A World of a Difference

The Malta Independent - Friday Wisdom

Every weekday lunchtime I devour a sandwich while keeping at my professional work. As audio wallpaper I generally switch on CNBC Europe that at the time would be tuned to CNBC USA business breakfast programme.

Quite often the anchorperson disparagingly refers to the Europeans as ‘the socialists’. “Let’s see how the markets of the socialists are doing” he intones in a quite offensive tone while giving the readings of the European main share indices which at the time would be in their mid-day session before the American capital markets open up for business some two hours later.

Maybe it is a coincidence but I noticed that post-Katrina such disparaging remarks on the European social model have become scarce or disappeared outright. With good reason!

The unfortunate events which have caused so much damage and deprivation in the Gulf of Mexico, US States of Louisiana, Mississippi and Alabama have brought out the fault line in the American liberal (liberal in the European sense not in the inverse US sense) model where the state offers very limited protection to those in need who are expected to fend for themselves.

Probably the horrible lack of a minimum acceptable degree of social protection in the American economic system is best reflected in the fact that three weeks after Katrina the state still has not quantified with any reasonable degree of accuracy the number of people missing, suspected death. The individuality and loneliness of the under-privileged in the US render them unaccountable even in case of calamities, let alone in their ordinary life.

The federal government is now attempting to hide its guilt for the inadequate investment to protect against such calamities as well as its failure to respond effectively to their consequences, by hurriedly raining upon them federal funds meant to finance the restoration of normality in the quickest possible time. Apart from the old maxim that prevention is better than cure how can a civil system that has practically collapsed be expected to manage effectively in such a short space of time such massive funding without exposing itself to fraud and misallocation of resources?

The Katrina experience brings out the argument whether the American free market system with very limited social protection is superior to the European social economy model. Are the European socialists better or worse than the American liberals?

There is no doubt that the American system permits its economy to compete more effectively in a globalised world. Its superior flexibility in cutting costs through hire and fire employment rules and the operation of contribution-defined health schemes and pension system rather the European state sponsored benefit defined equivalents, has given America the momentum of an economic growth rate twice that of the European average with a relatively low level of unemployment.

Per contra, the inflexibility of the cost structures resulting from the European social model has condemned Europe to slow growth and relatively large unemployment but without the extreme social disparities that exist in the US. It is often said that an unemployed person in Europe has a better quality of life than an unskilled worker in the US.

This argument is extremely relevant this week when two events of major importance are happening, one on each side of the Atlantic.

The general elections in Germany are in a way a choice between the two systems. Would the German electorate, plagued with permanently high unemployment and low growth, give a clear mandate to Angela Merkel for the German Conservatives to dismantle the German social model and render the economy more flexible and globally competitive while closing the door to Turkey’s membership of the EU as Germany adopts a dangerously introspective stance?

Or would it condition the mandate to Merkel by forcing her to seek a grand coalition with Schroeder’s SPD, thus forcing her to tone down the liberalisation plans? Or would the 30 per cent undecided in the end make up their mind that for all its rigidities, the European social model is worth preserving following the Katrina eye-opener and the consequences that would befall Europe if it closes the door on Turkey’s EU membership?

This is indeed the challenge that is facing the European left-wing political leaders. How can they keep their economies competitive in a globalised world and deliver in terms of the Lisbon agenda while at the same time protecting the underlying fundamentals of the social model which unavoidably raises their cost structures creating a disadvantage when competing with more liberal countries that have no social model to protect?

This is the third way spearheaded by Bill Clinton and Tony Blair in the 1990s but which faded away as Bill Clinton’s second term presidency was distracted by sexual improprieties.

The third way that somehow works in Sweden and to a lesser extent in UK, but has difficulty in delivering the goods anywhere else. Can the German election result force the two major and opposing parties to compromise by giving new life to the third way?

Former US President Clinton is developing a post-White House career that political scholars call unique in American history. While most modern ex-presidents have kept a low profile or returned to the public eye slowly, Clinton has leapfrogged the globe on humanitarian missions such as helping tsunami victims in Indonesia and supporting his foundation’s efforts to combat HIV in Africa and India. He is extremely active in raising private material aid and funding for the Katrina victims and his foundation is this weekend holding a unique Clinton Global Initiative in New York City as most world leaders congregate there to celebrate 60 years of the UN.
Clinton claims he will promote an action-oriented approach to eradication of poverty, promotion of reconciliation, management of climate change and enhancing of governance. An ambitious tall order for someone who claims that through his foundation in ‘just three days, we can begin to make a world of a difference’. I interpret this as an atonement for the much more effective work he could have done in the second term of his presidency if he was not distracted by the Lewinsky affair which probably was the most important single reason why the world has had to suffer the consequences of the George W. Bush double presidency, Iraq, global warming and all.
Clinton’s Global Initiative is the embodiment of the thought that the world needs a strong but more humble America, which perhaps is the positive by-product that emerges from such painful experience of Katrina.

This weekend we can have an idea whether Europe will be moving from its social model to the US liberal model or whether the US and Europe will be forced to underpin globalisation through the third way.