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June 15, 2007

The European Canard: Reviews of Freedom’s Power from the Right (3)

(Note: This is the third in a series of thematically organized posts responding to four reviews of Freedom’s Power by critics on the right. The first two posts were “Divided by a Common Heritage?” and “Modern Disagreements.” The links to the reviews appear at the beginning of the first post.)

Back in the days of the Cold War, right-wingers used to attack liberals in Washington as “Moscow on the Potomac.” One of the Reagan’s aides, for example, used the phrase to malign National Public Radio. When the Wall Street Journal called its review of my book “Brussels on the Potomac,” it was updating that old libel. Though one hopes it was tongue-in-cheek, the new variant, like the original, implies that American liberals are advancing an alien, socialist power—nowadays the European Union. (The WSJ “hed” may have come from an editor, not the reviewer Gary Rosen, who mentions Brussels only in passing and recognizes my book’s argument is consistently framed, as Rosen puts it, “in terms of American strength and purpose, at home and abroad.”)

Nowhere in Freedom’s Power do I say that America should generally follow a European welfare-state model. The United States has its own traditions and institutions, and there is no possibility of reproducing in America the social policies or economic institutions of either the Scandinavian or central European varieties of capitalism. There are, however, admirable things about western Europe and the European Union, and the tribute I pay to them is the source of a misleading outburst by Fred Siegel, who says in his review of Freedom's Power that my discussion of Europe betrays my ideological blinders:

Starr is effusive in his praise of how, as he sees it, Europe has balanced liberalism and democracy, fairness and growth, far better than his own country. ... Does he want us to emulate the policies that have produced unemployment rates two to three times that of the United States (depending on the country), that have produced virtually no job growth over the past 30 years? Does he realize the EU’s current levels of productivity and income were reached by the United States in 1985? Only an ideologue can imagine that France, with its 23 percent unemployment rate for young people, and Germany, which is hemorrhaging scientists and engineers, should be taken as a model.
Little would a reader of Siegel’s review guess that my discussion of contemporary European politics occurs in a chapter called “Up from Socialism” or that I specifically say that the European countries with sluggish employment growth need to change their labor regulations and tax policies. Before examining the factual claims in Siegel’s comments, therefore, perhaps I should explain what I actually wrote about Europe.

The core argument is that Europe since 1989 has been undergoing a liberal revolution on both sides of the line that used to divide the continent. The first part of the chapter deals with the lessons from the fall of communism and its aftermath; the second part with the development of the European Union. It is here that I write:

The creation of a European liberal order on a continental scale has been the quiet, underappreciated revolution of our time. ... Whether closer to the free-market or social-market models ... all of these societies are liberal, constitutional democracies, and in recent decades even the social-market countries have adjusted their economic policies in a market-oriented direction. The resulting hybrid is perhaps best thought of as social-market liberalism. Recent attempts to update social democracy as the “third way” or “neoprogressivism” also typically emphasize such characteristically liberal ideas as competition, choice, and pluralism. In its intellectual and political
life, Europe has become distinctly more liberal than at any time at least since 1914. Throughout the continent, except for the Balkans, aggressive nationalism has given way to a politics of conciliation, and the major political parties operate within the bounds of a constitutionalist consensus. Nowhere is this general turn toward a continental liberal order more apparent than in the pooling of sovereignty in the European Union, with its commitment to the free movement of capital, goods, and labor as well as the rule of law, democracy, and human rights.
The free flow of capital, labor, and services throughout a continental market is not just a liberal idea; it is also a tribute to the example of the United States.

At the same time, the major European countries have sought to maintain strong social protections, including some policies such as universal health insurance that the United States does not have. In some respects like health care, the Europeans have been notably more successful than the United States has been. In other respects like job growth, some of them have been notably less successful. The EU has performed an invaluable role in stabilizing the new democracies of eastern Europe. What I am most “effusive” about is the success of the EU in upholding and extending liberal democratic values and setting the rules of the economic game, even as it leaves matters of distributive justice and culture to each nation’s democratic institutions:

In maintaining a social-market economy while creating a continental liberal order, Europe has devised a new way of balancing the interests in fairness and growth. The individual member states of the European Union have retained control over taxation, social policy, education, and culture, while accepting a free-trade regime for the continent and ceding to the Union the central role in constituting markets (that is, setting the economic rules of the game). This compromise is an effort to adapt to the global economy without sacrificing individual nations’ democratic institutions, cultural traditions, or hard-won socioeconomic compromises.
In other words, the EU represents a new kind of transnational entity that preserves crucial areas of national autonomy while enabling states to adopt common economic standards to be globally competitive. Siegel doesn’t appear to understand the nature of the innovation.

And Siegel’s portrait of a failed Europe is wildly overdrawn. Comparing the United States to the EU as a whole (“Does [Starr] realize the EU’s current levels of productivity and income were reached by the United States in 1985?”) is plainly misleading. The 25 countries of the EU include 10 that have been added since the fall of communism; obviously, they lag far behind western Europe as well as the United States. Measures of Germany’s performance have also been dragged down as a result of the incorporation of East Germany and the attendant costs to German taxpayers. Several of the southern European countries (Portugal, Spain, Greece) only began emerging from underdevelopment in the past few decades. What is impressive is how much progress the southern and eastern European countries have made in recent decades, partly as a result of their inclusion in the continental market, the subsidies they have received from the more advanced European states, and the general levelling up of their social and economic standards that the EU has promoted.

The economic performance of the principal western European countries has varied. From 1960 to 1980, as I point out in Freedom’s Power, far from being at a disadvantage, “the countries with larger, more egalitarian social expenditures grew faster.” That relationship was reversed from 1980 to 2000: “rates of economic growth fell in both Europe and North America, [but] the decline was greater in the social-market economies than in the United States.” It is true that unemployment rates have generally been higher in Europe than in the United States, but Siegel is mistaken when he says that European unemployment is two to three times the American level. According to the OECD Employment Outlook 2006, which gives standardized unemployment rates from 1990 to 2005, unemployment in the EU-15 as a whole in 2005 ran at 7.9 percent, compared to a U.S. rate of 5.1 percent.

While GDP growth per capita has been higher during recent decades in the United States, the picture is more complicated once the distribution of gains is taken into account:

The slightly larger gains in GDP in the United States in recent decades have not been broadly shared; real earnings for Americans below the median have been virtually stagnant since the mid-1970s. Meanwhile, other aspects of the standard of living have diverged. On average, Europeans have shorter workweeks and take longer vacations than do Americans, who put in many more working hours per year, in some cases taking second jobs. Americans now have the longest work year of all the economically advanced societies, including Japan. If compared according to output per hour, the western European social-market economies are nearly as productive as the United States, and workers in three European countries generate more value. European workers also have retained more secure health and pension benefits. Whether the U.S. pattern of stagnant wages, longer hours, declining fringe benefits for health care and pensions, and higher per capita GDP counts as a point in America’s favor is a matter of judgment (and perhaps class perspective). On the whole, Europeans seem to be expressing different values, choosing to take the rewards of an affluent society in the form of more free time and greater security rather than more money. Stronger labor unions have also given voice to those preferences. Many Americans who face high levels of stress from trying to raise children while they and their spouses both work full-time, and often overtime, would appreciate a shorter workweek, but career demands and labor-market realities in America don’t make that option readily available.
The slow rate of job creation is a genuine problem in much of Europe, though seven of the social-market economies during the early 2000s actually outperformed the United States in that respect. Where employment growth has lagged, the cause seems to be rigid labor-market regulation and heavy reliance on payroll taxes, which especially depress the expansion of low-paid, private-sector service jobs. Rather than overturning the entire social-market model, these countries could adjust their regulations and alter the mix of taxes in line with the policies of neighbors that have generated stronger employment growth.
Siegel’s one-sided analysis of European performance reflects the story of Eurosclerosis that American conservatives have been telling for some time. European policy has plainly moved in a more market-oriented direction, even as it maintains certain commitments to economic equality. At a continental level, Europe’s progress is remarkable. As I write in Freedom’s Power: “The achievement of European social-market liberalism violates the premises that conservatives want Americans to accept in approaching social and economic choices at home.” In some areas of policy, such as the assimilation of immigrants, the Europeans would do well to learn some things from America’s example. But because recent economic growth in the United States is not translating into widely shared gains, we would do well to learn from the European example in other respects. Only an ideologue would be blind to that side of the story.

Paul Starr



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