Academic journal article Policy Review

Europe's "Social Market"

Academic journal article Policy Review

Europe's "Social Market"

Article excerpt

POLITICIANS MAKE IT THEIR business to confound their opponents, but European politicians are increasingly pursuing economic policies that confound even their most earnest analysts. Germany's Social Democratic Chancellor Gerhard Schroder is one of these. He brought his country the "Third Way" -- the market capitalism softened by judicious governmental interventions that has come to be associated with British Prime Minister Tony Blair. Schroder claims to follow a politics of the Neue Mitte, the "New Middle." Yet there is little new in Schroder's recipes for economic growth. They include such time-honored business-friendly measures as Reagan/Thatcher-style tax cuts. Germany has lowered its top income tax rates from 51 percent to 42 percent, and its corporate tax rates from 40 percent to 25 percent. On top of that, Schroder has pushed through a program of corporate deregulation that has opened up German business to mergers and buyouts.

There isn't much "Middle" in the Schroder program, either. For every page he takes from the supply-side playbook, he adds an item from the long left-wing wish list of his Green Party coalition partners -- in their incarnation of 15 years ago. These hard-left moves include the Ecosteuer, or "Ecotax," a high levy on pollutants that could help clean up the environment, but could also (businessmen warn) help bring the country's manufacturing sector to a screeching halt. And his rhetoric is firmly of the left. Asked in early summer whether he would start untangling Germany's Byzantine job rules, making it easier for struggling companies and start-ups to hire and fire workers, Schroder angrily replied, "I don't want American conditions placed on our labor market!"

But there's an asymmetry in this political zigzag. Political analysts tend to treat Schroder's right-wing moves as sensible -- signs of an economic policy that, Europe-wide, is taking on a decidedly American hue. The same analysts tend to treat his left-wing rhetoric as either lunacy or idle pandering. Take Hans-Olaf Henkel, former head of the European division of IBM, whose best-selling auto-biography has made him something of a guru of the German new economy. Henkel says, "I know Schroder. If you are sitting down with him, you can tell -- of course he knows the Eco-tax is a stupid idea!" (Henkel is also fond of repeating an old European saw to the effect that "the Third Way is the fastest route to the Third World.")

The picture is a confusing one. Many American policymakers look at "overregulated," "tradition-bound," "behind-the-times" Europe and refuse to believe it can function efficiently in a globalized information economy. Europeans are listening -- to a degree. The European Union has proved a force for opening markets rather than adding a new layer of regulation, but it has also proved a force for a certain cultural leftism. On one hand, taxes have been cut not just in Germany but also in France (which cut its corporate tax rate from 40 percent to 33 percent) and the Netherlands (where the top personal income tax rate fell from 60 percent to 52 percent). On the other hand, the hot book of last summer in almost every European country was No Logo, a rant against the global marketplace by the Canadian leftist Naomi Klein, which sank like a stone on her native continent. On one hand, the number of stockholders in Germany has tripled in the past five years, to the point where Germany now has more shareholders than trade -union members; on the other hand, a much ballyhooed privatization of the country's phone company has stalled out. On one hand, France Telecom has been split into ten different companies; on the other hand, Britain's resolve not to privatize its postal service has hardened, and a majority of Englishmen now blame British Rail's failures on its privatization five years ago.

So what is the Third Way? Is it propagandistic camouflage, designed to hide the hurt pride of once-great nations that now must comply with the largely U. …

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