French President Nicolas Sarkozy has spent the past year hammering away at the excesses of American-style capitalism. In September, European Commission President Jose Manuel Barroso declared that workers' rights and "social cohesion" were top priorities on the Old Continent. And Italy's veteran Economy Minister, Giulio Tremonti, went out of his way last month to praise the posto fisso (guaranteed job for life) as a supreme public value.
In certain European political and intellectual circles, such talk would hardly turn heads. But those three men wagging their fingers at the free market were thought to have their capitalist bona fides as part of a generation of European business and government leaders who had pushed for reforming the welfare system and opening up the job market. Often in open ideological war against the entrenched interests of labor unions and leftist politicians, the likes of Sarkozy and Tremonti had long insisted that free-market reforms were the only way to create a more dynamic Europe in an increasingly competitive globalized economy.
So how do we explain the fact that longtime Ronald Reagan admirers are suddenly starting to sound like a union activist's picket sign? Has the Great Recession of 2008-09 effectively sapped all the energy from Europe's post-1989 wave of economic neoliberalism? "Quite clearly, the state is back," notes Iain Begg, a professor of European political economy at the London School of Economics. "In front of the failures of the Anglo-American model, we are seeing a revival of Keynesian approaches to react to the crisis."
Of course, the ideas of John Maynard Keynes are also behind the auto-industry bailouts, new financial regulations and public investments pushed by the Obama Administration. The difference is both in the details and the big picture: not only do specific national economic policies in Europe tend to still trail those of the U.S. on the free-market curve, but there is also a lingering ingrained suspicion about capitalism itself.
A recent BBC global poll found widespread dissatisfaction with free-market capitalism, with only 11% of those questioned across 27 countries saying that it is working well. Perhaps not surprisingly, France led the world with 43% who say capitalism is "fatally flawed." Le Monde, meanwhile, reported on Saturday that the economic crisis has revived support for decroissance, a leftist, ecologically driven philosophy that questions the belief in economic growth as a public good.
Sarkozy, whose nose for the political winds is legendary, was once known as Sarko the American when more and more French were looking across the Atlantic to the flexible approach to work and dynamic business environment. But the French President reacted quickly last autumn to the Wall Street implosion by taking the lead in offering an alternative model to the U.S.'s. "The idea of the absolute power of the markets that should not be constrained by any rule, by any political intervention, was a mad idea," he declared in a widely cited speech last September in Toulon.
Tremonti, Silvio Berlusconi's top economic-policy aide since the media mogul first entered politics promising Thatcherite reforms, has been accused by his critics of adopting a populist strain similar to Sarkozy's. He shocked the Italian establishment with a vigorous Oct. 19 defense of the job for life, which many in the center-left opposition don't even stand up for anymore. "Mobility in itself isn't a value," he told a Milan conference. "The lifetime job is the base on which to build a life and a family. For me, the fundamental objective is stability of work, which is the basis for social stability." Two weeks later, Tremonti added that he wouldn't touch Italy's system of public pension benefits, which economists of every stripe say needs major reforms.
Business leaders were not pleased with this apparent about-face from a man who was once considered an ally. "We can't turn back. There are reforms that have begun, which must still be completed," says Andrea Moltrasio, head of European affairs at Confindustria, the Italian employers' association. "No longer is Europe divided into the politics of left and right, but between populist and reformist. What we need most of all is realism." Begg agrees and warns against the risk of pursuing bad policy for short-term electoral advantages. But, he adds, "the huge ideological disputes of the '70s and '80s are simply not on the agenda. Mitterand vs. Thatcher, talk of renationanlizing industry — that's gone. Instead, the debate will ultimately be around the details." Begg says how, and how fast, specific reforms should be enacted is ultimately what pols in the West are arguing over. The basic tenets of modern democratic capitalism, he concludes, are not really at risk, notwithstanding all the rhetorical heat.
Those countries walloped by housing bubbles, such as the U.S., Ireland and Spain, have seen unemployment rates rise into double digits. But even Europe's largest economy, Germany, which has managed to keep unemployment around 8%, does not necessarily have a smooth road to recovery, says Stefano Scarpetta, who heads the employment-policy office for the Organization for Economic Cooperation and Development. German policies that encourage reducing hours for permanent employees and trimming payrolls of temporary, so-called precarious workers mean that the relatively modest job losses registered officially may just mask a deeper vulnerability. "If the crisis lasts and the economy is slow to recover, German companies will have to begin major layoffs," says Scarpetta. "Every crisis is a moment of major restructuring, from one sector and skill set to another. Keeping unemployment rates down at all costs may just be delaying these inevitable changes."
In the meantime, Scarpetta says, the victims of the crisis in Germany and elsewhere tend to be disproportionately young, low-skilled and immigrant workers, which does not help prepare Europe for the future. Indeed, consensus is gathering around a new model, which is neither the unbridled neo-liberalism of the U.S. nor the failsafe job protection of France, Germany and Italy. It's a policy born in Denmark, dubbed "flex security," which keeps the cost of layoffs low for employers and the benefits (including retraining services) high for those laid off. Perhaps both John Maynard Keynes and Ronald Reagan would approve.