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Sclerotic Europe versus US entrepreneurial dynamism?

As the short account above makes clear this is not just a British debate - arguments about red tape, regulation and 'competitiveness' are played out at G7 summits, the EU Council of Ministers and the OECD. The conventional wisdom peddled by the CBI and other business organisations says that regulation and the European social model is the root cause of slow growth and high unemployment in Europe. Even the phrase 'Euro-sclerosis' has started to come back into fashion. Europe, it is argued, must become more like the United States through 'structural reforms'. Furthermore it is argued that the UK is moving in the opposite direction, with many commentators, including the CBI asking, 'do you really want the UK to be more like Germany?'.

A key reason for the renaissance of the 'euro-sclerosis' thesis has been the alleged 'productivity miracle' in the US in the second half of the 1990s. It is argued that the US has created a new economy based on the widespread adoption of new technologies across the economy but the inflexibilities and rigidities created by the European social model means that Europe will be much slower to adapt, giving the US an increasing labour productivity advantage.

• Few as yet spell out precisely what will be required for European labour markets in order to become more like the US. But such an agenda would almost certainly include weaker trade unions and the abandonment of national bargaining with a social partnership framework, less employment protection, lower minimum wages and cuts in unemployment benefits. And this must be matched, it is argued, by big cuts in corporate tax rates and widespread privatisation of public services in the name of market liberalisation.

• The experience of both the US and the UK over the past twenty years suggests the adoption of such a programme would have the entirely predictable results of hugely increasing wage inequality and driving working hours back up towards US levels. And it would undermine the labour market institutions that have helped create in Europe the world’s most productive workplaces, unmatched vocational training systems, and a corporate governance outlook focused on long-term investment. This seems a high price to pay for embarking on an experiment that has already been tested in one major European economy, the UK, between 1980 and 1997 and failed to deliver lasting improvements.

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