Why is Europe so slow in reforming its moribund economy?
Could it be that the arguments we use – and the intellectual models
we follow – are based on 19th century concepts and conditions
and cannot meet the challenges of the knowledge-based economy
of the 21st century?
After a decade of discussion about the need for reform, Europe’s
economic decline has been thoroughly analyzed, and there
is ample evidence that current approaches are not working. The
reason for the decline is increasingly clear. It is caused by interest
groups that claim that any reform – however small – entails the
imminent destruction of the “European social model.” That, for example, was one of
the main arguments recently used to block the opening of the EU market for services,
which would have been of immense benefit to most Europeans.
More and more Europeans, however,
now openly admit that their social
model is rapidly decaying and no longer
even deserves to be called “social.” In the
face of persistently high unemployment,
particularly among the young, deteriorating
public finances and collapsing social
security systems, Europe finds itself
unable to generate the economic growth
and create the jobs its citizens urgently
need.
The Lisbon Council is a Brusselsbased
group founded in 2003 to promote
the objectives of the European
Union’s so-called Lisbon agenda, adopted
by EU leaders in 2000 with the
aim of making Europe “the most competitive
and dynamic knowledge-based
economy in the world” by 2010. As this
objective recedes ever farther over the
horizon, the Lisbon Council’s members
have grown tired of the stale old debate
about issues of vital importance to our
future.
Together with 15 non-governmental
organizations from seven EU member
states, we have drawn up A Social Contract
for the 21st Century, laying out a
more contemporary vision of the rights
and responsibilities of the state toward
the individual and vice versa. The Contract,
on which this article is based, is intended
to start a wide discussion on
revitalizing Europe and its economy. It
is already attracting a great deal of
attention.
The Contract states that Europe
must, as matter of priority, reform its
methods of economic governance and
re-direct subsidies away from agriculture
and smokestack industries.We must invest
all our energy in the human capital
that will allow us to thrive in a 21st century
knowledge-based economy, as well
as re-commit ourselves to the spirit of
discovery and innovation that originally
made European society great. Above all,
we must seek to define a healthy, positive
vision of a strong and prosperous 21st
century Europe.
A good social model is not static. As
societies progress and evolve, so must
the social contract between citizens and
governments. Social models that resist
healthy change and do not adapt to
modernity are doomed to fail. Trapped
in a forgotten logic from a distant era,
the model will grow less and less relevant
to the society it is intended to shape, and
less and less just.
The world has changed dramatically
since the principles of our current social
contract were first elaborated. In the
18th century, most people worked on
farms and could expect to live to about
age 50. Early in the 19th century, the industrial
revolution began to change the
way people lived and worked, triggering
massive migration to the cities and the
proliferation of urban squalor. Against
that backdrop, policy makers took bold
and visionary action: they started to
erect the modern welfare state, guaranteeing
protection for the casualties of
such profound economic change.
The labor movement made an invaluable
contribution by establishing the
vital principle that industry could only
exist and thrive if it took proper care of
the people it employed. The welfare state
reached its peak in Western Europe in
the second half of the 20th century.
“The world has changed
dramatically since our
current social contract
was first elaborated”
Now, however, as we move from the
industrial age to a networked, knowledge-
based economy, the European social
model desperately needs to be
modernized. At a time when flexibility
and speed are the engines of economic
growth and wealth creation, our current
system breeds inertia and gridlock. Even
worse, a social safety net that was once
conceived as an “insurance of last resort”
has become a permanent life-support
system for an ever growing caste of outsiders
– people shut out of the labor
market by the model’s rigid rules, high
entry thresholds and distorted incentives.
The European Union suffers from
historically high unemployment, with
some 19 million people unable to find
work. Eighteen percent of them are
under 25. This is a social tragedy that deserves
to be condemned as such. Europeans
must dare to look in the mirror
and ask, Does our society still deserve to
call itself ‘social’? What is ‘social’ about a
society where long-term unemployment
has become an inescapable trap for millions
of people? Where is the ‘social cohesion’
in saddling our youngest citizens
with more and more debt, funding current
commitments at the expense of
future taxpayers and provoking generational
conflict? What is ‘social’ about
pretending to build a knowledge-based
economy, when in reality we spend 40
percent less on college-level education
than the United States?”
Europe says it wants to compete
with the world’s most developed, fastmoving
economies, but European labor
markets are trapped in an historical
straitjacket, mirroring long-gone industrial-
age class wars of the 19th century.
The principle of job security was originally
designed for blue-collar male
workers, employed full-time and supported
domestically by a housewife.
“Nowhere else are
so many people
so consistently
discriminated against
and kept out of
the labor market”
In today’s economy, where speed
and flexibility are key and many people
other than middle-aged men want to
earn wages, the European system acts as
a constant brake on job creation and
greater labor-market participation. It
takes the hardest toll on the weakest
members of society: the young, the old,
women, low-skilled workers and immigrants.
Nowhere else in the developed
world are so many groups of people so
consistently discriminated against and
prevented from participating in the
labor market.
The current system does not work
much better for people at the upper end
of the job market, including all-important
knowledge workers. Hundreds of
thousands of Europe’s best and brightest
engineers and scientists have emigrated
to the United States and other modern
economies, where they know their talents
will be better rewarded. By voting
with their feet, they are sending a serious
message that should resound throughout
our continent.
Europe is going dangerously adrift
because it has failed to resist the pressures
from numerous special interest
groups, many of which have an explicit
mandate to preserve the status quo and
prevent change. Over many decades, European
governments and institutions
have built up forces in civil society which
still espouse the 19th century view that
businesses recklessly exploit workers and
the environment. The truth is that, at the
onset of the 21st century, the well being
of employees, employers and the environment
are inextricably linked to one
another. No one can seriously believe
that a high degree of social and environmental
protection can be sustained without
a healthy economy and a thriving
job market.
We must re-examine the privileged
role that unions have traditionally enjoyed
in European public discourse and
economic policy making. In many countries,
unions are hemorrhaging, losing
not only members but also public legitimacy
at a record rate. Yet, political leaders
and the media act as if labor unions
are the only voice that can speak on behalf
of the working population.We must
recognize that unions represent fewer
and fewer people, and their members
come largely from the industrial sectors
most threatened by globalization and
economic integration. At the same time,
governments should ensure that other,
more moderate and pragmatic voices are
encouraged to organize and be included
in the consultative process.
Europeans must realize that they are
not born with a God-given right to one
of the world’s highest standards of living.
Our prosperity is entirely dependent
on our long-term competitiveness in the
global economy. Everybody, therefore,
has a vital stake in the economy and the
well being of our society.
Today, most people know that Europe’s
sclerotic, inflexible labor markets
offer neither protection from unemployment
nor future security. The working
age population is shrinking dramatically
as birth rates shrink and people live
longer and retire earlier. As a result, there
are fewer and fewer workers to support
the retired and the many others who
draw government benefits. At the same
time, public finances are deteriorating,
putting an intolerable burden on future
generations.
In these circumstances, current reform
efforts must be welcomed as an attempt
to save the social system, not
resisted as an effort to destroy it. We
need a broad consensus throughout
society that wealth must first be earned
before entitlements and redistribution
can be considered.
The times urgently demand a new
social contract – one that will take account
of the seismic shift that Europe is
undergoing as it moves from the industrial
age to a modern, knowledge-based
economy. Such a contract should be
built on four guiding principles:
1. Full Employment and Job Creation.
Governments owe it to their citizens
to produce a healthy economy and a
flourishing job market. Policy makers
must abandon their habit of protecting
only the special interests capable of lobbying
them for handouts and subsidies.
They must learn to protect the real
stakeholders: the millions of honest people
who want to work and expect a pension
when they retire; the youngsters
who leave school ready to contribute to
society; the parents whose greatest ambition
is to pass on to their children a life
as prosperous and safe as the one they
themselves inherited. Put simply, a
healthy economy and a healthy job market
would be the best possible social policy
for Europe. We must re-double our
efforts to restore economic vigor to our
countries and economies, and we must
learn to see such vigor not as a drag on
social justice and the environment, but
as the engine that makes our societies
powerful, tolerant and strong.
“Europeans do not
have a God-given
right to one of
the world’s highest
standards of living”
2. Education and Life-Long Learning.
If Europeans are to maintain their
enviable living standards, the high-cost
European economy can only move in
one direction - toward higher value,
high-wage jobs. These jobs will ultimately
allow us to retain our prosperity,
while providing the necessary resources
to protect the weakest members of society.
Over time, many manufacturing jobs
will disappear to countries where workers
toil for lower wages, much as many
farming jobs disappeared from Europe
over the last 200 years.
This is the way the global economy
works and should be seen as a natural
progression as less developed countries
move toward an industrial economy.
These countries deserve the opportunity
to take part in the global economy and
make the best use of their comparative
advantage. For their part, Europeans
must take urgent steps to ensure that
they remain at the forefront of modern
economic developments, spending every
euro possible on the education, training
and intellectual upkeep of their greatest
resource: their citizens.
3. Opportunity and Innovation.
Hard though it is to believe, European
companies like Siemens, Solvay and
Philips were once as fast moving and entrepreneurial
as Microsoft, Oracle and
Amazon.com are today.Where are such
companies now? These days, an ambitious
European scientist is more likely to
emigrate to the United States than to
start a business in Europe.
We must restore Europe’s entrepreneurial
spirit. We must create an environment
in which our best and brightest
citizens want to make their careers at
home. And we must learn to encourage
risk-taking, giving all Europeans the
right to develop fully their personal and
professional potentials. Society only
gains when its citizens embrace opportunities,
live their dreams and pursue their
ambitions.
4. Sustainable Public Finances. Few
issues are less “social” than today’s
hideous abuse of public finances.We believe
our current leaders are guilty of
something akin to child abuse, preferring
to hide their lack of political
courage behind an ever-growing pile of
debt that our children will spend their
lifetimes repaying. It is a moral imperative
that European political leaders –
particularly those of France, Germany
and Italy – restore order to public
finances.
They must draw up and defend
budgets based on economic reality and
sound judgment – not because it is
thrifty and frugal to do so, but because it
is reprehensible and unjust not to do so.
Nothing is more precious than our children
and their future. It is high time we
learned to live within our means, treating
the interests of future generations as
seriously as we treat our own.
Ann Mettler is Director and Co-Founder of the Lisbon Council, an advocacy group and policy network
promoting economic reform and social renewal in Europe. She previously served as Director
for Europe at the World Economic Forum. She has held positions on the Governmental Affairs
Committee of the U.S. Senate, and the Foreign Policy Division of the European Commission in
Brussels. The full version of A Social Contract for the 21st Century can be found at the Lisbon
Council website: http://www.lisboncouncil.net
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