Europe rediscovered the social market economy
Some quotes are very good, they become stale due to overuse. Therefore, one might think of Jean Monnet’s line that Europe will be forged in a crisis and become the sum of solutions to the crisis. Regardless of clichés or not, the vision of Monnet (one of the founders of the European Union) has been maintained in this crisis, just like in past crises. The pandemic has helped the European Union cross the Rubicon through joint borrowing for fiscal transfers.
But another change has also pushed the EU forward in this crisis. This does not involve finding new solutions, but rediscovering old things. In the two decades since the 1990s, the ruling parties in Europe—center-right and center-left, especially under the leadership of Gerhard Schroeder in Germany—were seduced by a form of market fundamentalism and redistribution: Constrain the country, let the market work their magic, and then compensate when necessary. After years of fiscal austerity, underinvestment and the growing threat of climate change, this management philosophy has gradually faded. The pandemic has nailed the coffin: wise state intervention is clearly imperative to manage the health crisis and support livelihoods through lockdowns, which enables Europe to embrace the social market economy again.
The European Commission’s re-evaluation of economic and social aspects makes it almost indistinguishable from the incarnation of itself ten years ago. Then, it is a proponent of fiscal consolidation, deregulation, and “competitiveness” in the form of reducing unit labor costs, that is, compressing the wage share of national income. now?
Commission this month Action plan launched For “social economy”-all kinds of entities that carry out economic but non-profit activities, from social enterprises to mutual aid associations and charities.The same week, it Published proposal Consolidate and clarify the rights of gig workers-Incorporate some of the developments that are taking place in courts around the world or individual EU governments into legislation to ensure that platform workers will not be affected by loopholes in the labor law.
At the same time, its year-long promotion of EU directives on adequate minimum wages is accelerating. The Nordic countries, which do not have a legal minimum wage, oppose it because they fear that it will undermine their collective bargaining model. Now, the new Prime Minister of Sweden’s Social Democratic Party, Magdalena Andersson, has accepted a compromise in a committee of governments. The chairman of the French parliament is likely to end this process next year.
So, the sail of the European social market economy. But these winds are international.In the United States, Joe Biden’s government explicitly uses a doctrine to make policy I describe it as progressive supply-side economics, Which regards social spending as an investment in higher work participation and higher private sector productivity. Just a year after leaving the European Union in search of differences, the UK adopted a European-style wage replacement program for those who lost their livelihoods in the pandemic. Its conservative government is raising taxes to the highest level in history to fund public health services. In Japan, a new prime minister criticized “neoliberalism” and promised to adopt a more redistributive economic policy.
As a result, the EU and its member states (many of which are dominant on the center-left) are riding the wind and waves Changing global economic trendsThe same is true in the previous stage: the blind fascination with unregulated markets is a global phenomenon. The difference is that now, Europe is aligning with the global phenomenon that uses its strengths.
In a new paper, economists Thomas Blanchet, Lucas Chancel, and Amory Gethin use the most comprehensive approach to inequality to compare Europe and the United States. Europe has more equal income; not surprisingly. But the other two findings are not obvious. Greater equality in Europe is not due to a more progressive tax and transfer system.In fact, the United States redistributed more To the poorest people. Instead, the market’s own returns—before the redistribution of taxes and transfer payments—are shared more equally in Europe.In fact, more than in the US Rear Reallocate.
This is the return on continued social investment-even in times of economic downturn. The global social transformation caused by the pandemic has allowed Europe to regain its DNA. Former German Chancellor Angela Merkel once said that Europe’s population accounts for 7% of the world’s population, 25% of the economy, but 50% of social spending. She wanted to point out a problem. It looks more and more like an example worthy of emulation.