So Much for Reform in Western Europe
By Steven Pearlstein
Wednesday, June 1, 2005; Page D01
www.washingtonpost.com . . .
Put aside any lingering hope that Western Europe might finally be ready to abandon the socialist economic model and embrace an enlightened form of global capitalism. Over the past two months, European voters have declared that they've had enough of free markets and free trade and the politicians who support them.
Except in the British Isles, the much-ballyhooed "third way" has become the third rail of politics in Western Europe, where otherwise intelligent and cultured people think Polish plumbers, Turkish chambermaids and American hedge-fund managers are the reasons their pay is stagnant, their children are unemployed and their health and welfare systems are fraying at the edges.
The counterrevolution began this spring in Italy over a controversial proposal to cut corporate income taxes and curb subsidies that have kept the entire southern half of the country on life support for decades. After a stunning defeat in regional elections, Prime Minister Silvio Berlusconi's revamped coalition is unlikely to survive the year.
Then, 10 days ago, came the defeat of Chancellor Gerhard Schroeder's Social Democratic Party in a regional election in Germany's industrial rust belt. With unemployment at 12 percent, the highest since the Weimar Republic, voters concluded that even the modest economic reforms of the past two years were all pain with little gain. Schroeder lost control of the upper house of the German parliament and was forced to call for national elections this fall, a year ahead of schedule.
Now, it is the French government that is scrambling to survive after resoundingly rejecting in a nationwide referendum a new European constitution supported almost unanimously by the country's political and economic elite. President Jacques Chirac yesterday replaced his prime minister and shuffled his cabinet but never explained to his people why they can't be rich if they insist on working a 35-hour week, retiring at 55 and overtaxing those who are productive and ambitious to subsidize those who aren't.
Today, the spotlight turns to the Netherlands, once a model of "third way" reform, where voters anxious about the economy are also expected to gives thumbs down to the E.U. constitution.
Over recent months, the political and economic rhetoric in these countries has betrayed a widespread belief in a wide range of economic fallacies: that there is a fixed supply of and demand for labor, that competition is a zero-sum game, that trade is a race to the bottom and that prosperity depends largely on the welfare of producers, not consumers. What's particularly missing from the European economic debate is any appreciation of the centrality of innovation as the source of prosperity and growth.
Consider, for example, the European reaction to Google's recent announcement that it would spend up to $200 million over the next decade to scan 15 million books from five leading academic libraries, putting all the contents online.
Within a month, the president of the French National Library complained that Google's initiative would be the latest attempt at cultural hegemony by the Anglo-Saxon world. Jean-Noel Jeanneney was concerned not only that not enough non-English texts would be scanned, but also that Google's method of ranking search results based on the frequency of customer visits would give an "American point of view" on every topic. So persuasive was Jeanneney that, with the backing of Chirac and other national leaders, the European Union committed $125 million last month to a project that will not only scan the books in Europe's national libraries, but also develop a nonprofit search engine to rival Google.
Let's put aside, for a moment, the cultural paranoia that drives this project, and consider merely the economic assumptions that lie behind it.
We could start, for example, by asking why the Google search engine has a bigger market share in many European countries than it does in the United States, even after the creation of the world's largest free-trade zone and the launching of the euro, which were supposed to spur development of home-grown champions?
Why is the first reaction to a strong foreign competitor to launch a government-protected, taxpayer-subsidized rival?
And why would government officials assume that they have such exquisite instincts that they can identify a huge, untapped market for a European-oriented service that European companies have completely ignored?
The fact that those questions do not even occur to European leaders -- let alone their voters or their opposition parties -- goes a long way toward explaining why free market capitalism has yet to take root in Western Europe.
By Steven Pearlstein
Wednesday, June 1, 2005; Page D01
www.washingtonpost.com . . .
Put aside any lingering hope that Western Europe might finally be ready to abandon the socialist economic model and embrace an enlightened form of global capitalism. Over the past two months, European voters have declared that they've had enough of free markets and free trade and the politicians who support them.
Except in the British Isles, the much-ballyhooed "third way" has become the third rail of politics in Western Europe, where otherwise intelligent and cultured people think Polish plumbers, Turkish chambermaids and American hedge-fund managers are the reasons their pay is stagnant, their children are unemployed and their health and welfare systems are fraying at the edges.
The counterrevolution began this spring in Italy over a controversial proposal to cut corporate income taxes and curb subsidies that have kept the entire southern half of the country on life support for decades. After a stunning defeat in regional elections, Prime Minister Silvio Berlusconi's revamped coalition is unlikely to survive the year.
Then, 10 days ago, came the defeat of Chancellor Gerhard Schroeder's Social Democratic Party in a regional election in Germany's industrial rust belt. With unemployment at 12 percent, the highest since the Weimar Republic, voters concluded that even the modest economic reforms of the past two years were all pain with little gain. Schroeder lost control of the upper house of the German parliament and was forced to call for national elections this fall, a year ahead of schedule.
Now, it is the French government that is scrambling to survive after resoundingly rejecting in a nationwide referendum a new European constitution supported almost unanimously by the country's political and economic elite. President Jacques Chirac yesterday replaced his prime minister and shuffled his cabinet but never explained to his people why they can't be rich if they insist on working a 35-hour week, retiring at 55 and overtaxing those who are productive and ambitious to subsidize those who aren't.
Today, the spotlight turns to the Netherlands, once a model of "third way" reform, where voters anxious about the economy are also expected to gives thumbs down to the E.U. constitution.
Over recent months, the political and economic rhetoric in these countries has betrayed a widespread belief in a wide range of economic fallacies: that there is a fixed supply of and demand for labor, that competition is a zero-sum game, that trade is a race to the bottom and that prosperity depends largely on the welfare of producers, not consumers. What's particularly missing from the European economic debate is any appreciation of the centrality of innovation as the source of prosperity and growth.
Consider, for example, the European reaction to Google's recent announcement that it would spend up to $200 million over the next decade to scan 15 million books from five leading academic libraries, putting all the contents online.
Within a month, the president of the French National Library complained that Google's initiative would be the latest attempt at cultural hegemony by the Anglo-Saxon world. Jean-Noel Jeanneney was concerned not only that not enough non-English texts would be scanned, but also that Google's method of ranking search results based on the frequency of customer visits would give an "American point of view" on every topic. So persuasive was Jeanneney that, with the backing of Chirac and other national leaders, the European Union committed $125 million last month to a project that will not only scan the books in Europe's national libraries, but also develop a nonprofit search engine to rival Google.
Let's put aside, for a moment, the cultural paranoia that drives this project, and consider merely the economic assumptions that lie behind it.
We could start, for example, by asking why the Google search engine has a bigger market share in many European countries than it does in the United States, even after the creation of the world's largest free-trade zone and the launching of the euro, which were supposed to spur development of home-grown champions?
Why is the first reaction to a strong foreign competitor to launch a government-protected, taxpayer-subsidized rival?
And why would government officials assume that they have such exquisite instincts that they can identify a huge, untapped market for a European-oriented service that European companies have completely ignored?
The fact that those questions do not even occur to European leaders -- let alone their voters or their opposition parties -- goes a long way toward explaining why free market capitalism has yet to take root in Western Europe.