Jan. 11 (Bloomberg) -- Mitt Romney likes to contrast the U.S. economic system with Europe’s welfare state. You can have a merit society, he says, or an entitlement society, but not both -- and an entitlement society is where the U.S. is heading if Barack Obama and the Democrats get their way.
It’s a favorite Republican theme, and you can see why. For one thing, there’s some truth to it. Contrasting the American model of capitalism with the European alternative isn’t absurd. The gap is narrower than it used to be, but they’re still different.
Also, Obama and the Democrats do want to move the U.S. in a European direction. Best of all, from the Republican point of view, they are generally embarrassed to admit it. American voters still see their country as a model for the rest of the world, not the other way round. Nobody will ever be elected president of the U.S. on a pledge to make the country more like France.
Democrats therefore find themselves having to deny the obvious. Obama wants to make the country more like Europe? Ridiculous. A straw man.
But it isn’t ridiculous. What’s ridiculous is the idea that Republicans take for granted and squirming Democrats tacitly endorse -- that making the U.S. more like Europe would be a disaster.
Europe’s Many Models
The biggest step the U.S. needed to take in Europe’s direction, and the longest overdue, was health-care reform. The Affordable Care Act is a start. When Romney championed his very similar health-care reform in Massachusetts, he was arguing for the invention of a new entitlement (universal access) and trying to make his state more like France. Good for him.
Europe has other things to teach the U.S. -- and the U.S. has plenty to teach Europe. Looking abroad for guidance is no cause for shame.
Obviously, political cultures differ in deep ways, so there will never be One True Capitalism, right for everybody. The idea of a single European model is itself a simplification -- a permissible one, but a simplification nonetheless. European countries guarantee access to basic health services, for instance, but they do so in very different ways. Their tax systems vary, too. They each have their own approach, within limits, to education, industrial policy, employment protection, social safety nets and so on.
Still, Europe’s biggest economies all reflect a social-democratic tradition that puts more emphasis on collective provision and the guiding hand of government than seems natural in the U.S. The American political tradition stresses the rights and responsibilities of individuals; it exalts private enterprise and almost celebrates risk. These are choices that countries should be free to make.
While thinking them over, the U.S. has plenty to learn from Europe, and vice versa. In the past 30 years, most of the learning has been on Europe’s side, until the Great Recession called some of it into question. The European Union’s single-market project aimed to create an economy that would rival the U.S. in vitality and innovation: hence the emphasis on un-European ideas such as deregulation, cross-border competition, lower taxes, lower government spending and curbs on state subsidies for failing industries.
Europe’s politicians looked at the U.S. and decided they needed, among other things, more American incentives and more American creative destruction. That was how to achieve faster growth and higher living standards. They said so explicitly: Unlike their U.S. counterparts, they weren’t embarrassed to point to the other model. And notwithstanding some of the exaggerations about the success of the American model, European countries have been right to move a good way in the U.S. direction. How strange, therefore, to see Romney’s fellow Republicans attack him for his time in the private-equity business, that quintessentially American force for creative destruction.
Workers Not Jobs
On the other hand, Europe can teach the U.S. a thing or two about social insurance -- and not just in health care, the most egregious failure of the American economic model. Help for the unemployed has traditionally been ungenerous in the U.S. In the past it didn’t matter because the country’s flexible labor market sped people back into jobs. Now, a severe recession and a slow recovery have caused long-term unemployment to surge, and negative housing equity has made moving to find work harder. Income support and help for retraining and relocation need to be rethought. Don’t be embarrassed. Look to Europe to see what might work.
Republicans might also ask whether America is living up to the merit-society ideal. Success in the U.S. is richly rewarded and a meritocracy doesn’t concern itself too much with equality of outcomes. Fine, but a merit society ought to provide ladders out of poverty -- starting with good schools -- for those willing to make the effort. The American social contract says, work hard and do well. In one way, the country is failing to keep its promise. In America, land of opportunity, if you are born poor, your chances of staying poor are higher than in Europe.
The trade-off between economic vitality and economic security cannot be eliminated. But its terms can be improved in the U.S. and Europe, if each pays closer attention to the other. My watchword in this is a maxim of the late Rudiger Dornbusch, a professor at MIT and one of the most brilliant economists of his generation. “Protect the worker, not the job.”
In the past, Europe tried too hard to protect jobs; the U.S. hasn’t tried hard enough to protect workers. Something for Republicans and Democrats to think about.
(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own.)
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