Phelps: Innovative Thinking for European Business

Edmund Phelps reiterates his belief that Europe stifles innovation and dynamism, and that globalization may help to bring about positive change:

Innovative thinking for European business, by Edmund Phelps, Commentary, Financial Times: The great ideas about enterprise and society were all European. ... The thinking bore fruit. By the last decades of the 19th century, Europe’s business was humming and productivity was growing at record speed – both powered by unprecedented innovation. ...

Yet European ideas hostile to capitalism also arose. In the 20th century, they shaped on the continent a system that was a giant step backward – a set of values and institutions that has been badly lacking in internal dynamism and stultifying, save when external opportunities lit the way.

At the core of this reaction were the tenets of corporatism: a tradition of “solidarism”, originating with the corporazioni of ancient Rome and the medieval guilds, inspired the formation of industrial unions and employer confederations. These combines operate against entry of the outsider with an innovative idea for starting a new company and instill uncertainty even for incumbent enterprises.

A desire for order led to virtual unanimity being required among “stakeholders” and the “social partners” for a change to be allowed. ... An ethic of egalitarianism deterred the individual from deviating from his or her group... This could only have damped the entrepreneurial spirit.

A distaste for “money-grubbing” led many young people to prepare for the public sector or to manage the family business rather than start a new one.  An attitude called “scientism” deriving from the rationalism of the French Enlightenment saw ... entrepreneurs and traders as worthless and held that rational economic policy demanded a co-ordinating role by the state – indicative planning and some key state enterprises.

The corporatist tenet that companies are arms of the state for the good of society was also inimical to dynamism. It caused owners and managers of a company to fear that oversize profits would make it a target of politicians. It led to a system of patronage... It also led to state protection of threatened companies through tax relief, tariffs and bars to competition. Whole industries were subsidised as “national treasures”.

Making companies into a protected preserve led them to become social clubs in which only those with connections were let in. ... Flexibility and rapid response suffered. ...

Can the continent, with this legacy, regain high dynamism so as to lift its employment, productivity and spirits? ... Now it is said that the corporate sector has the power to transform itself... However, if the interests of owners and managers did not lift economic performance before, why should those interests raise performance now?

The general argument is that globalisation ... heightens pay-offs from better-performing economic structures. Moreover, the contact of continental companies with Anglo-American capitalism can make vivid to them some ways by which they can pull up performance.

For me, the key point is that globalisation has opened markets for the launch of continental European innovations – and these new markets have fast growth rates. This will create jobs and speed growth.

Time will tell how innovative the continental companies will become. Many companies may have to struggle in unreceptive domestic markets. Some managers may shun the risks... Finally, one wonders how large the gains can be without the revolution in workplace attitudes that high dynamism requires.

We may soon find out if his implicit air of superiority for the dynamism of the U.S. economy over Europe's is justified depending on whether we have a hard or soft landing as a result of the financial market crisis (and how it compares to Europe's response to similar problems).

I am going to make the counterargument to Phelps the lazy way - with your help (I hope). Suppose that you do accept that Europe has consciously chosen a different institutional structure that provides more social insurance, and that this has come at a cost (the size and even the existence of these costs is controversial). How would you defend the European system? Are the costs smaller than Phelps infers? What benefits would you point to, i.e. what does Europe have that the U.S. does not that more than makes up for any reduced innovation and dynamism?

Comments

[paine]

ned's come along down
so far as i read him
since those days
in the late 70's
when he taught me "his" macro

the euro-meme trail
that leads to
stagnovation

my my

mark
you may not know this
but on a personal level
you nailed him
he dwells behind
"... implicit air of superiority "
it isn't just
a matter of his odd mix
of conventional and contrarian convictions
seems so far as i can tell
the chap needs
those "i'm a boy wonder " mirrors
to pose into
getting
the belated nobel
after missing the clark
only restored that latent
tom jefferson of the cash register
imago

[Meh]

I don't know Mark, when Phelps writes with an apparently straight face that "relational banking, corporate stakeholders" etc. are inimical to innovation I'm not sure where there is left to go.

Presumably Mr Phelps does realise that at least 50% of the world's innovation over the last 30 years has come out of places like Japan and Germany who indulge in these evil practices?

The biggest revolutions in industrial procedure have been:

1) JIT - thanks to the land of the rising sun..
2) ERP - we can thank the evil geniuses at SAP in Germany for this one mostly.

I know it's fashionable to make very shallow assessments of "innovation" which place Silicon Valley at the centre of the universe, but it's not particularly useful. It's also a bit embarrassing coming from a Nobel Prize winner in Economics. (Blah, blah, caveat bank prize, not a real Nobel.)

And yes, the computer industry is based in the US and no, that doesn't represent a triumph of entrepreneurs acting alone. The investments of the US military in particular, the value of having the largest home market using what is the dominant language of world business all matter too.

It's nice that Bill Gates and Larry Ellison have made out like bandits, but they didn't actually create anything new, that work was all done in big corporations. There is some value to competition from entrepreneurs and as an entrepreneur myself I'm quite happy to see how well rewarded they were for their services to market competition (once they established relative monopolies) but it's all a long way from making Phelps case for him.

[Meh]

Mark: apologies btw for not helping in the direction you requested, I'm just a bit disgusted with Phelps since he does this regularly and each time when criticised says "it's only a newspaper column, I didn't have room to be nuanced."

I think the most powerful argument in comparing social models can only be made by comparing in a couple of years time. Let's see how sustainable all this "dynamism and innovation in financial markets" is for the US. Maybe it'll still look better than boring German export engineering.

I think Lafayette is the right guy to make the argument about civilisation, but the key is that US dynamism has been founded on an erosion of safety net provision. It's only when the downturn comes (and they do come, just like death and taxes) that we can really see the human costs of that. Perhaps the proof of the pudding will be the election of a Dem President with a mandate for much wider healthcare safety nets...

And that highlights the problem. This isn't just about economics, because economics is only about "aggregate results" where in politics, the results for the median matter too. European economics is dominated by politics, by the desire to ensure that the median voter benefits, if possible. Phelps prefers a world of economics, where only the aggregate result matters. In fact, historically, his model is unsustainable, but the proof only comes in politics, when the median can make the voice heard. Why is this? Simply because economics thinks it is separate from the median, when in fact it only operates by consent from it. Phelps (and many economists) don't like to think about that fact, but it is the ultimate reality in the quest for a balance between and efficient economic system and a robust one.

If you want a quick futuristic thought, the US system specialises in providing cheap labour to entrepreneurs. But China and India are better at that anyway. The killer attribute of a modern economy is, like Sweden and Finland, the education to produce people who can come up with ideas to use cheap labour on. The US system is more efficient at turning ideas into action, but as cheap labour is less of an issue, then idea generation, which depends on education levels, which depends on the social contract becomes ever more important. And if you ask anyone, "are you confident that the US public education system is producing enough educated people to dominate the future of the knowledge economy?" I think we'd all admit at least a bit of disquiet.

I'm rambling, so I'll stop now.

[Farrar Richardson]

Phelps does make two valid points, especially for France -
1. Industries (as well as unions) tend to band together to protect established positions (rents) and resist change. This is widely seen as a weakness in France as well, and it's hard to see a positive side.

2. The French tend to look to government to spearhead industrial programs. Here it is much easier to see a positive side -
- nuclear power
- French railways with TGV - great for passenger transport, poor for freight.
- Related industry - trams and subways.
- Air France, KLM, consistent recent profits while others lost money.
- Dare we include Renault, which got back on its feet while still govt controlled.
- Subsidized French cinema

Makes one think that a case can be made for govt participation in certain types of industries

[Farrar Richardson]

Bedtime in western Europe. Guess I'll hit the sack and let Lafayette contradict me in the morning.

[Bruce Wilder]

Phelps: "Yet European ideas hostile to capitalism also arose. In the 20th century, they shaped on the continent a system that was a giant step backward – a set of values and institutions that has been badly lacking in internal dynamism and stultifying, save when external opportunities lit the way.

"At the core of this reaction were the tenets of corporatism: a tradition of “solidarism”, originating with the corporazioni of ancient Rome and the medieval guilds, inspired the formation of industrial unions and employer confederations. These combines operate against entry of the outsider with an innovative idea for starting a new company and instill uncertainty even for incumbent enterprises."

It sounds like he's talking about fascism. Maybe, my European history is growing shaky in my old age, but I sort of thought fascism took it on the chin in 1945, and has scarcely been heard from since. Still, it is all quite vague, when the narrative is not extremely selective.

Frankly, I wonder what the real evidence is for this supposed European malaise, as I talk on my Nokia phone and watch my Philips television and read the Financial Times, snacking on the French cheese I picked up at my local Tesco Fresh & Easy, and contemplate my vacation flight on an Airbus, I am having a bit of a problem with the image of European backwardness.

When I drive north through the Detroit area, I'll try to contemplate the veritable paradise created by the innovative dynamism of General Motors and Chrysler, and such American success stories of the high-tech age as RCA, Zenith, Honeywell and Burroughs.

I just do not see a compelling case for comparative institutional analysis in the gross data on economic performance over the last 50 years. Any way you slice it, Western Europe is rich, just as the U.S. is rich, and both, overall, have been pretty close to as rich as it is possible to get, for better than 40 years.

U.S. economic performance since 1973 has been, at best, a mixed picture, and I don't see the kinds of gains in median productivity and median wages, or increases in socio-economic mobility, which would get me all excited about "dynamism". Wal-Mart, McDonalds, w00t!

And, I don't see this alleged backwardness, which, supposedly, afflicts vast swaths of Western Europe. Can Germany match our trade deficit? Are Dutch children as uncared for as Mississippi children?

Boston to New York (190 miles) by rail takes 4¼ hours; London to Paris (213 miles) by rail takes 2¼ hours. What's two hours, when the American economy is so much more dynamic?!? (And, it would be so crass to ask about the safety record of intercity railroads.)

Shall we compare broadband penetration? Childhood immunization and nutrition? Or, is there some justification I don't know about, to restrict ourselves to the compensation of corporate executives? Did I mention the portability of health insurance?

[paine]

i can't find the energy to loft
the clubs on this one
i got no dog in the hunt regardless
this comparative anatomy of
the worlds various corporate and market systems

the german communist party
in the weimar days
called social democrats "social fascists"
i'm sure they scored a few valid polemical points
but the dimitrov popular front strategy
which cashiered the social fascist take on
the yellow party of the workers
came decidedly post hitler rise
post above ground german communist party
(or social "fascist"/democrat party for that matter)
ie
came too late to correct
the possible errors in practical party policy
latent in "the polemical points "

how does this relate to phelps?

his notion of corporatism
is equally "comprehensive"
as the kpd's
theory of social fascism
as hegel points out
the cows are all black after dark eh ???

as to france leisure time and other such quality of life stuff

stagnovation lives off risky
daring yankee adventures in IT/IP
marketeering profiteering

innovation ????

we were the worlds greatest whalers too

but i know ned's on to something here
though
it has less by far
to do with state policy
so much as
the systemic financial/credit environment
for small venturing outfits
spawning these things comes easy
but designing
the opitmal incubator ???

to maximize the rate of production
of marketable novel processes and products

hmmm
amerika has its high 90's
the dot bubble
i think was a land mark
in how the incubator must develop
much like other credit innivation catastrophes
it was the edge of the future

[calmo]

Phelps summing up:Finally, one wonders how large the gains can be without the revolution in workplace attitudes that high dynamism requires.hoping like hell that he has stimulated those lazy if not socialist if not downright communist attitudes that blunted so much of European entrepreneurial blessedness innovation.
For starters, how bludgeoned does one have to be to consider this diatribe "innovative"? [You figure that's demanding too much, --that he make an opera out of it?] (My last offer: a musical...all proceeds going to SPCA particularly those animals following self-proclaimed luminaries like Phelps 3rd world countries exploited by European and American companies alike.
I know beans about history but I imagine to make the claims Phelps makes he'd have to be reading it day and night (no, the mid-90s sabbatical in Italy only makes me suspicious) to even begin to substantiate these very general (come on, ideological) claims. (For a guy who spent so much time in academia, that shelf of government, this is a bit hard to take seriously.)
I want to see this banner and read the banter from a historian and let the aging Nobel prize winner continue with his Economics, if that's not too much trouble.

[ken melvin]

Strange religion this capitalism they worship.

[James Killus]

The corporatist tenet that companies are arms of the state for the good of society was also inimical to dynamism.

Whereas the tenet that the state is an agent of corporations run for the good of the investor class has served the U.S. so very, very well.

paine is right. This isn't even worth a critique. It's pure U.S. xenophobic chauvanism, only convincing to the sort of person who would go to Europe and spend all his time in his hotel room eating peanut butter and jelly sandwiches.

[Finnsense]

There's a huge difference between a system that produces less and one that is uncompetitive. If Europe simply produces less but can continue to grow while still producing less, then there really is no problem. Europeans are happier, have more free time, less violent crime etc. etc. However, if Europe makes its companies uncompetitive such that they cannot compete with US and Asian companies then you would expect serious problems.

Currently, there is no reason to think "European" companies are handicapped by the system here. They lead the world in a number of areas.

Lastly, talking of Europe as having one model is silly.

[ch-resident]

Others have made some useful points while I slept. But in case another non-US perspective is useful versus this ridiculous freedom fries perspective, here goes. Incidentally, Phelps is not the only well-known US economist with these ignorant views.

1. As pointed out above, it's not so long ago that German and Japan were eating the US's lunch and everyone was criticising the US model and lauding theirs. In between, we were all told we should emulate "Asian values". We have always lionised the system of the country that's growing fastest. The wheel will turn again. Now that the US household sector has been shown to be essentially insolvent, maybe that time is soon.

2. I hate appealing to measurement issues as the reason for everything, but surely it's not irrelevant that GDP in the US includes certain software investment that euro area GDP treats as an expense? Also, the "unreasonable privilege" of reserve currency status allows upper-middle class Americans to reap higher incomes than their true productivity allows.

3. Part of the malaise has to be the belief that Germany and Japan can't grow without "structural reform", i.e. that it's the government's fault that firms aren't dynamic. Those beliefs can be self-fulfilling for a while. But sooner or later they will work out that it's their responsibility and the institutions don't matter much. Japan grew for five years this century before western economists started realising that it was a sustained expansion and stopped forecasting ongoing malaise.

4. Public goods. Our well-being is much more a function of the health system, the transport system, whether the garbage is collected, the schools and parks and museums, than of the volume of gadgets we can buy in Wal-mart. Too many economists are purposefully ideologically blind to this. Indeed, they define the point away with their one-good representative agent models. Phelps should be made to read "Fast-Food Nation".

5. Relative income/GDP levels have less to do with all these so-called institutions that economists like to reify, and more to do with whether a particular country had a financial crisis recently. There are some interesting papers by two IMF economists I read a while ago about this, especially one about Sweden. Can't remember the cite first thing in the morning, sorry.

6. And related to a post I made in an earlier thread: never mind all the nice toys your money can buy, what made so many Americans such assholes? The whole notion of "public bads" brought about by the bad behaviour of (almost always white male) individuals is alien here in most of Europe. For all your toys, your culture is broken, perverted by the economist-driven ideology that government and society can only do wrong, and the megachurch-driven (and before that Victorian muscular Christianity) belief that the rich deserve their wealth.

[Bruce Wilder]

ch-r: "what made so many Americans such assholes?"

Leadership.

The example of the President has been influential, unfortunately.

[Sean Matthews]

> i.e. what does Europe have that the U.S. does not
> that more than makes up for any reduced innovation
> and dynamism?

Taller, longer lived people, and lower infant mortality.

[BJ Feng]

It's late so I'll leave the writing to someone else. From Sybil's Star...

http://sybilstar.blogspot.com/2007/12/
that-shiny-nordic-welfare-model-cato.html

"That Shiny Nordic Welfare Model: Cato Looks At the Real Stats

We all have heard politicians and pundits (especially on the left, but not exclusively) defend welfare state ideas by referring to the success story of the Nordic countries. It's high time someone actually looked at those regions of the North to see what is actually going on, instead of just jawboning.

Cato has once again pulled through with this article that goes into the real situation.

It turns out the Nordics have indeed succeeded in some areas, but it's not where the welfare people think.

On the bad side, you have the government spending 48 percent of GDP. This is the cost of many of those "great" programs. In the US, this figure is 37 percent (less, but also a lot).

To pay for it all, you have tax revenues. The Nordic's burden averages more than 45 percent, and in the US it's 25 percent, of GDP.

On the other hand, surprisingly, the North has put policies in place that are more free-market than we are. This may shock most of us, and it certainly sets the record straight. According to Daniel Mitchell's article:

"Notwithstanding problems associated with a large welfare state, there is much to applaud in Nordic nations. They have open markets, low levels of regulation, strong property rights, stable currencies, and many other policies associated with growth and prosperity. Indeed, Nordic nations generally rank among the world's most market-oriented nations."

This is a surprise. We all thought they were socialist through and through. Not so.

Also this:

"Every Nordic nation has a lower corporate tax rate than the United States, for example, and most of them have low-rate flat tax systems for capital income. Iceland even has a flat tax for labor income. And both Iceland and Sweden have partially privatized their social security retirement systems."

Wow. So we do have something to learn from those northerners, but it's not the welfare-state lessons you'd think. On the contrary: If their redistribution planning is still standing, it is because they have gone further than we have towards freeing up some of their markets, lowering the tax burden, and privatizing one of the most costly government benefit systems there is."

[Eric de Souza]

Phelp's problem is that he seeks a European reason rather than country specific reasons. Therefore, he must find something that is common to all European countries.
A much more telling critique is the following monograph relating to France (in French)
http://www.cepremap.ens.fr/depot/opus/OPUS9.pdf
of which a short summary can be found here:
http://www.voxeu.org/index.php?q=node/746

[anne]

http://www.voxeu.org/index.php?q=node/746

November 25, 2007

France: The price of suspicion
By Yann Algan and Pierre Cahuc

"France is in the throes of a vicious circle. Corporatism and state intervention undermine solidarity, destroy social dialogue and reinforce mutual distrust, thus feeding demands for more corporatism and state intervention...."

Me, I suggest that France is just fine aside from lunatic rantings of Nicolas little general Sarkozy that what is needed is to undermine middle class, the vast middle class, security, and as a distration to urge a restoration of the French the empire at American expense.

How many French regiments is it that Sarkozy was planning to send to Iran, or is it China? Vivat!

[anne]

Ah, as for the Swedish or Icelandic social security systems, which I have often described, Americans should only be so fortunate as to have such income support while Republicans are forever trying to undermine the support we already have. Sweden and Iceland begin with the sort of social security benefits we have, the add to that a provision for private investment accounts to allow for further benefits.

Last I remember, but I could be wrong, duh, Iceland and Sweden have, well, universal health care among other niceties like, duh, free education from early childhood to university.

[hari]

Mark - You're right on the ball!

FT article is a very generalized statement by a convinced capitalist oriented Nobel Laureate. He's no substantive idea of what makes societies or nations tic! He talks a lot about "high dynamism", as if it was a "commodity"!

I'd rather say, if you want to compare continental Europe against Anglo-American capitalism, based on laissez faire economics, the conclusions are self-evident and historically quite relevant. However, you're also comparing nation-states which have existed on time scale for longer period of time....than US!

In Europe, you've what's called the "social contract" - you referred to it in a previous thread as a "safety net".
It's part and parcel of the pathos of current EU structure.

And, if the qualitative/quantitative difference is life style and its celeberation, than I'd rather prefer what I've here; and, specially my adopted land of Sweden.

[paine]

for the record
i live here in assholia
and am damn happy
the skunk works of corporate empire for sure

but europes a theme park
guided by a walt disney mind set
one of course
with an advanced degree in taste and history...
so what...
world cop country
needs rougher more flame hardened stuff
souls fed on pig iron
not
baring vellum degrees
with
fluid lettering

[paine]

"my adopted land of Sweden "

sweden???

existential zero ville

like flying first class
and with maybe a stewardess
on your lap
but going no where
and never landing
till you .....

[Ken Houghton]

Let's see, what leavings are left? Oh, yeah (quoting calmo)
Phelps summing up:

Finally, one wonders how large the gains can be without the revolution in workplace attitudes that high dynamism requires.
Yeah, that's why their per worker per hour productivity is higher than that of the U.S.—because they don't have the attitude of high dynamism.

That'll show 'em.

[William Smith]

Prof Thoma,
I was thinking along these lines in a dicussion the other day: America favors a front-end capitalism, one that tries to ensure an open playing field and lets everyone go at it. Europe favors a back-end approach, one that lets people go at it but makes sure that there is a safety net.
On innovation, America does lead the way, but only nominally. For every great American innovator, there's another who is too scared to try for failure. While Europeans are probably less inclined to innovate as we are, for lack of fear of relative poverty, they are also less dis-inclined to try to innovate. I think we have a nominal lead but one that is not enough to reject one brand or the other.

[Ken Houghton]

Mark: Short cut version of model. Take a standard two-period model (work, retire). For the first group, steady work ensures a stable retirement. For the second, steady work does not ensure a stable retirement period, but rather the worker is also required to "manage" her finances.

If T = wL + A is still true, and A includes time managing one's retirement portfolio, which group will be more productive?

[Patricia Shannon]

I'm into continual growth as a person, but I don't see why a society needs to be constantly "growing", whatever that means exactly. I believe Mr. Phelps notions of "growth" actually impedes personal growth. What's wrong with balance and sustainability? Continuous economic growth will lead to ecological collapse, which will cause economic collapse.

[hari]

I'd like to see Brad take on Phelp and debate this based on US paradigm - social, political, cultural and economic.

Brad demonstrates a DNA-link to continental culture and civilization which, I may suggest, is unigue among the Blogs. Intellectually, and inspite of Paine's betrayal, Brad is more consistent than either Summers and/or anyone else on globalization issues.

May be Dani is a bit different because he's definitely in the school of anti-globalization proponents with a cause!

Anyway, the continent is NOT England, and will never be!

But be rest assured that "acquis communataire" is an inevitable political instrument (EU Treaty) to promote "ever closer union" among the current EU-27. It's the moral equivalence of "peaceful co-existence": No more WARS!

And, in terms of social policy, what that means is simply that "high dynamism" requires humanity to have a "real" human face - not be enslaved by the so-called profit motive - at cost of inequality and injustice.

It'd not be unjust to assert/argue (Paine does it so well, in verse!) that those who presently rule/manage US economy are not concerned with issues of equality and inequality - as shown unmistakably in one of your threads....

Anne is right, in her understanding, that Republicans are NOT concerned with social inequality; Demos are but seem more or less unable to take charge and govern. Why?

At some point in time, these social/political contradictions will manifestly give rise to a paradigm shift in US politics (just like it did on the Continent not long ago!).

I'm confident, and inspite of demograhic changes, Americans will not allow current situation to go unchallenged indefintely.

[jamzo]

oligopolywatch.com has a post today that describes the world phelps advocates

"Motorcycles

My friend Terry Frazier is a long-time blogger and motorcycle enthusiast, and he has combined the two passions in a relatively new blog called MuddyWatersMX.net. I've talked about oligopolies with him, and he has brought the subject into the motorcycle world.

As he notes, the motorcycle world is dominated by a loose oligopoly of six major companies that sell over 80% of the machines. The big six include four Japanese companies (Honda, Suzuki. Yamata, and Kawasaki), one American (Harley-Davidson), and one German (BMW). The companies "utterly dominate the motorcycle market in every way that really matters (it's all about the money.)"

In particular, he thinks that these big powers wield strong influence over the American Motorcyclist Association (AMA), a collection of bike fans like himself

When the AMA must decide whether or not to take an action that will benefit rider-members but will significantly anger the 6-member motorcycle oligopoly - who control $150 billion of capital and 80%-90% of the market - will the rider-members prevail?

In another post, he notes the increasing sameness of dirt bikes and the way in which the top players are converging and thus stifling real innovation:

If you go back to the 1950s and 1960s you can see wide variety in both style and approach to offroad motorcycles. In the 1970s the technology wars began and the variety in modifications, experiments, and technologies was explosive. But by the mid-1980s most of the variety had been shuffled out of the dirt bike market. The Japanese, with their big conglomerates (making automobiles, ships, trains, power equipment, etc.) had the resources to match and absorb every innovation made by a competitor, and the dollars to out market them.

And, he argues, the kind of specific expertise has been lost, and along with it, some of the factors that attract many people like him to the sport:

From the market's perspective there are many advantages to the sameness - widespread availability of product and parts, ubiquitous support, and much less thinking required in product decisions. How many motorcycle dealerships are now Honda/Yamaha/Suzuki/Kawasaki/KTM dealers, with real expertise in none of them?

I know next to nothing about motorcycles (other than the names of the key makers), so it's great to see my oligopoly principles so clearly described in an industry I have no insight into."

[Patricia Shannon]

Hari,

Democrats haven't been able to take charge because of (1) Bush's veto threats and vetos and (2) lack of a strong enough majority in the Senate to prevent Republican filibusters. Some may remember that when the Repubs were in power, they tried to do away with the filibuster, but they think it just find when they are lacking other power.

[Denis Drew]

What Europe doesn't have is slums full of people wasting their lives hustling drugs or whatever else because the labor market doesn't pay them enough to take legitimate jobs (economists have a concept called the "reserve wage"). IOW, the Crips and the Bloods couldn't whip a decent paying Ronald McDonald ($5-600/wk -- it was about $400/wk in LBJ's time, 1968, with double the AVERAGE income today); and would be the first to tell you that (if an outlaw biker gang won the lottery they would build a bigger club house; half the Crips would go to college).

What Europe doesn't have that America has is ghetto schools that don't work because the parents don't work.

What Europe -- most especially of all -- doesn't have that America has is the race to the bottom. See my post below comprehensively covering that most important of all topic.

[Denis Drew]

As I said in my post immediately above what Europe doesn't have that America has is most devastatingly -- the race to the bottom, to wit:

The "race to the wage and benefit bottom" hit American labor only sporadically at the onset of our industrialization (American factory hands had settlers' opportunities to choose from) but since the early seventies has been hitting Americans unrelentingly (sea to shining sea industrialization + deunionization = no place to hide?).

European factory workers were Shanghaied onto the slippery slide from the industrialization word and for a century or more were hit heavier than we ever were. All of which forced Europeans to evolve a common sense bargaining counter (to what Americans still don't know has hit them): legally mandated, sector-wide labor agreements (or some equivalent, like the French/French-Canadian practice of mandating non-union firms to work under contract conditions worked out by unionized businesses).

While checking out in my national-chain supermarket in Illinois the other night, the bagger repeatedly ignored my requests to double bag heavy items and not to put heavy 12-packs on the bottom under the cart basket. A young employee informed me that the bagger could not speak a word of English.

Wal-Mart's entrance into the retail food business has forced unions across America (not Europe) to accept two-tiered contracts under which new employees will be paid a lower scale. The $5.15/hr minimum wage previously chased most American born labor out of fast food; the race to the bottom now seems to be deterring some Americans from showing up for what, only a short time ago, were solidly middle-class supermarket careers.

Oceans of space as well as time shield today's Americans' eyes from alternate labor market comparisons leaving American labor slow to sense the shape or even the presence of their pay and benefit enemy -- the inexorable market process that accompanies one side becoming organized while the other fails to match that in any market -- least of all to sense what to do about it.

Wal-Mart is pulling 88 big boxes out of (land of the full-unionization, sector-wide contracts) Germany where its business model cannot survive paying comparable salaries.
*************************
Upon learning, a few years back, of the regular OECD practice of "collective-collective" bargaining, I have done what I can to spread the word here (mostly via emailing every media and pol web address I could dig up). It, now occurs to me that the French-French/Canadian practice of "virtual" sector-wide agreements -- merely requiring non-union firms to work under agreements negotiated by unionized firms -- could make for a much smoother transition to sector-wide contracts in the USA.

No need to -- on the run -- build a wider union presence than we ever had before (as installing a fully unionized, German style bargaining network could require).

Easing French style sector-wide into our labor market with any unionized or partly organized labor segment that wanted to give it a try it should cause minimal if any disruption. Airline employees might make logical candidates for a beginning -- given their consistent inability to exit their industry's wage and benefit tail spin --and their nationwide footprint made them an excellent model for others (sector-wide agreements usually are limited to all similar jobs in one geographical locality). We can be sure that America's supermarket workers would salivate at the chance to go sector-wide.

The French Canadian example will always be right next store for our convenient examination -- not overseas in economies that remain more than a little mysterious to most of us.
****************************
If we predicted to Americans in 1968 that by now 25% of our population be living below a REALISTIC * poverty line, what could LBJ era Americans possibly have guessed could be the cause (What would LBJ have guessed)? What would they have wondered if 25% of American workers were foretold to earn less than LBJ's minimum wage ($9.50/hr in today's money) by early 2007?

Would 1968 Americans have fantasized: a mini ice age, a limited nuclear exchange followed by a mini ice age (nuclear winter); multiple depressions or plagues? Wrong; average income doubled over that span as would normally be expected -- it was that old (long familiar to Europeans -- if a brand new experience for late twentieth century Americans) plague of industrialized labor: the race to the bottom.

What would Americans of 2007 think -- or do -- were somebody, anybody (listening progressive media? -- please!) sometime, ever to inform them of the "25%-shockwaves" that had already hit them? Might they finally, actually recognize their three-plus decade run in the race to the bottom?

[ * 12.5% is the number living below the many decades-outdated federal poverty line: three times the price of an extreme emergency diet -- dried beans only, no canned please! -- try the 2002 book Raise the Floor for more realistic poverty parameters.]

[ch-resident]

"World cop country"? Now, surely paine doth jest
The Brits were in Liberia, not you.
No, starting wars is what Yanks now do best,
Or whimp'ring "since 9-1-1, all is new".

For anxious and afraid suburbanites
Darfu, Kosovo, Timor aren't their track.
The one thing that will rouse them to a fight
Are fears that the jihadis will attack.

Altruism? We've heard that one before:
The doctrine of pre-emption has deep roots.
Though churlish to recall the two World Wars,
You come to save the world -- but when it suits.

Europe, like my homeland, has its faults
Still, spare me Yankee triumphalist dolts!

[Lafayette]

DD: As I said in my post immediately above what Europe doesn't have that America has is most devastatingly -- the race to the bottom

Wherever did you get this silly notion?

Unskilled jobs left Europe LONG before the wave hit the states. It's been going on since the early 1990s.

And, there is no end in site. We don't have a Wal-Mart here in Europe, but the Chinese have other, similar outlets with which to push their wares on an eager consumer.

[Lafayette]

DD: What Europe doesn't have is slums full of people wasting their lives hustling drugs or whatever else because the labor market doesn't pay them enough to take legitimate jobs

Oh, you MUST come to Clichy-sous-Bois (near Paris) sometime soon.

Ever been to Birmingham in the north of England?

How about the suburbs of Naples?

What planet do you live on .... ?

PS: What Europe does not have is people living in slums that were original housing for immigrants arriving at the turn of the 20th century. The have people living in slums that were built hastily just after WW2. And, yes, those who manage to get into the country, by hook or by crook, ask for welfare and are housed, ad infinitum, in 3rd rate hotels around Paris -- at the cost of the taxpayer. (When a charter flight back to where they came from would be far cheaper.)

[Lafayette]

Article: An attitude called “scientism” deriving from the rationalism of the French Enlightenment saw ... entrepreneurs and traders as worthless and held that rational economic policy demanded a co-ordinating role by the state – indicative planning and some key state enterprises.

In terms of national priorities

There is so much to disagree with in this article it is difficult to know where to start. So, I'll begin with its text cited above.

The cultural value of "collectivity" that reigns in Europe stems from thousands and thousands of years of monarchic or empire rule. People had been lead to believe, in a Pavlovian manner, that they need not think as long as thinkers were ensconced somewhere (likely a palace) who did the deciding for them. (All they were asked to contribute were their lives in hundreds of wars at the behest of their leaders. And, woe betide those who refused.)

The advent of the French and Russian revolutions upset this "political model" to replace it with a semblance of democracy, meaning independently elected legislatures. Still, most European countries do not have the democratic dynamic of the US. Europeans still look at their leadership for results, whereas most Americans look at theirs with some trepidation - asking themselves, after all the media hoopla is said and done, "What is really up his/her sleeves?"

The American nation was built also upon a revolution, one that went on to construct a viable democracy. It did away with the dominant monarchy to replace it with three layers of elected government (Federal, State and Local), each having their own particular set of powers (to assure they could not be ruled entirely from one central power.

Having dynamited the power of central rule, the rights of the individual were allowed to thrive. Political parties evolved around ideas and not male individuals (as was the case mostly in Europe, which could not disconnect itself from the idea of centralized power in one individual, preferably male.). And, it gave rise to the stability of America's two-party system. The political party was stronger than any one individual leading it – a notion somewhat new to Europe.

States/nations all over the world struggle today in a battle between collective (centralized) and individual (dispersed) rule. When should the rights of the individual predominate? When should those of the collective (nation/state/city/town) predominate? Which produces better public policy? And when or under what conditions?

[The new Imperium of the US, with its present leadership, is a throwback to the days of Collective Rule (Rome was a collective empire run by Rome and Roman law) with over-reaching centralized powers. It is, in fact, a modern day anachronism, ill-suited to America's fundamental beliefs (which are based upon individualism), even if it panders to that ideal. It will soon fade back to the recesses from which it sprang.]

But, what is to take its place? The modern expression of collectivism, European-style, calls for an active role of the state in terms of Public Services. This is not the prevalent political force in America today. Its lack of Public Services that administer to the needs of the collectivity (the citizenry as a whole) are neither strong nor predominate, indicating that they are not high in public esteem.

A nation wherein government expenditure for health is one third that of defense indicates to what extent such services are not considered "public services". This is the exact opposite of a European notion of public services, where expenditure far outstrips that of national defense.

Which leaves us where? For as long as cultural attitudes remain fixated on the market mechanism to provide ALL the services a public may need, it will be dominated by "market rules". This means, the service must be profit making or it is not worth pursuing. The predominate criteria becomes profitability and not those of accessibility or affordability.

Which is why there is a yawning chasm between what Europeans expect of their leadership (in terms of collective priorities) and what Americans expect correspondingly of theirs.

[Lafayette]

MT: How would you defend the European system?

Part I

Easy answer: I would do it as I have in a number of comments in this forum: Affordability and Accessibility of public services.

Both in Health Care and in Professional Training/Advanced Education, both these criteria are met better in Europe than the US. Health Care is better in Europe, generally, than the US because the low-cost of accessibility detects maladies before they become costly to cure. Let us presume also that earlier detection leads to fewer deaths (though I have admittedly no mathematical proof).

[Example: A visit to the GP costs 21€ in France (about $30?). How much does it cost you in the US? A radiology exam costs about $40. How much does it cost in the US? So, if you don’t have coverage, you are far more likely to develop a serious illness – right? More so, these “costs” are mandated by the state, since they are paid for by National Health Insurance (NIH), and not private insurance schemes that charge whatever may by the prevailing rate. Also, you pay your doctor, but are reimbursed by one payment agency, the NIH – and it can be done entirely electronically.]

Also, European education is nearly free (meaning annual tuition is less than $1000 in much of Europe, the UK having increased substantially the tuition in the past five years to around $3000 -- I think). However, when one says university education, many people think post-graduate schools and, admittedly, research suffers greatly in Europe from under-funding. (And, unfortunately, both secondary-school and university instructors earn a dismal civil servant salary. So, the best can and do often go elsewhere.)

[Lafayette]

MT: How would you defend the European system?

Part II

Phelps' remarks also deserves a response.

Does Europe stifle innovation (as is Phelps’ contention)? It does not stifle innovation, but Europe does not do nearly enough to promote it either. These are not the same, unless you accept that "not promoting research" is equivalent to "stifling research" -- which I do not.

[An example might help here: I was a part of the sales team that sold a DEC computer to the CERN laboratory in Geneva that permitted Sir Timothy Berners-Lee (in the 1980s) to develop a wee bit of code (called a “link”, or URL) that helped create the foundation for the WWW. Where did the WWW get its start? The US, not Geneva. Where is Sir Timothy today? At MIT where he heads the WWW Consortium.]

Venture capital does exist in Europe, but does not have the heft as it does in, say, Silicon Valley. Besides, the “natural links” between university research and VCs/business are not as well developed. But, this can and will inevitably be perfected. Numerous European programs are afoot to bring research more in line with business objectives. (Not that European research is "wasted". For instance, when Iraq finally exploded, where resided the largest and most professional understanding of Middle-east Muslim culture/politics? In Paris, not Washington.)

It is becoming more current for the US (in the aggregate) to be compared with the EU. Both “countries” are similar demographically (population-wise, income-wise, and human capital-wise). But, the largest single difference is that the “states” in Europe are also “nations”, each having their own cultural diversity and notion of sovereignty. So, the manner in which Europe is run is not the same as the interrelation between the Federal and state governments in the US.

And, finally, as far as employment goes, Europe has a fundamental hurdle. If you lose your job in Barcelona or Bordeaux, it is unlikely that you will be looking for another in Berlin or Bern. The lack of mobility– due to cultural differences, namely language -- adds (my estimate) anywhere from 1 to 1.5% to national unemployment rates.

[Pancho]

@Lafayette

Pancho agrees with absolutely EVERYTHING you said...

[cm]

Lafayette: "Europeans still look at their leadership for results, whereas most Americans look at theirs with some trepidation - asking themselves, after all the media hoopla is said and done, "What is really up his/her sleeves?""

I thought the idea is that what you describe as "leadership" were hired executives (what happened to the term "civil servant" and why are officials (still?) described as "serving" in their positions)?

Under that theory one would very much look for results, no?

[Lafayette]

cm: I thought the idea is that what you describe as "leadership" were hired executives (what happened to the term "civil servant" and why are officials (still?) described as "serving" in their positions)?

I'm not playing semantic devices, cm. Leadership for me means whoever has the responsibility for results, private or public officers.

My underlying theory is that Europeans accept significantly higher tax rates because they are for, not against, the provision of Public Services by the state/government. They therefore expect results.

Example: The French headlines today are all about the "SDFs" (Without Fixed Address), people who are obliged to sleep out in the cold because they have no residence. This caused deaths in past winters and quite a bother for the Right in France last winter. This winter, the responsible Minister is spouting figures about "shelters" created and budgeted for next year, etc., etc. Meaning this: The public expected the government to "do something". Whereas, in New Orleans, all we heard were apologies for a feeble FEMA effort to repair a monumental dislocation of lives, not to mention loss of life. (And, let's not forget that prevention would have saved many of those lives. So, where was it? Lost somewhere in a budget hassle over the years. New Orleans deserved a dedicated large-scale effort -- over a decade, if necessary -- to rebuild the dikes. In Europe, it would have got the funding.)

The American and European concepts of what government should do are substantially different. Which, to my mind, means that when the Right gets into power it likes to "kick ass" to show that it is "in charge". Because, in fact, it believes fundamentally that government "should not interfere" with what private enterprise should be doing in the public sector. Whatever happened to the "Education President". (He went looking for one? ;^)

The Dems would like to do more for the have-nots, but neither are they all that brave as European Social Democrats in terms of funding the programs that could really make a difference. [The current round of Health Care schemes are simply a sugar-pill solution that will likely pass without prompting BigInsurance to bring the K-street banshees (lobbyists) out of the woodwork.] The Dems are NOT "change agents" -- not this lot, at least.

[cm]

Lafayette: I was not meaning to play semantic games. With terms as amorphous and abused as "leadership", it's always difficult to know what somebody is talking about.

At some point I came to appreciate that the term to denote the government in the US is "administration", as that's precisely the idea -- stewardship not rulership. At least nominally.

[Lafayette]

cm: At some point I came to appreciate that the term to denote the government in the US is "administration", as that's precisely the idea -- stewardship not rulership

The word stewardship has meaning in both business and politics, which are largely ignored.

As captain of a private enterprise quoted on any stock market, one is "steward" of stockholder interests. I doubt golden parachutes allocated to top managers who have not earned it is, by any measure imaginable, good "stewardship". Nor running lavish parties for one's cronies in Las Vegas or Monte Carlo. But, such happens very often. Both are abuse of corporate assets that are also publicly owned (by individual stockholders).

In terms of political leadership, the same may apply. If one does not say clearly what their political program is, then makes no particular effort to implement it, then one's "stewardship" was intended for what "ends"?

The point is simple: One has responsibility for what to whom? If a politician or a manager cannot answer these questions, then the answer is dead obvious -- they are responsible only unto themselves.

Meaning that their concern is more for personal power than custodianship of the authority vested in their position. This is particularly true of business, where the possibility to manipulate publicly owned assets to derive personal betterment are the easiest to undertake. Control the Board's Compensation Committee and one can do a great deal to make sure stock options (ownership) are obtained in a manner totally unrelated to merit.

This happens too in politics, but there are laws that typically protect "public assets" against abuse -- whereas in business this same concept is rarely applied in a legal sense.

I am reminded of an Victorian proverb (I think the origin is the Catholic philosopher Lord Acton): Power tends to corrupt; absolute power corrupts absolutely And what is absolute power other than the usage of position to pursue personal ends because one is not answerable to anyone other than themselves?

[Lafayette]

But, where's the beef?

Not one of the political candidates, on either side, is proposing taxation reform that would address the problem of Income Inequality. So, why all this commentary about taxes?

Taxes are a necessary evil. The point about taxation is not "how much," but "why, who and how,", I should think.

Unless, of course, as with the "Education President", campaign promises are like the morning dew on the day after Election Day? Meaning candidates can say just about anything during a campaign. Political platforms don't really matter -- after an election they typically end up in the dust bin. Are the candidates afraid the K-street operatives would be provoked to funding adverts branding them as "socialists"? That's not a rhetorical question.

America once had (before Reagan) a near confiscatory upper-income rate of around 93%. Not only should we return to that level, but reduce the threshold at which it is applied and plug the loopholes that allow avoidance.

That would provide a windfall tax revenue that would go a long way to both reducing the deficit (over a decade, admittedly) but also sponsoring programs that would change the effects of Income Inequality of have-not Americans.

For the rich, it would mean one less Ferrari in the garage. Wifey would have to take the Bentley. What a shame ...