Capitalism and the Atlantic divide rich nations of the west

Americans disdain the European view that the state has a role in the welfare of its citizens
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The Independent Online
When US officials decided to trumpet America's economic dynamism as a model for the rest of mankind before the weekend economic summit of world leaders in Denver, they may not have anticipated the results. What ensued was one of the first skirmishes in what could become a very long and bloody campaign.

To the Americans' evident surprise, the "Europeans" - with the French and Germans in the vanguard, but the Canadians and British not far behind - set out to defend themselves, and the result was a far more even contest than the Americans could have forecast.

Once upon a time, things were simpler. When there was a straight competition between communism and capitalism, the Group of Seven industrialised countries waged the war for capitalism. With the collapse of the Soviet Union, communism surrendered and the free market ruled supreme, or so it seemed. Russia came to Denver as an almost full participant and is now described as having a democratic free market economy.

In the time that it has taken for Russia to switch from a failed communist model to an unruly capitalist one, however, new arguments have broken out about how free a free market should be and what role the State should play in a capitalist economy. At Denver, because of what the Europeans saw as US "triumphalism", they came to a head.

The US gave the impression that it was only a matter of time before the Europeans realised the superiority of the "American model" and changed their economic policies accordingly. The Europeans bridled: a French government that had timidly hinted at following such a model had been drummed out of office. Chancellor Helmut Kohl of Germany was in political trouble for supporting cuts in the social state. Thatcherism had brought elements of the American model to Britain and contributed to an economic boom, but the social effects helped to bring Labour to power on a landslide.

As US President Bill Clinton was forced by Sunday to recognise, cultural differences and national mindsets cannot be discounted. No European democracy would vote for an American model, which is seen as harsh, arbitrary and unsophisticated.

For Americans, even leftish Democrats like Mr Clinton, there are certain self-evident economic truths. These include the primacy of competition, the rule of the free market, as small as possible a role for government, low personal and business taxation and "flexibility" in the labour market, by which is meant the right for employers to hire and fire with few explanations needed. The onus is on individuals to do the best for themselves and their families.

The labour force is highly mobile - it has to be. Savings are high - they have to be. If you are sacked, you can lose your health insurance, and the safety net is a long way further down than in most European countries. But the fruits of success are correspondingly high.

Of course, there is not one European model, but there are certain assumptions that even Britons - post-Thatcher, the most "American" of Europeans - adhere to. They include a universal right to decent standards of health care and welfare (not just the absolute minimum), decent housing and working conditions that rise across the board as the economy grows, and a feeling that no one group should lag too far behind the rest.

To many Americans, Europeans look mollycoddled by the State. French lorry drivers striking for retirement at 55, higher pensions and longer holidays have become a paradigm for a European weakness. What many Americans ignore, however, is the economic - as well as social - cost of their way of life.

Standards of education and healthcare diverge widely between rich and poor, black and white. Insurance to provide security is expensive and selective. Even the comfortably off can face financial ruin through unemployment, illness or the birth of a handicapped child.

Many US cities are effectively - and increasingly - segregated, as the better off move to avoid paying local taxes for welfare services and public housing they think they will never use. The result is bankrupt inner cities with decaying infrastructure, but a tax base that cannot include the wealthy (and low-taxed) suburbs.

In almost every US city there are pockets of deprivation worse than many of the worst housing estates in western Europe. It is only recently that US politicians have started to point out the threat to the safe and wealthy from such disparity.

Even the operation of the US free market is not as free as many Americans believe. Regulations are extensive; but not always observed. There is competition, but it does not necessarily work in the interests of consumers.

And calculations of economic indicators may be different. The US boasts of its productivity: by which it means per member of its working-age population. But productivity as measured in much of Europe (per worker in a job) is higher and has increased faster than in the US: that is a side-effect of higher employment costs, and a factor in European joblessness.

It is sometimes said that the biggest difference is one of attitude: that the Americans live to work and the Europeans work to live. If nothing else, the skirmish at Denver has started a debate that will consider not only on what works statistically, but on what people want.

How the Big 8 compare

BRITAIN TRADE: Britain has been committed to free trade since the repeal of the Corn Laws last century; Labour and the Tories agree, and both argue for a single market in Europe. THE STATE: Prime Minister Thatcher tried to push back the boundaries of the state; Tony Blair looks as if he will continue that heritage. he has talked about redefining the tasks of government - not going back to state ownership or state intervention. INFLATION: Became a real problem in the Seventies; but since then, fighting inflation has taken priority. Labour has handed control of monetary policy to an independent central bank. LABOUR: The power of the unions was largely broken during the 1980s; and Blair is not giving them much more room for manouevre. Like the Conservatives, Labour argues for a "flexible" workforce.

JAPAN TRADE: In the late 1980s Japan's perrenial trade splus, particularly with tnieJapan's perrennial d States, became a serious obstacle to diplommatic relations with its allies. The yen's appreciation over the last three years has eased the situation somewh at. The government's enthusiasm for exports, combined with a web of impenetrable "non-tariff barriers", ensures a steady stream of complaints about everything from cars to insurance policies. THE STATE: Nominally a free market, Japan is characterised by the "iron triangle" of business, politicians and the bureaucracy. Companies look to the powerful trade and finance ministries for so-called "administrative guidance". INFLATION: Japan's inflation was close to zero last year. LABOUR: Unions conduct a noisy, but ritualistic, "spring wage offensive" once a year. Since a brief spasm in the late 1960s, Japan's unions have done little to rock the economic boat.

GERMANY TRADE: As an export-driven economy, Germany is a passionate advocate of free trade, though it has been slow to open its own market to foreign competition. THE STATE: Main function is to police the "social market economy" and keep the forces of unbridled capitalism in check. Much lip-service is now being paid to need for loosening state's grip, but with little evident effect. INFLATION: Viewed as a natural calamity on the scale of the Black Death. Rarely been allowed to go significantly above zero in the last 50 years. LABOUR: Unions have a legal role in the running of Germany Inc, but it is weakening as traditional industries contract. Like the state, they are powerful dampeners on change.

FRANCE TRADE: There is an instinctive French recoil from the concept of free trade, which is sometimes portrayed as a threat to the French way of life. But why? France is one of the most succesful traders on the planet, with a trade surplus of pounds 13.5bn l ast year. THE STATE: One in four French people work for it; over 52 per cent of GNP is consumed by it. There is a grudging feeling, even on the Left, that the state should be smaller but a horror of the state-shrinking route. INFLATION: This is not a popular French obsession, unlike say Britain or Germany. LABOUR: Unions are shrinking but surprisingly powerful. The overwhelming proportion of French workers no longer belong to Unions but most people tend to support union battles to protect acquired rights and privileges.

ITALY TRADE: In the main, an advocate of free trade , Italy imposes its own form of protectionism in its citizens' overwhelming tendency to buy home-made products. THE STATE: Though most Italians have an endearingly blind loyalty to their nation, there are few things about it that they would take to the barricades to defend. INFLATION: Bringing inflation down from 4.5 per cent to 1.6 per cent in the space of just over a year, is one of Italy's major success stories. But the cautious Bank of Italy Governor, Antonio Fazio, is clearly not all that impressed. UNIONS: Head-on collisions between Government and unions have become a thing of the past since consensus politics became all the rage in Italy.

AMERICA TRADE: The United States favours free trade, but insists on a "level playing field" - which means it expects others to conform to US regulations worldwide. This makes negotiations difficult. Periodically flirts with managed trade. THE STATE: in theory, there is as little role for the state as possible; in practice, much federal regulation, some of which is ignored, an unwieldy and expensive state health system, and (even post-Cold War) a huge military sector. America is a consumer economy, where consumer choice is almost a religious belief. INFLATION: The US favours low inflation, and has recently managed to combine this with high growth; the Great Depression left scars, which means high employment is also an important goal. LABOUR: The unions are tolerated, but weak, except in certain sectors (haulage, public transport) and enjoy little public esteem.

RUSSIA TRADE: Russia's dependency on imports means that it cannot be too protectionist. Certain domestic industries are an exception; duties on foreign cars can double the list price. THE STATE: Although some 60 per cent of the economy is privatised, the government still hasn't kicked the habits of Soviet central planning. One reason small business hasn't taken off in Russia is because of meddling from government. An addiction tored tape and corruption doesn't help. INFLATION: No one wants a repeat of 1992 when annual inflation ran at 2,500 per cent. It's now down to one per cent a month. The government believes low inflation is critical to investor confidence; any deviation is likely to lead to a caning from its lenders at the IMF. LABOUR: Unions are pretty feeble. They were government stooges under Communism, and they have yet to find a post-Soviet role. Russians still widely distrust them.

CANADA TRADE: Canada is one of the most open of the Western industrialized economies. It actively pursued a Free Trade agreement with the United States which grew into Nafta, but still tries to protect its cultural industries. THE STATE: By the time of the Golden Years in the 1970s, Canada boasted cradle-to-the-grave social security system and heavy state investment. The current Liberal Government has scaled back social spending and has sold off most of the state corporations. INFLATION: The 90s recession slew the inflation dragon and annual inflation is now in the 2 per cent range, even without restrictive monetary policy. LABOUR: The percentage of unionised workers in the private sector has been dropping although the automobile sector and construction are still heavily unionised.