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America's Social Model is Flawed, But So is France's

While the U.S. system of offering citizens a minimum safety net is keeping more and more Americans awake at night, the low welfare burden and minimal regulation of employment offers the U.S. economy great flexibility and growth potential. In France and Germany, people sleep more comfortably, but growth and business suffer. Is there a happy medium? According to this article from France's Le Monde newspaper, one should look to Scandinavia.

By Eric Le Boucher

Translated By Mike Goeden

October 22, 2005

Original Article (French)

Blair Debates the E.U. Social Safety Net on Sunday.

Before the informal meeting on October 27 of heads of state and government at Hampton Court, being held at the instigation of Tony Blair to discuss the European social model, it must be admitted that no ideal model exists. In response to globalization's variegated impact on the economy and society, few developed countries have succeeded in remodeling their social security systems in such a way as to marry, in any wholly convincing manner, economic and social concerns, or competitiveness and social solidarity.


However solid and impressive the growth of the American market, such success has nonetheless allowed the development of what could be termed a "social anxiety." According to professor Michel Aglietta, such anxiety results from the system "transferring the whole of the insecurity to those members of society least capable of assuming such a burden" - in other words, those at the bottom of the social scale.


The last few weeks have seen another breakdown of the aging American social security system. General Motors, which has sustained substantial financial losses as well as seeing its market share fall for the past twenty years, has announced a cost reduction plan which promises to alter the social policy of the company. Firstly, the car giant will reduce by $1 billion, payments made to sustain the health insurance coverage for its 106,000 employees and one million pensioners. Secondly, the company will have to assume payment of the supplementary retirement plan for now bankrupt Delphi, which manufactured car parts for GM. It will have no other choice than to limit its own supplementary retirement payments.

GM's crisis represents the end of the large-business social scheme that offered decent salaries and certain guarantees. Ford is certain to follow suit.  The airline, oil, steel and chemical industries preceded the auto manufacturers down this very same path.

The "regular working Joe" of the traditional blue-collar industry, the central figure of the much talked-about American middle class, now finds himself without health coverage - he will have to pay for his own health insurance. The most vulnerable, as well as the most foolhardy, will join the 45 million Americans without any health insurance.

For retired persons, there exists a minimum coverage paid for and run by the federal government. But this program too is running a serious deficit, funded as it is by business contributions. Thus, the American social system is much less sustainable than the nation's economic growth.


Europe has no reason to be smug. Granted, E.U. citizens are better protected overall, but for most member countries that security comes at the price of lower growth and higher unemployment. André Sapir of Bruegel, a research institute in Brussels [Belgium], has just published a study which distinguishes between four European socio-economic models, only two of which he considers "efficient": the Anglo-Saxon model (weak unions, a wide salary range, a minimum level of social security) and the Scandinavian model (high social spending, strong unions, a narrower salary range, freedom to lay-off workers coupled with generous unemployment benefits). Only the Scandinavian system is at once efficient and fair.

The Continental Model in Need of an Overhaul: Flags of France and Germany

The two other models are both considered inefficient. The "Continental model," consisting of France and Germany, is equitable (high social spending, highly regulated lay-offs, generous unemployment benefits), while the "Mediterranean model" is both inequitable and inefficient (high spending, regulated lay-offs, but limited compensation).

Wanting to preserve the social systems that were constructed in the 1950s, so as to insure economic stability (as formerly provided by large firms such as GM), those countries dubbed "inefficient" have sacrificed the flexibility necessary for today's global environment.

Sapir's figures are remarkable: 45% of our industrial imports come from low-wage countries, as compared to only 8% in 1970. "And it's only the beginning," he adds.

The creation of a single European market and currency were meant to address globalization concerns, but were insufficient to "generate greater dynamism." This is due to both a lessening political will (lack of a single financial or service market) and the anemic E.U. budget, which continues to fund such "relics" as agriculture. But it is also because the social inflexibility of the Continental and Mediterranean models has resulted in these countries suffering the inconveniences of globalization without enjoying any of the advantages.


André Sapir goes even further by declaring that these countries - frozen in place due to a lack of social and monetary adjustment (the Euro does not allow for devaluation) - will attempt to rediscover a comparative advantage through fiscal dumping. Austria has already done so and Germany is considering it. This vicious cycle will result in ever diminishing government revenues. The French Left should give serious thought to the fact that such socio-national conservatism is contributing to the eventual disintegration of the European social model.

Belgian Economist André Sapir Discusses the E.U. Budget, 'a Relic.'

André Sapir draws the following conclusions:

1) Fairness has a price. There cannot be solidarity [ie: across the board protections] without some measure of social flexibility and adjustment. In any case, Tony Blair has understood this lesson. Across the Channel, the poverty level has fallen by a quarter since 1997 and is now comparable to that of continental Europe. On the other hand, Great Britain still suffers from greater inequality.

2) Efficiency does not in fact depend upon the level of taxation, and by extension the amount of state spending. Rather, it depends upon the quality of concrete political action.

3) Inefficient systems will not survive (neither are they sustainable).

Countries have the choice between the two efficient models, neither one of which necessarily entails "the end of social policy," as the political demagogues would have you believe. In fact, just the opposite is true: opposition to change will not enable countries to defend the various social advantages gained, but will instead endanger the single European market and the Euro.

Due to a lack of dynamism on the part of the Continental and Mediterranean countries, more and more middle class wage earners will come under the increasingly heavy yoke of globalization.

France and the United States offer two divergent systems, but both suffer the same social anxiety.

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