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These Days, Europe's Safety Net Looks More Like A Noose

Cover Story: Commentary


In his search for a new model of economic security, it's natural that Bill Clinton frequently evokes, misty-eyed, the virtues of the European welfare state. That gentle guardian against the fear and want of Europe's citizens has occupied a lofty place in the President's thinking ever since his days at Oxford University with his chum, Labor Secretary Robert B.

Reich. But after making his first Presidential visit to Europe in mid-January, Clinton should finally leave his innocence abroad. In the Old World nowadays, it's clear that the European model not only won't work for the U.S.--it's not even working for Europe.

No question, one of Europe's proudest postwar monuments is its comprehensive system of education and health care, unemployment protection, leisure time, and pension benefits, all designed with social fairness in mind. Add a labor policy that in Germany and elsewhere seems the very ideal of employer-worker cooperation, and the package would naturally entice Washington wonks looking to right the social imbalances of Reaganomics and ease the shocks of today's seemingly perpetual corporate restructuring.

But the Europe of President Clinton's student days--one of rapid growth, brief recessions, and inexorably rising employment--has disappeared forever. Instead, the global economy and Europe's worst postwar recession have fingered Europe's safety net as the key culprit undermining the region's competitiveness. "I wouldn't recommend that any country copy the European model, because it's killing us," says McKinsey & Co. Frankfurt consultant Heino Fassbender.

"BEST SYSTEM." From Spain to Scandinavia, European leaders facing rising budget deficits and deteriorating pension plans are under heavy pressure to find programs that cost less, to institute U.S.-style labor flexibility, and to encourage employment instead of time on the dole.

To be fair, Clinton isn't swimming that hard against the transatlantic current. Reich himself has recently taken to criticizing Europe's inflexible work rules. But Clinton & Co. still believe that Europe has major programs that could be cherry-picked and exported home. "If we blended our flexible labor markets with their investments in human capital and put the safety net somewhere in between ours and theirs, you would have the best system in the world," Reich says.

Perhaps. But the pickings could be far slimmer than the Administration thinks. The President contends that "there's a lot we can learn from the Germans," whose national health program provides comprehensive coverage at a mere 9% of gross domestic product, compared with 14% in the U.S. But what the President isn't factoring in is the cost employers pay, on top of wages, to support the system. In fact, across the European Community, benefits costs--mostly for health insurance--are twice those in the U.S. The EC now admits that such costs are a big reason why the U.S. created 20 million jobs in the 1980s while Europe produced barely any.

The President also admires the way Germany backs its small and midsize exporters. But a third of that country's manufacturers are planning to shift at least some production outside the country. If Germany doesn't drastically ease social burdens on employers, says German Economics Minister G nther Rexrodt, "we will become the world champions at exporting jobs rather than goods."

CULTURE CLASH. Clinton, too, finds "terribly impressive" German worker-training programs--also a favorite of Labor Secretary Reich. But are German employer-funded apprenticeship programs even relevant to the U.S.? McKinsey's Fassbender argues that such programs produce just what the U.S. economy doesn't need: narrowly trained workers perfectly suited to an inflexible work force. Furthermore, transferring to the hypermobile U.S. economy a system based on 200 years of German culture would be difficult, if not impossible. Employers would lack incentives to pay for the training, as well as German methods for guaranteeing worker loyalty--including requiring 10 years of service before a pension can be earned.

President Clinton is right that maintaining a high-performance economy will require devoting more care and money to social and labor policy than his Republican predecessors were willing to invest. But there's little doubt that any adjustments are going to have to be homegrown. Certainly these days, it's Europe that's growing misty-eyed whenever it considers the U.S. economy's innate flexibility, which stands as a major competitive advantage in the early days of the new economic order.Bill Javetski

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