[A slightly different version of this article was published in German in the Swiss newspaper Neue Zuercher Zeitung, on April 26 2005.]
What used to be called the "welfare state" has lately been re-named the "European model." This clever linguistic manoeuver is meant to stress that it is the polar opposite of the "Anglo-Saxon" or, worse still, the "American model." Therefore good Europeans ought to like it as much as they dislike the English and the Americans.
It is an absurd claim that this is a model all, or even most, of Europe follows. It is essentially Franco-German. This is not the first time, though, that a French interest, idea or claim is made less provocative by pretending that it is all-European. The "model" has origins in orthodox French socialism, in its Gaullist version, in German social democracy and trade unionism, and in a Christian socialist tradition that, though stronger in Germany, is also alive in France. Ideologically, it is eclectic and somewhat confused, as one would expect in view of its diverse origins.
It has two very basic and constant features, one old, the other relatively new. The old feature is a belief that the distribution of the national income is the government's business as well as its natural prerogative, and that whatever it happens to be, the government must use its powers to make it tilt a little more, and a little more again, in favour of the lower income groups. It is very important, though, that such repeated redistribution should mainly take the form of "social" benefits in natura, rather than simply cash transfers.
The main ambition of the "model" is to develop an ever wider system of "social" insurance against sickness, unemployment and old age, as well as ever longer paid vacations and ever shorter "legal" working hours. This is supposed to be a more proper kind of government solicitude than to help the unions to press for higher money wages. In the deeply paternalistic spirit of its various authors, it is also supposed to be more valuable to working people than giving them the same money in cash rather than in kind. Herein lies the "model's" most fatal defect.
The cost of all this "social" insurance, except a minor part which is financed from general taxation, is raised by payroll taxes. They are partly employers', partly employees' contributions; but this is just an accounting fiction, for in fact both contributions come out of the gross wage the employer pays but the worker does not take home. In Germany and France, taking the gross wage cost as 100, an average of 50-55 goes to social insurance contributions and 45-50 is pre-tax take-home pay. The two together, however, are not worth 100 to the worker, but always a little less, perhaps 80 or 90, for cash can buy anything (including insurance), but insurance cannot. There is a permanent gap between the subjective value to the worker of what he gets and what it costs the employer to give it to him.
The upshot of this gap—the excess of the cost of labour to the employer over the value of the wage the worker gets—is that the market for labour cannot clear. No matter how desperately governments try to create jobs by fancy make-work schemes, unemployment becomes chronic. In the 30 years since the "social model" has become a political "must", unemployment has crept up from an average of 4 per cent to over 10 per cent in France and over 12 per cent in Germany.
Unsurprisingly, these sickly economies are incapable of growing at the same rate as their neighbours Spain, Great Britain, Holland and the Scandinavian countries, let alone the new East-Central European members of the Union who benefit from catching-up phenomena. France is lucky to be growing at just over 2 per cent p.a. at present, and Germany at half that rate. Neither country's government seems willing to tell its public opinion the stark truth (as Margaret Thatcher told the British after 1979) that without scrapping much of the "model", things cannot get better. France's political leaders, in particular, will do almost anything to appease any sectional interest that shouts "boo!" at them. It is now an open secret that both Germany and France are in decline. They are very much the Two Sick Men of Europe.
Hereby hangs the second, and more novel, feature of their much touted "model." Any society that is failing and feels its own decline, badly needs to reassure itself. Like the Arab societies that have so signally failed and now swear by Islamic values while hating and denigrating the Western civilisations by whose standards they have failed, Germany and France are beginning to talk of their different value system and are showing a violent antipathy to the liberal, Anglo-American civilisation that is leaving them behind. "Liberalism" (in the classical sense as it is used outside the US) is now a hate word, almost an obscenity in France, and not much better in Germany. The more Germany and France feel that liberalism and America function while they do not, the more convinced they are that the "European model" is far superior.
Opponents of the new European "constitution" oppose it because it fails to order, by force of law, a "really social" Europe. They would like it to impose stricter labour laws and more generous welfare provisions all over the Union so as to protect the Franco-German centre from "social dumping".
Bitter political adversaries in the two Sick Men countries are equally eager to preserve the "European social model" from the largely imaginary liberal menace, seemingly quite oblivious to the total failure of the "model" to produce the blessings it is supposed to bring. The detached observer must rub his eyes to believe what he sees. Medieval friars and nuns who wore hairshirts knew what they were doing; they were making a down payment on a place in Heaven and the torture was worth it. But the hairshirt of the "European social model" tortures the societies that were naïve enough to fall for it, without the torture buying them anything beyond false pride. It is a case of socio-masochism where, however, the masochist is not even drawing much perverse enjoyment from the pain it inflicts on himself.
Worse still, the pain hurts most of all the very working class whose wellbeing the model is meant to promote. Near-stagnant economies with chronic unemployment in the 10 per cent range not only demoralize the unemployed themselves. They also undermine the bargaining power of those still employed, and desperately clinging to their jobs. In private industry, management now has the upper hand and can in some cases even impose longer hours, changed work methods and wage freezes that would have been unthinkable when unemployment was at only 5-6 per cent.
It is only in the public sector that labour can still make demands and use the strike weapon. In Germany, where union membership is about 22 per cent of the employed labour force, the unions still have some influence in the private sector. In France, with union membership at 7-8 per cent, almost entirely in the public sector, the only union presence in the private sector is the paid union official, maintained there by the grace of the labour code and generous government support. It is hard to believe but perfectly true that unions in France no longer ask for higher wages in the private sector by going to the management. They go to the government instead, asking it to tell "big business" to increase wages.
Both governments try to please labour by "job protection" measures of Byzantine complexity. They make dismissal very difficult and expensive, hence hiring new employees very risky. The logical consequence is that net job creation has come to a complete halt. Without "job protection", one could expect to gain around 300,000 net new jobs annually in Germany and 200,000 in France. Losing this is like putting an extra wrinkle in the hairshirt. Socio-masochism is made more intense. However, smoothing out the wrinkle in the hairshirt by dismantling the more absurd aspects of "job protection", however, would be a surrender to "liberal heartlessness".
Socio-masochism is more complicated than common-or-garden masochism. A socio-masochist society refuses to admit that it is being tortured, and fails to see that the pain is of its own doing. Rather than recognizing its own foolishness, it convinces itself that if it took off the hairshirt, it would feel the cold on its naked torso. Perhaps we may hope that once the air is clear of inane debates about a no less inane new "constitution", Germany and France can be reminded that the hairshirt is not the only kind of shirt one can wear.
*Anthony de Jasay is an Anglo-Hungarian economist living in France. He is the author, a.o., of The State (Oxford, 1985), Social Contract, Free Ride (Oxford 1989) and Against Politics (London,1997). His latest book, Justice and Its Surroundings, was published by Liberty Fund in the summer of 2002.
The State is also available online on this website.
For more articles by Anthony de Jasay, see the Archive.