Even Facing Debt Crises, Europe’s Welfare Systems Aren’t (Necessarily) Doomed

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A demonstration in Lille against the pensions reform law, October 2010. (Photo: Denis Charlet / AFP / Getty Images)

Wanted to weigh in with an additional post on the good BBC News piece  by Gavin Hewitt that I flagged yesterday. Its main thrust is French Socialist candidate François Hollande—and the European left in general—needs to come up with new solutions to the current economic crisis (and more broadly, compelling visions for the future) if he wants to transform his current lead over unpopular conservative President Nicolas Sarkozy into victory in 2012. To do so, Hewitt said, Hollande and the European left must explain how we all get from “here” to “there”: ie. transform over-burdened and indebted socio-economic welfare states into something viable. European publics generally aren’t happy with their current leadership, but watching time creep and betting such dissatisfaction alone will lift the left to power will almost certainly backfire.

Hewitt then offers an idea or two for Europeans looking for ideas—which is what this post focuses on. He suggests the left follow the lead of younger Europeans he encounters “now looking to the ‘New World’, to Canada and Australia, for a future”. Those countries—with rationalized social protections and less regulated economies—might presumably hold clues for reformed systems in a post-crisis Europe.

 The “Old World” with its heavy-handed regulation, its bureaucracy, its desire to harmonize, to plan centrally, faces a historic challenge as to whether it can compete with an emerging world where the prizes go to the nimble, the flexible, and the innovators.

One of the biggest questions for all candidates will be whether France and indeed Europe can afford the costs of its welfare states. The French elections promise to be a fierce, no-holds-barred contest between left and right at a crucial moment for Europe and the global.

While that’s all (largely) true, I don’t agree with the underlying assumption that a historical page in Europe must be definitively turned; nor the suggestion old, bloated, and no longer legitimate (or at least viable) European models must be stripped down or junked. That presumes those post-war systems–what they do and provide–are both woefully passé, and incompatible with the laissez faire, increasingly privatized realities of the modern world. As such, it’s qualitative (and ideologically-charged) judgment when the real issue is quantitative: how you finance those services, or adjust them to limited funds procured for them.

That’s not the “same difference” issue that prevailing conventional wisdom suggests. The current crisis has raised serious, urgent questions about funding those systems. But as it has pushed the problem of public finances and debt to the fore, the current crisis has also made it abundantly clear that lots and lots of wealth (don’t we mean “profit”?) is still being created elsewhere in European markets and economies. The latter—if required to contribute to public life in a more significant way—could go a long way towards resolving the problem the former represents. That means greater taxation (of individuals as well as companies), which in turn means political action justified by clearly stated choices by the public about what functions they expect society to perform. Raise revenues (taxes) to maintain essential services; or cut them and reducing public services.

That is the choice—and it is a choice. Claiming there are no options to dismantling welfare systems because there’s no money available to finance them is a lie—and one born of the refusal of conservative partisans and business interests to even consider higher taxation less than Satanic. Both ways involve effort, even pain, but there is a choice.

This, indeed, is a main theme behind the Occupy Wall Street/Indignados protests around the globe: that more equitable circulation and use of wealth being generated (even, or perhaps especially during times of crisis) is entirely possible—and a correction whose time has come. American demonstrators are seeking a modest leveling of the playing field so the mass majority of people can be serviced and protected in essential ways that European societies have long assured. In Europe, meanwhile, protestors are demanding their systems be made to work for again people who need them more amid crisis than ever. Different directions; similar objectives.

Similarly, an even more general and logical appeal is being heard among demonstrators on both continents: that the function—indeed, the very raison d’etre—of economies be focused on involving and nurturing the widest breadth of society possible, and restore the traditional philosophy that the employer-employee relationship was a positive and mutually beneficial one (if occasionally conflicting), and one of the basic fibers of a productive economy and society. By placing the human back on the list of company concerns, protestors say, you fight the efficiency- and profit-blinkered managerial view of clingy employees as a money-sucking evil to be reduced to a minimum, and economic notions like “a jobless recovery” to the oxymoronic, anti-human cave they issued from.

Sound like an impossible return to the 1950s? Not necessarily. There’s nothing scientific or inevitable about economies, despite what some economists and believers in the predestined dominance of the “nimble, the flexible, the innovators” claim.  Economies—like societies, markets, companies, or families—are merely manifestations of the collective human effort, aspiration, interaction, and priorities they’re comprised of. If the prevailing collective desire calls for appropriating funds in one part of the economy to finance public services produced in another part, so be it. If it calls for reduced state intervention and private solutions, fair enough. But again, those are choices: once they’ve been made there’s no reason they can’t be applied and carried out until the collective will decides otherwise.

Which is why there’s nothing unavoidable or even particularly modern with the idea that Europe’s current welfare systems are doomed to dissection and rendering—so long as funding is secured to finance them. Short of that, collectively acceptable (or tolerated) compromises can be made to rationalize them. That doesn’t, however, have to involve scraping “old” with “new” as some sort of fated, zero-sum response. Arguments that it does reflect the flawed thinking that politicians, pundits, and economists demonstrated in the 1990s by insisting the emerging “new economy” was genetically different and superior to the “old economy”. As we learned, they were both fabric cut from the same bolt of cloth–and both unsuspectingly en route to being hijacked by finance-fixated corporate managers and markets that now claim their for-profit lay offs and wealth-hording is creating more efficient, competitive, smarter and healthier economies all around. Welcome to nimble, flexible, innovator-land.

Finally, I suspect Canadians might well balk at seeing themselves cited by ideologically driven reformists as the wiser, cheaper, new fangled path for Europe to follow. There’s an argument to made that Canada itself is a fairly “Old World” inspired society that has always been good about using the basics of European welfare systems in moderate form, and limiting deficits and debt in funding that to manageable levels.  At the same time, Canada has also shared the innovative, dynamic, and fast-moving forces of American economics and business–yet tethered those forces so they remain productive and beneficial to the widest number of people possible. Hence generally well-run companies, an admirable health care and education system, and no banking or financial crisis to speak of.

Which makes it—as Hewitt says—a good place to look over as Hollande contemplates policies for addressing France’s debt problem and figuring out just what it’s ready to pay for with money available to the government. As the functioning embodiment of the collective social priorities they apply, French and other European welfare states have helped prevent their host societies from wandering as far astray into the kind of sink-or-swim, winner-take-all economic arrangement that’s increasingly dividing the U.S into two camps separated by a widening wealth gap. Occupy Wall Street activists want to close that gap, in part by tapping into the protected, concentrated economic wealth that can finance services beneficial to a majority of Americans. Europe already has that, and can keep it—in part—by claiming its part of the same growing, yet under-taxed riches it produces. In deciding whether he’ll propose that in France, Hollande should remember it’ll be easier to dig deep in order to preserve the French system than it will be to whittle it down—and hear public demands it be restored soon after. If he has any doubts about that, he might want to sound out the Indignados of the world.