Tuesday, January 12, 2010

The world should learn from Europe

The recent crisis has highlighted the strength of the European social model. It would be unreasonable to throw it away in the name of competitiveness as an absolute imperative for Europe. It is a costly system and sometimes inefficient and inequitable, especially in Southern Europe. However, the Nordic model shows that it is affordable as the Scandinavian countries are considered the most competitive economies in the world.

So, what's wrong? The main argument is that demographic decline with an ageing population put in serious question the long term sustainability of public finance. This is true, but the impact on labour market and future generation of workers is even more dramatic. It means that Europe will have to import workforce from other countries.

From the other side of the Atlantic ocean, Europe is not regarded as the old continent. The crisis has changed mindsets even in the conservative camp; Obama is struggling to get a final approval of his healthcare bill which will not be as radical as previously thought, but at least it could relieve some urgent social problems among the most disadvantaged people who cannot afford social insurance. Inequality has soared as never before and will have to be tackled through income redistribution.

Europe is not a defunct system. It has much to tell to other nations if we just to take the time to get the facts right. It's true that Europe had economic troubles over the past 30 years where job creation was sluggish contrasting with vigorous employment growth in the United States. In the 1990s, Europe lagged behind in the adoption of new technology with few homes with personal computers and connected to the Internet. But since 2000- the launch of the Lisbon agenda- employment has grown a bit faster than in the United States, and since Europe has a lower rate of population growth, this has translated into a substantial rise of the employment rate , i.e. working age population having a job. The gap in employment rates between the US and Europe has narrowed in that period. So, Europe is not a place where a lot of adult people just sit at home with their welfare benefits. Likewise, Europe's Internet lag has also been overcome in a few years. The number of broadband connections per 100 people in Europe (before the enlargement in 2004) is slightly higher than in the US and connections are faster (at least in large urban areas) and faster than in the US.

It's true that Europe continues to have many economic problems like many other nations. But the fact is that Europe's economy- despite the call for reforms- looks better now than it did a decade ago. This might sound a bit provocative from a European perspective. Europe's broadband success owes to the combination of competition and regulation, preventing a 'far west' situation where telecom and cable companies would monopolize the broadband market.

But what European countries have not done is dismantle their social insurance system. Universal healthcare is provided almost in every country, together with a large variety of social programs in support of families most in need, poverty and so on. All this is paid with tax payers' money and European taxes are high compared to the US.

According to the free market' ideology, the route to prosperity is to have low taxes and weak social systems. The argument which is used by the conservatives is to say that if individuals are given more protection, this would undermine the economy, just as Europe named as the symbol of inefficiency and waste. Progressive economists like Krugman are in fact very critical on these views.

We should be aware not to throw the European model just because it is expensive. Actually, it is a safety net against economic insecurity, especially in times of crisis. Europe's economy needs a boost, but not at the expense of our social model, defined by J.Delors by three words 'competition, cooperation, solidarity'. The world has a lot to learn from the European experience, from its merits as well as its mistakes.

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