Macron earlier this fall allow companies more flexibility to hire and fire workers according to the ups and downs of the economy. In response to critics who argue that the 39-year-old president is turning the socially protective French system into American-style job and benefit insecurity, Pisani-Ferry responds: “We have already become more American. Job security has diminished, and the gig economy is already here. Blame digital technology, deindustrialization, globalization — you name it. The risk now is that dualism becomes entrenched, with secure, well-paid jobs at one end and precarious, low-paid jobs at the other end.”
Economist Jean Tirole concurs. “In the absence of reform, the percentage of job creations via short-term contracts is likely to increase, as no firm will want to create permanent jobs in an era of rapid job obsolescence associated with artificial intelligence and mechanization. Upward mobility has stalled. And the protection of workers will be jeopardized if the heavy public expenditure around the labor market proves to be unsustainable,” the Nobel laureate writes from Toulouse.
He continues: “France’s labor market is under pressure from multiple forces, including the accelerating destruction of jobs and fragile public finances. The country’s labor system is inefficient and possibly unsustainable. To remedy this, Macron urgently needs to upend the status quo to protect workers, rather than jobs.” Tirole acknowledges that in the shorter term, inequality may well increase because of eased hiring and firing regulations. But, he concludes, “Inequality won’t be solved by adhering to the status quo and the quick fixes of the past.”
Indeed, while the German reforms under Schröder aimed at creating flexibility in the labor market clearly improved the country’s global competitiveness, it did so at a cost we are only seeing today. That a country so admired as strong and prosperous is afflicted by the same problems of inequality and stalled mobility as the rest of the West comes as a surprise to many.
“Two main challenges for Germany are underemployment and falling real wages for a substantial share of its workers. Many highly skilled workers have experienced a sharp increase in their wages, and the labor force participation among women has increased,” Marcel Fratzscher writes from Berlin. “But the dark side of Germany’s labor market is that more than one out of five workers — that’s twice the number in France — is in atypical employment. That means they earn little more than minimum wage, working part-time or on temporary work contracts. Equally worrisome, the bottom third of workers, those with the lowest wages, are worse off and have lower real wages today than in 2000. And poverty has been rising, putting one out of five children below the poverty line.” Fratzscher identifies the culprit as Germany’s “massive public and private investment gap.”
“The next German government,” he concludes, “needs to give high priority to investing in education, innovation and infrastructure — including digital infrastructure — rather than increases in pensions and tax cuts.”
Writing from Rome, Matt Browne strikes the appropriate chord in framing the ongoing challenge of designing a new social contract. “Rather than seeing all these imperfect reforms as merely a destructive dismantling of labor codes and a welfare state founded in bygone economic conditions,” he advises, “they should be seen instead as pioneering moves that seek to maintain social values in an ever-more complex future.” France and Germany, Browne continues, “are the testing ground of whether the ‘flexicurity’ that has worked so well in the Nordic countries can be scaled up to larger states and indeed Europe as a whole.”
Collapse of consensus in Germany; China in Eastern Europe
Meanwhile, heady winds are blowing across post-Cold War Europe, changing the continent as we know it. Yet another European fixture upended by new realities is the famed stability of German consensus politics. This week, Chancellor Angela Merkel — whose center-right Christian Democrats garnered their worst showing since the end of World War II in recent elections as a neo-nationalist party entered Parliament for the first time since the Nazis — acknowledged she could not put together a governing coalition.
Efforts to reconstitute the previously ruling “grand coalition” with the Social Democrats, who also had their worst results ever with a mere 20 percent of the vote, are presently underway. Even if that works for a while, everyone knows it is only resuscitating a feeble alliance that history has already deemed moribund. To the extent that the success of Macron’s reforms depends on deeper integration with Germany to bolster a “core Europe” with compatible economies, the new collapse of consensus in Berlin is bad news.
This week, the first meeting of the “16+1” was held in Budapest hosted by Hungary’s autocratic leader, Viktor Orban, and led by Chinese Premier Li Keqiang as part of China’s “One Belt, One Road” initiative. The “16” are Central and Eastern European states, most formerly of the Soviet bloc and many following Orban’s populist path, seeking investment from the “one” — China.
“European resources are in themselves insufficient,” Orban said. “For this reason, we welcome the fact that as part of the new economic world order, China sees this region as one in whose progress and development it wants to be present.”
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