- The Washington Times - Monday, November 1, 2004


By Olaf Gersemann

Cato Institute, $22.95, 254 pages

Jacket blurbs by Goldman Sachs CEO Henry M. Paulson Jr., Nobel economists Milton Friedman and James Buchanan endorsing this book depict a trans-Atlantic welfare state match-up between Europe and America. Says Mr. Buchanan:

“Citizens in all Western democracies want to provide more publicly financed welfare than they are willing, privately, to finance by taxes. The result is sluggish economies. In Old Europe the crisis is more acute than in the United States. This book documents the dramatic differences and stresses the proclivity of Europeans to denigrate the American experience rather than acknowledge their own plight.”

In”Cowboy Capitalism,” Olaf Gersemann, Washington correspondentfor Wirtschaftswoche, Germany’s largest economicand business weekly, notes how European bad-mouthing our welfare capitalism has somehow become politically correct. He cites Gerhard Schroder, Germany’s Social Democratic chancellor for charging: “I do not want American conditions in our labor market. Social democrats are convinced that it has to be for people to live in decency and dignity without having to do three jobs a day and without any protection against dismissal.”

Overblown? Sure, but the charge apparently grabs the German and European imagination. No wonder then that the United States is the more dynamic and perhaps to many Europeans subconsciously the more enviable economy, however “cowboyish” it may be.

Mr. Gersemann charts a graph showing a curve for U.S. employment climbing sharply between 1970 and 2003, for a gain of 59.3 million jobs. That’s an equivalent of a 75 percent increase. But for Germany (after reuniting with East Germany), France and Italy, the combined job gain was but an increase of only 17.6 million, or by 26 percent — a gain, yes, but one virtually two-thirds under the U.S. percentage gain.

No wonder too that average annual hours worked per person in 2002 in the United States topped the 1,800 mark, while but topping the 1,400 mark in Germany and France and the 1,600 mark in Italy. Thus have European countries cut down their workweeks considerably. Workers in Germany and more so in France have “won” wide adoption of a 35-hour workweek and many employers face demands for a 30-hour workweek. Remarks Germany’s top trade union official Michael Sommer: “Workers who can afford to do so, should work less.”

The author cites Canada’s top think tank, the Fraser Institute of Vancouver, for noting the volume of labor market regulations. Germany ranks heaviest at 80th of 80 major nations covered, Italy comes in 76th and France 41st, whereas the United States is ahead at No. 3. I find similarly depressing the European nations’ ratings for relative size of government in 123 countries covered by the Fraser Institute. France tops the list at 123rd, Germany comes in at 107th, Italy at 96th — while America is low at 22nd.

All this bureaucracy and regulationism takes its toll on European labor productivity. The author well notes productivity is the key keeping wages overall rising in real terms without unit labor costs and inflation flying out of control and thus harming national competiveness. In the recent period between 1996 and 2003, average annual U.S. labor productivity grew by 3.09 percent while Germany had to make do at 1.60 percent.

To be sure, American job turnover is faster than in Germany, and the author half-jokinglyraisesthequestion whether it’s better to be securely unemployed than insecurely employed. He compares America’s “cowboy capitalism” with Europe’s “comfy capitalism.” He quotes Mr. Schroder defending his country’s tight job requirements against “unscrupulous hiring and firing” and succumbing to “the laws of the jungle” without naming America as the jungle culprit.

Still, I wonder if Mr. Schroder and, indeed, Mr. Gersemann himself are not short-sighted in limiting their concern over whose welfare state is the superior, the American or the European. Isn’t the welfare state increasingly out of touch with the upsurge of Asian economies from South Korea to Taiwan to Thailand and most especially to India and China — the latter two with dramatic gains in GDP growth rates and together having two-fifths of the world population?

Well, maybe, just maybe, the heyday of the welfare state, so costly in terms of taxes, capital formation, labor productivity, and real wage gains, will fade under rising Asian competiveness. To paraphrase Horace Greeley: Go east, young investor, go east.

William H. Peterson is an adjunct scholar at the Heritage Foundation and a contributing editor at the Foundation for Economic Education’s The Freeman: Ideas on Liberty.



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