This is a valuable essay on the important differences - psychological
differences as well as economic ones - between continental Europe
and America. It's well worth perusal to understand the clashes that
are com ing in the wake of the economic collapse in both places.
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ECONOMIST 26.9.08
Charlemagne
Transatlantic model wars
What Wall Street's woes reveal about European and American views of
markets
THE world needs to rebuild financial capitalism, and that means more
regulation, says France's Nicolas Sarkozy. It is time to make
capitalism "moral" by directing it to its proper function: serving
economic development and the forces of "production", not
"speculation". Mr Sarkozy's rebuke was mild by some standards.
Immense power, amounting to a "despotic economic dictatorship" has
fallen into "the hands of a few", thundered another leader. He added
that the over-mighty few are often not "owners" of assets "but only
the trustees and managing directors of invested funds." A fallacy had
spread: that the market does not need any "public authority" to
restrain it, because "self-direction" will do the job better.
There is no faulting Europeans for consistency when it comes to
distrusting financiers, liking businesses that make things you can
touch and looking to regulators to keep markets in good moral order.
Mr Sarkozy was speaking on September 23rd at the United Nations. The
second leader cited was Pope Pius XI, speaking after the Wall Street
crash of 1929. The quotes come from a 1931 encyclical calling for
economic governance by guild-like "corporations" of industrialists,
workers and the like, overseen by a "special magistracy" of high-
minded officials.
Europe's long squeamishness about finance is more than a historical
curiosity. It is also as good a guide as any to future policy
responses that will appeal to European voters. And questions of
instinct and theory matter for another reason: they show a big divide
between Europeans and Americans. Capitalism is actually practised in
similar ways on both sides of the Atlantic. But in much of Europe, it
is still easy to win applause with speeches about America being run
by "the law of the jungle".
In truth the American economy is both heavily regulated and irrigated
by torrents of public money. Count the lobbyists in Washington, DC:
you don't need lobbyists in a jungle. America also spends a lot on
public goods such as education and health, albeit differently. A new
French government paper on the European social model notes that, once
you add in company health insurance, American net "social spending"
lies in the same range as many EU countries, at about a quarter of GDP.
Globalisation is divisive in both America and Europe. In a 2007
survey of global attitudes by America's Pew Foundation, almost
identical numbers of American and French respondents called foreign
companies good for their country (just under half liked them). In
Spain, Sweden, Britain and the ex-communist block, enthusiasm for
foreign investors left America trailing. Nor are pinko Europeans
cheering at the spectacle of America nationalising banks.
Europe is a capitalist place. True, there has been some Schadenfreude
about the humbling of the "Anglo-Saxon" or "ultra-liberal" model. But
there is also much unease about the taxpayer paying billions to take
control of wayward businesses. In the words of Joaquín Almunia, the
European economics commissioner, action must be taken to prevent
systemic risks, but "Socialists like me are against financial
socialism."
A question of attitudes
Yet when it comes to instincts, three big differences suggest
themselves: attitudes to risk, attitudes to the state, and attitudes
to profit as a motive. The French paper says that the European social
model is "characterised by a high level of protection of people
against the vagaries of life". That is not a policy goal with much
resonance in America, where winning and losing are part of life and
society is tolerant of those who have done both-like successful
entrepreneurs with a bankruptcy behind them. The paper reflects a
western European view, too. Unemployment benefits are higher in
western Europe than in America, and can last (much) longer. But in
eastern Europe, welfare is often stingy.
Trust in the state is also greater in western Europe than in either
America or the ex-communist block, where public services nearly
collapsed in the early 1990s. Dutch government research found that
eastern Europeans like the idea of private pensions. Western
Europeans, in contrast, trusted the state to provide for their old age.
Language can be revealing. The European press has written much about
America using the "state" to save AIG and other outfits. Americans
talk instead of a "government" bail-out. There is a difference. In
places like France, the state is the State, run by a bureaucratic
elite with a special claim to disinterested wisdom. America's
government does not claim a monopoly on wisdom when it comes to
bailing out markets; it is just that, in hard times, it is the only
bit of the system with money.
Among officials in French-speaking countries, a favourite term is the
hard-to-translate verb maîtriser, meaning to take something in hand.
The list of activities in need of official mastery is long.
Charlemagne recalls being informed that officials-not the market-
should judge where to locate dairy farms (in France), where to plant
new vineyards (in Luxembourg), and when shops should open (in
Belgium). That said, European life is less minutely regulated than it
was 20 years ago. Even France is changing under Mr Sarkozy.
Perhaps the biggest difference concerns the profit motive. Peer into
European debates on privatisation, for instance, and many opponents
argue that running a service for profit means pain for workers,
consumers, or both. In short, many Europeans still instinctively
believe that capitalism is a zero-sum game, in which a company making
profits must be exploiting somebody. That is far less true of
Americans. European leaders have no problem with profits as such, or
even with those who make them. But many of the voters they answer to
are uneasy about capitalism. Mr Sarkozy's call to make high finance
"moral" has deep roots. When crisis management turns to a debate on
new regulation, Americans and Europeans will start from different
places.
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