“Could Europe Be Doing Something Right?” asks NY Times’ Krugman     Print Email

Americans Should Think Twice about European Socio-Economic Models

A leading and sometimes controversial U.S. economist Paul Krugman says that Americans should look beyond their knee-jerk dismissal of European countries’ economic systems and recognize some ways in which the Europeans’ formulas have succeeded in sustaining long-run prosperity – arguably better than the results in the U.S.

Look at Europe, he writes, asking American visitors to recognize what they see when they look at European cities. Take Paris: does it “look poor and backward?” Even for American observers familiar with the statistical evidence of European economic woes, he says, “the eyes have it.” Like most European capitals, the French capital compares favorably to the leading American cities in terms of the quality of life of its citizens.

Empirically, Krugman says in his article “Learning From Europe,” Europe demonstrates that there can be viable alternatives to the recent American economic model that emphasizes minimizing the role of government in the economy and systematically opposing taxes as a tool of development.

He marshals evidence from several countries showing that Europe, with slightly lower average annual growth rates than the U.S., has managed to achieve stable prosperity and a level of social justice that many Americans envy in the wake of the crisis.

Krugman, a Nobel laureate, gained prominence in economic circles under the Bush administration, when his left-leaning criticism of Washington was vindicated by the global financial collapse. Subsequently, he has proved even-handed by sometimes criticizing moves by the Obama White House.

In the context of the current U.S. debate on health reform, Krugman says, Europe has shown that widely available health care need not become a growth-killing burden on the economy.

He concedes that some EU countries – notably Greece – have tumbled into dire financial straits, partly because of their bloated public sectors. But he notes that in the crisis the U.S. has seen its budgetary credibility come under threat – a trend that is even worse in some debt-laden States. For example, in California, the State government in Sacramento is seeking a budget “bail-out” from Washington. So, Krugman wryly comments, “Sacramento is now the Athens of America – in a bad way.”

Offering a more radical variation on Krugman’s theme, economist Steven Hill argues in a new book, “Europe’s Promise,” that the European model of “social market economics” has actually proved to have advantages for many businesses. The central idea behind the model is codetermination, or a management philosophy by which executives and representative workers form policy side-by-side. From business decisions to negotiations on worker privileges and health plans, the European version of team leadership promises decisions with much more egalitarian representation than Anglo-Saxon-style top-down management systems with boards of directors chosen among corporate executives from other companies.

Klas Levinson, a researcher who has championed this codetermination model in Sweden, describes it is as an unprecedented extension of the democratic principle into the corporate sphere – “the idea that workers should sit side-by-side as decision-makers with stockholder representatives and management.”

“Codetermination,” argues Levinson, “is Europe’s little secret advantage” in producing good labor-management relations.

People partial to the American business model may protest that such trade-union participation in corporate decision-making would lead to diminished competitiveness or inefficiency. Hill counters this view by citing some statistics about competitiveness. After all, Europe boasts more companies in the Fortune 500 than the U.S. (179 to 140).

True, the U.S. consistently leads the world (except for Switzerland) in the World Economic Forum’s survey of competitiveness. But out of the top global ten in the 2008-09 index, five of the top performers (after Switzerland) were European economies: Denmark, Sweden, Finland, Germany and the Netherlands. All five of these EU front-runners countries practice some form of codetermination, and Hill believes that the concept could provide a competitive edge for some of their companies in the globalizing future economy. Hill quotes the new CEO of General Motors, Ed Whitacre, as praising codetermination’s capacity to minimize employee dissent, a lesson he witnessed first-hand in his dealings with General Motor’s Opel subsidiary in Germany last year.