Euramerica: A Safety-First Economy
By Anthony de Jasay
The thirty years from the end of the war to the mid-1970s were the Glorious Thirties of Europe on the nicer side of the Iron Curtain. Spurred on by a sense of dire necessity, people went hard at work to clear up the rubble, repair the damage, and get over as fast as they could the grim phase of post-war reconstruction. In 1948, the Marshall Plan came in to fill up empty economies with working capital, and Western Germany amazed all by taking off into the Wirtschaftswunder. Robust economic growth, exceptional by historical standards, became a commonplace.
By about 1975, Europeans started to feel rich, or at least no longer under pressure to make good the catastrophe of the war. Inspired by the earlier British example, which started the post-war epoch with the Beveridge Report establishing an embryonic welfare state,1 Europe “never had it so good” in 1966 and never ceased to invent fresh good ideas for making social progress by more public expenditure. In Britain, this was the era of building a universal free health service that could never stop growing, of destroying a world-class system of secondary education by flattening out its peaks and ironing “elitism” out of it, as well as of establishing social security systems against many of life’s risks. Left behind while focusing on post-war reconstruction and take off into new growth, other European countries hurried to catch up with the British example and were constructing welfare states of diverse forms but uniformly high cost, a process which was well advanced in the 1980s. Parallel with ever more elaborate social “entitlements”, unemployment emerged and went on rising by fits and starts. It was always understood and explained away as accidental, transitional, and ready to be put right by the next round of full-employment policies. In fact, it proved to be a rock-hard part of the new European “socio-economic model”. The Glorious Thirties of the immediate post-war period was imperceptibly replaced by the new Inglorious Thirties, which was a period of sluggish growth, a pressing political appetite for more and more elaborate social welfare, and menacing budget deficits, culminating in the deep recession of 2008-2009.
During most of the Glorious Thirties, the overall economic performances of Europe and America were comparable. The European Common Market, as it then was, led in productivity per hour worked, and this lead was compensated by the U.S.A. in a longer work-year and in higher population growth thanks to the stream of Latino immigration. Large-scale Turkish and Arab immigration to Europe got going somewhat later. Steadily rising unemployment accentuated the slowdown of European growth after 1975. The United States was distinctly pulling ahead from that point.
While during the Glorious Thirties, Europe was rather proud of itself, of post-war reconstruction and the Common Market and was counting the years before it caught up with America, in the Inglorious Thirties opinion split two ways. One half persuaded itself that Europe, despite its lagging economic performance, was still the stronger party and its superiority over the United States would become apparent as the construction of a federal Europe progressed. More importantly, America was ruthlessly hard on the poor and the helpless, who were being left by the wayside, while Europe made “social justice” prevail.
The other half of European opinion did not fool itself about America and its ways, but instead became frankly envious of American success. Deeply frustrated that Europe was stubbornly heading the other way and may be digging itself into an economic hole, this pro-Atlantic and (in the original sense of the word) liberal opinion had an image of the United States that was partly realistic, but also partly illusory. They regarded it as a rich place where markets were free, opportunities were wide, taxation moderate, political power decentralised and government activism resisted. There was tremendous social mobility upward and downward, risk-taking was encouraged and admired. Far from being a little shameful, profit was to be proud of as a sign of usefulness and service to society. Thus the pro-Atlantic liberals asked themselves the obvious question: “Why, oh why could Europe not be a bit more like this America?”
No, Europe could not, and would not try if it could. Instead, there are recent signs that it is the U.S.A. that may be tiptoeing to join the European way. The Bush administration could have given the opposite impression to the distant observer; it did cut taxes, it arguably made the fiscal system less progressive and it kept cosy relations with a particular segment of corporate America. Greatly outweighing these such concessions to political incorrectness, however, was the massive increase in federal expenditures, the mantra of transparency, corporate governance. There was a proliferation of freshly defined rights of nearly everybody to nearly everything and in particular to protection against economic, social and environmental risks. As a consequence, the already massive apparatus of federal regulatory agencies became even larger and more influential. Society as a whole, the regulated industries and their customers all have their particular tradeoffs between the benefits of regulation, such as dealing damaging externalities, and the cost of being regulated, including both actual operating complications and expenses and forgone business opportunities. An avalanche of paperwork as well as reduced employment for the unskilled and semi-skilled swell the cost of regulation suffered by the regulated. The trade-off indicates the optimum intensity of regulation, which may actually be zero or very limited. However, what is true for the regulated is not true for the regulator, for he suffers none of its costs, but could be severely sanctioned if “too little” regulation resulted in damage. Thus, has incentives never hold him back. For him, regulation is not too costly so long as it eliminates some risk, no matter how low the probability of the risk may be. Safety First is always the dominant rule to obey.
The primacy of Safety First, so alien to what the spirit of America was supposed to be, is a strong feature of the European mentality. Under the name of “principle of precaution”, it is a clause of the French constitution. It sounds a tall story but it is the literal truth that when in 2007 the French President named a commission of experts to suggest measures to stimulate economic growth and the commission recommended repeal of the precaution clause of the constitution among 300 other moves, the President agreed to pursue 299 of them but refused to touch the principle of precaution, which allowed innovations to be vetoed to protect society against the moat far-fetched of risks.
The Obama administration is in many ways the watershed in the gradual Europeanisation of the American economy and the whole social structure. It is the first presidency since that of Theodore Roosevelt that looks and feels anti-business. Un willing to stand up to the teachers’ unions, it as let promising educational reforms to shovel away. It has fought against state initiatives to pass right-to-work laws. It kept as close to the labour unions as did its predecessor to the Petroleum Club of Houston. Though it can share the guilt with a more than usually demagogic Congress, it helped to produce two of the most burdensome major laws that ever punished the American economy, Sarbanes-Oxley on corporate governance and Dodd-Frank on banking and finance. They promise to be inexhaustible sources of paperwork and lawyers’ fees, and outdo European management style in bureaucracy, rigidity and timidity. Dodd-Frank, in addition, looks as if it tried to remodel American banking to make it act as Mom and Pop money shops were supposed to act on Main Street a century ago.
The biggest single step in the transformation of the American economy and the embedding of Safety First as its overriding priority is, of course, the 2010 health care legislation. Its core thesis is that no one has a right to expose himself and his dependents to risk of ill health (Safety First all over again), hence health insurance is compulsory, but if a person’s employer does not provide it (as normally he must) and the person has insufficient means to pay for it himself, the state will buy it for him. There is a certain logic in this core reasoning. It is easier to accept if you close your mind to the incentive structure of the law, inducing as it does both health care providers and consumers to overspend. Whether the Supreme Court will judge it a unconstitutional, the near future will tell. Either way, however, the bill raises questions about the American ethos and its affinity with Europe the answers were obvious enough a generation ago but are far from obvious today.
The Beveridge Report is the shorthand name of a report drawn up by a bipartisan committee of the British Parliament during WWII to examine how the provision of health and welfare might be reformed. Its full name was the “Report of the Inter-Departmental Committee on Social Insurance and Allied Services” which was called the Beveridge Report after the economist William Beveridge who chaired the committee. The Report was published in December 1942 and became the cornerstone of the new welfare state which the Labour Party built in Britain after winning the 1945 election. One of its key provisions was the National Health Service Act which was enacted in 1946.
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