The alarming thing is that President Obama, the former chair of the Senate’s Europe Committee, seems genuinely to believe that the United States can usefully learn from the European political and social model. The platform on which he was elected, and the policies he is now implementing, are not a series of solitary initiatives lashed randomly together. They amount to a sustained project of Europeanization: state health care, government day care, universal college education, carbon taxes, support for supra-nationalism, bigger government, a softer foreign policy.
Of course European leaders are flattered by the mimicry. But, in their heart of hearts, even they know that pursuing such an agenda leaves a country less prosperous and less free.
In eleven years in Brussels and Strasbourg, I have seen at close hand what the European model is, how it works, and what its unintended consequences are. Mr. President, before you rush into anything, please take a closer look at where Europeanization leads.
First, consider the big picture. It is true that, between 1945 and 1974, Western Europe generally outperformed the United States, and the idea of a “European economic model” draws on a folk memory of this era. National stereotypes, for some reason, persist long after the reality has passed. You will often still be told that British food is terrible, that Germans are militaristic, that Americans are rough frontiersmen. All these things once may have been true, but they are not true now.
So it is with the supposed success of the Rhineland model of cooperative Euro-capitalism, which it was once fashionable to call “the social market.” Since 1974, the United States has comprehensively outgrown the EU. Indeed, between 1980 and 1992, if you exclude the United Kingdom, the EU failed to create a single net new private sector job. And the relative sluggishness of the Old World has continued to this day: slow growth, high taxes, short working days, structural unemployment.
Source: Economic Research Service of the U.S. Department of Agriculture
EU leaders recognize that the U.S. economy is more dynamic than their own, and occasionally issue staccato statements to the effect that they really ought to do something about it. In 2000, for example, they committed themselves to something called the Lisbon Agenda, designed to give the EU “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment by 2010.”
Well, here we are in 2010 and, sure enough, capital has continued to migrate from Europe to the genuinely dynamic and competitive knowledge-based economies of Asia. The EU’s share of world GDP has shrunk by 4 percent, and would have contracted much further had it not been for an influx of migrants.
Then again, no one ever really believed that the Lisbon Agenda would have much impact in the real world. It was intended in the spirit of one of those Soviet slogans about higher production: a Stakhanovite statement of intent.
The French philosopher René Descartes famously imagined that everything we thought we could see was in fact being manipulated by a malicious demon who controlled our senses. Eurocrats evidently see themselves in the role of that demon. The EU they describe is one of high growth, full democracy, and growing global influence. But this EU exists only in European Commission communiqués, in European Council press releases, in European Parliament resolutions.
European legislation has become declamatory: a way to “send a message” or to show that the people passing it care very much about a subject. It is no longer expected to connect with the real world.
I have lost count of how many times I have had variants of the following conversation with my fellow MEPs or with Commission officials:
Hannan: “We have a serious problem with unemployment.”
Eurocrat: “Nonsense. Look at the resolution we adopted last month. The fight against unemployment is one of our top three priorities.”
Hannan: “Yes, but our regulations on working hours, statutory works councils, paternity leave, and temporary workers are deterring employers from taking people on.”
Eurocrat: “Didn’t you hear what I just said, Hannan? One of our top three priorities!”
Not all EU leaders engage in self-deception, of course. Many of them privately accept that, taking everything together, the American economy is stronger and more dynamic than their own. But this, they tell themselves, is a price well worth paying for Europe’s quality of life.
A European worker need not fear sickness or unemployment as his American counterpart does, they argue. He enjoys more leisure time, with shorter working days and longer vacations.
This is certainly true. It now takes four Germans to put in the same number of man-hours as three Americans: The average German works 1,350 hours a year to the American’s 1,800. Indeed, the right to time off has now been enshrined in the European Constitution (see chapter 3):
“Every worker has the right to limitation of maximum working hours, to daily and weekly rest periods and to an annual period of paid holiday.”
The EU as a whole has adopted a statutory maximum working week of forty-eight hours. Some member states have gone further: In France, for example, it is prohibited to work for more than thirty-five hours a week.
Forty-eight hours might not sound unreasonable. But consider the bureaucracy involved. Almost every business in my constituency makes the same complaint. It’s not that they require their employees to work more than forty-eight hours, save for rare and exceptional periods, such as when rushing to meet an order. What they object to is having to prove, to the satisfaction of the government, that they are complying with the regulation. They have to keep time logs. They have to store paperwork. They have to take days off in order to explain themselves to inspectors. For large corporations with full-time personnel managers, these duties are an irritant. But for small firms operating within tight profit margins, they can make the difference between profitability and insolvency.
Understandably, many European businesses are wary about hiring people. In a lightly regulated market, employers will gladly take on more staff during the boom years, knowing that they will be able to lay them off if things go wrong. But as employees become both more expensive (through higher social security contributions, accrued rights, and other benefits) and harder to fire (because small employers cannot afford to go repeatedly before employment tribunals), bosses make the rational decision to have as small a payroll as possible.
Sources: IMF World Economic Outlook, Eurostat
Here, essentially, is Europe’s economic tragedy. It suffers no worse than the United States during recessions. But it fails to recover to the same extent during the intervening upswings. As a result, the EU is dwindling. While the U.S. share of world GDP has held steady for forty years, that of Old Europe—the fifteen states that were already in the EU prior to the admission of the former Comecon nations—has declined sharply. And, on current projections, it is expected to decline more sharply still: from 26 percent today to 15 percent in 2020. (Be aware of one statistical trick, incidentally: Projections that show the EU’s share of world GDP holding steady, or declining only slightly, are based on the presumption that more and more countries will join, which, even if it happened, would raise economic output only in absolute, not proportionate, terms.)
I often cite the growth figures when my Euro-colleagues tell me that Europeans have simply made a lifestyle choice. “Let the Americans work like drones,” they say. “Let them go without health insurance and social protection. Let them gobble sandwiches at their desks instead of having a proper two-hour lunch. There is more to life than GDP.”
La dolce vita is defensible enough in the short term. Long weekends, statutory sick leave, paid vacations: What’s not to like? The trouble is that, eventually, reality imposes itself. Europe’s boom years—the 1950s and 1960s, the years of the German Wirtschaftswunder, or “economic miracle”—were, as we can see in retrospect, a bounce back from the ruin of World War II. Europe happened to enjoy perfect conditions for rapid growt
h.
Infrastructure had been destroyed, but an educated, industrious, and disciplined workforce remained. There was also, for the first time in Europe’s history, mass migration. Within individual nations, people moved in unprecedented numbers from the countryside to the growing cities. Within Europe, they journeyed from the Mediterranean littoral to the coalfields and steelworks of northern Europe. And millions more came from beyond Europe—from North Africa, Turkey, and the former British, French, and Dutch colonies.
As if all these advantages were not enough, Europe received a massive external stimulus. Thirteen billion dollars were disbursed through the Marshall Plan between 1948 and 1952, on top of the twelve billion already given by the United States in aid since the end of the war. Colossal as these transfers were by the standards of the time, Europe was receiving an even more valuable gift in the form of the U.S. security guarantee. The defense budgets of most Western European states were, as a percentage of GDP, around a quarter of that of the United States (Britain and France were exceptions). The money that was freed up by low military spending could be spent instead on civil programs.
In the circumstances, it would have been extraordinary had Europe not prospered. Human nature being what it is, however, few European leaders attributed their success to the fact that they were recovering from an artificial low, still less to external assistance. They persuaded themselves, rather, that they were responsible for their countries’ growth rates. Their genius, they thought, lay in having hit upon a European “third way” between the excesses of American capitalism and the totalitarianism of Soviet Communism.
They believed in markets, but regulated markets. Instead of the industrial strife that they had experienced before the war, they would establish a tripartite system in which employers, labor unions, and government officials worked together. Instead of see-sawing between left and right, they would have consensual coalition governments, in which both Christian Democrats and Social Democrats accepted the broad framework of a mixed social market. Instead of competition between states, they would pursue political and economic integration.
We can now see where that road leads: to burgeoning bureaucracy, more spending, higher taxes, slower growth, and rising unemployment. But an entire political class has grown up believing not just in the economic superiority of Euro-corporatism, but in its moral superiority. After all, if the American system were better—if people and businesses could thrive without government supervision—there would be less need for politicians. As Upton Sinclair once observed, “It is difficult to get a man to understand something when his job depends on not understanding it.”
Americans, however, have no such excuse. You have the evidence before your eyes. It’s not that everything European is bad and everything American is good—far from it. It’s that the bits of the European model that are most visibly failing are the bits that you seem intent on copying: a larger government role in health care and social security, state ownership of key enterprises, from banks to the auto industry, regulation of private salaries, higher state spending, and political centralization.
DON’T EUROPEANIZE HEALTH CARE
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Let me—perhaps recklessly, in the circumstances—return to the example of health care. In August 2009, I was asked on Fox News whether I’d recommend the British health-care model to Americans. I replied that, if you look at international comparisons, Britain fares badly. Our waiting times are longer than in other Western nations, and our survival rates are lower. Britain is pretty much the last place in the industrialized world where you’d want to be diagnosed with cancer, stroke, or heart disease.
This wasn’t because of any failing on the part of our medical professionals, I said. Many wonderful people became doctors and nurses because they wanted to help others. But the system didn’t maximize their potential. Unlike most European health-care systems, where there is a mix of state and private provision, the British system is monolithic: Everything is run by the government and funded out of general taxation.
The British National Health Service, I added, was the third largest employer in the world behind the People’s Liberation Army in China and Indian Railways, employing 1.3 million people. Yet the doctors and nurses were a minority within that 1.3 million: They were outnumbered by administrative and other non-medical staff.
I joked that simply to say what I was saying would open me to attacks in Britain. I would be accused of “insulting our hardworking doctors and nurses”—when, in fact, the employees of the NHS stand to gain more than anyone else from the end of a system that allows the state ruthlessly to exploit its position as a monopoly employer.
It didn’t take long for my jocular prediction to be fulfilled. A few days after my return to the United Kingdom, Labour politicians went into overdrive. It was “unpatriotic,” said Health Minister Andy Burnham, to criticize the NHS in front of a foreign audience (this from a party that has systematically handed away Britain’s powers of self-government in defiance of popular opinion and in breach of its own manifesto promise of a referendum). The Prime Minister, Gordon Brown, dedicated a passage of his speech to the Labour conference to excoriating me. The main Labour newspaper, The Daily Mirror, trotted out the very cliché that I had forecast: I had, it said, “insulted our hardworking doctors and nurses.”
I recount this episode for a reason. The point that I had been trying to make in the United States was that once politicians assume responsibility for health care, they find that they have made an almost irreversible decision, and one which, over time, will open taxpayers to unlimited liabilities. Whatever the economic situation, it will be politically impossible to stop increasing the health-care budget, because doing so will lead to accusations of leaving dangerously ill people untended. Every British political party fought the 2010 election on the basis that there would have to be spending reductions in order to contain the deficit, and every one had to tack on an exemption, promising to increase spending on the NHS.
More to the point, it becomes almost impossible to suggest any reform, because the slightest criticism of the system is howled down as an attack on the people who work in it.
Nigel Lawson, Margaret Thatcher’s Chancellor of the Exchequer, wrote after leaving office:
The National Health Service is the closest thing the English have to a religion, with those who practice in it regarding themselves as a priesthood. This made it quite extraordinarily difficult to reform. For a bunch of laymen, who called themselves the Government, to presume to tell the priesthood that they must change their ways in any respect whatever was clearly intolerable. And faced with a dispute between their priests and ministers, the public would have no hesitation in taking the part of the priesthood.
Britain thus finds itself in a paradoxical situation. Every day, the newspapers carry horror stories about what happens in hospitals. We read of people traveling abroad for treatment, of thousands of deaths from infections picked up in wards, of potentially life-saving drugs being withheld on grounds of cost rationing. Yet no one is allowed to suggest a connection between these outcomes and the system that produces them. Do that, and you’re “insulting our hardworking doctors and nurses.”
Privately, of course, many doctors and nurses believe that the NHS needs a fundamental overhaul. Following my Fox interview—which, partly because it fell during the August “silly season,” was the leading news story in the United Kingdom—I received two sorts of e-mails: those from people who agreed, and who often recounted horror stories of their own; and those that asserted that I was a heartless Tory who wanted poor people to be left to die “as happens in America.” While there were several NHS administrators in the latter camp, most of the doctors I heard from were in the former.
For what it’s worth, I think there are ways in which the United States could usefully improve its health-care system. The current setup, partly because of the costs of litigation, is more expensive than it needs to be, and gives too much power to the insurance companies.
But the one thing certain to be bigger and more remote than a big and remote insurance company is the federal government.
My own preference is for a system of individual health-care savings accounts, along the lines of what happens in Singapore. Singaporeans are obliged to pay a percentage of their earnings into a dedicated account, a small component of which must go to insure against catastrophic illness, but the bulk of which is used to pay for everyday health-care needs. Because the insurance companies have a much reduced role, health-care providers are encouraged to offer their services as cheaply as possible. Consumers, for their part, also find that thrift is rewarded: Once their savings pot reaches a certain size, they are no longer required to pay anything into it.
A consequence is that, unlike insurance-based systems, the Singaporean model incentivizes healthy activity. Instead of relying on expensive statins, for example, Singaporeans have every reason to improve their diet and exercise. The result? Singapore has a healthier population than that of the United States or Britain, with higher longevity, for less than a quarter of the price: Health care accounts for 3.5 percent of GDP in Singapore as opposed to 16 percent in the United States.
Incidentally, it is worth stressing that in Singapore, as in every developed nation, the government pays for the health care of those who would otherwise go untreated. Its calculation is that if it concentrates on the poor, rather than trying to run a system for everyone, the poor will be better looked after—partly because the state is devoting its attention to them alone, but mainly because those on low incomes will nonetheless benefit from the general rise in standards caused by consumer choice and competition. On the measurable evidence, this calculation is correct: Poor Singaporeans are much healthier than poor Britons.
The New Road to Serfdom Page 7