Commentary: How to Fight the Fear of Growth

By John Rossant

Consider this case. A large company decides it must shut down two small but money-losing factories, a move affecting 570 workers. But the company's management doesn't coldly lay off the employees. Instead, it offers them jobs elsewhere in the group's far-flung operations. And if workers don't want to relocate, the company will handsomely subsidize them as they look for jobs on the local labor market. An altruistic and forward-looking employer, you might say.

Were this an American company, Wall Street probably would deem the restructuring plan too expensive and drive down the stock price. But this company is not American. It's European--and that has made all the difference. When Groupe Danone announced plans last month to close two cookie factories in northern France, the news was met not with praise for the company's generous terms: It instead triggered almost universal horror at the fact that Danone was laying off anyone at all. The $12.7 billion company, after all, has been consistently profitable.

FALLING ON DEAF EARS. Indeed, the irrational furor that has swept across France about l'affaire Danone--including well-organized movements to boycott company products such as Kronenbourg beer and Danone yogurt--is now forcing French Premier Lionel Jospin's government to announce plans to make it much more expensive for companies to lay off workers. "There's been enormous damage to people's well-being," argues Elisabeth Guigou, France's Employment Minister.

Unfortunately, Danone's predicament--and Guigou's reaction--is an all-too-accurate reflection of the political climate in Europe today. And it illustrates just why all those calls for the Europeans to accelerate economic growth--enunciated recently by, among others, U.S. Treasury Secretary Paul H. O'Neill and luminaries of the International Monetary Fund--are falling on deaf ears.

Europe, in fact, has a deeply ingrained problem: It's frightened of growth. Cultural traditions partially explain this attitude. In Europe, there's still a tendency to tar the idea of high growth with the brush of inequality, inflation, and social disruption. In America, growth is good, and that's it. No wonder Europeans from both left and right were outraged at President Bush's decision to abrogate the Kyoto Protocol on global climate change--in the name of U.S. economic performance.

True, history and geography have much to do with this European apprehension of growth and the turmoil it engenders. Europeans fear inflation much more viscerally than Americans, who never experienced the trauma of hyperinflation. Nor did Europeans ever have their own abundant energy supplies--at least until the discovery of North Sea oil--and learned to be parsimonious with energy. Nor have Europeans, in their ancient and crowded cities, been conditioned by the unlimited promise of America's westward expansion.

But many Europeans think it's time to move on. They understand that globalization demands more dynamic and flexible economies. Certainly, European central bankers--including European Central Bank President Wim Duisenberg, who has been resisting calls to cut interest rates--understand this necessity. That's one reason they keep relentlessly lecturing European politicians like Jospin and German Chancellor Gerhard Schroder about making progress on structural reforms. Without them, the lever of monetary policy can move nothing, as every uptick in growth automatically translates into more inflation.

Yet Danone shows that European politicians are not listening. Whatever the cause--the electoral calendar, the weakening influence of politicians in complex modern societies--there is a distinct lack of political courage on the Continent. Many politicians are wedded to outmoded ideologies, says Alain Leclair, chairman of AFG-ASFFI, the French asset managers' association. "We are seeing the last twitches of 19th century ideas that can't survive," he says. Sure, Europe will never adopt the volatile, often messy American way of doing things. But until the Continent overcomes its growth phobia, it will never fulfill its own potential, let alone catch up with the U.S.

Europe regional editor Rossant covers economics and politics.

    Before it's here, it's on the Bloomberg Terminal.