Political developments in Italy and France suggest the continent that gave so much music, literature, art, science and respect for learning to the world is locked in a potentially fatal embrace with the welfare or entitlement state. In Italy, a contested election seems to have repudiated modest small-government reforms of incumbent Silvio Berlusconi. In France, days of rioting have caused the government to back away from the most modest reform of the nation’s labor laws.
There are lessons for Americans here, but little evidence of an inclination to learn them.
Everybody knows the system of state-mandated benefits, along with micromanagement of economic activity, has stifled the economic growth and productivity that were the only hope of making good on the promises of lifetime employment and comfortable retirement most of the countries of “old Europe” have made to citizens. But the mentality of entitlement encouraged by such a system has become so strong that Europeans cannot break free from a system that is strangling their civilization.
In France, where youth unemployment is more than 22 percent and twice that level in many Muslim neighborhoods, Prime Minister Dominique de Villepin proposed a modest liberalization that would almost certainly have loosened up the job market and reduced youth unemployment. It would have allowed companies to hire workers under 26 on an “at will” basis — meaning they could be let go without the endless round of hearings that are now standard — for two years. Since one of the reasons companies are reluctant to hire young workers is that it is so complicated to let them go if they don’t work out or if market conditions change, this would surely have helped.
One can understand without condoning the attitude of students and others who protested the proposal. They have not only grown up expecting to have a job guaranteed for life, they face a situation where jobs for young people are scarce. Perhaps it is small wonder that those who manage to snag a job (as most university students probably would, eventually) would cling to guarantees they could never lose it — even if at some level they knew the system made jobs scarcer then they have to be.
The system of pervasive welfare, subsidies and regulation has become so sclerotic that it seems politically impossible to change it. Even a modest reform proposal engenders violent protests. Of course, the government backed down and proposed subsidies for companies that hire young workers, which will make the French economy even more rigid and less able to thrive in an increasingly global marketplace.
In Italy, similar issues have created a virtual political stalemate in an unusually nasty election campaign. Italy’s center-right leader, Silvio Berlusconi, came into office five years ago promising reforms to Italy’s overtaxed and overregulated economy. He accomplished virtually none of his promised reforms — and Italian economic growth is stuck on zero.
It now appears Signor Berlusconi will be replaced by the center-left candidate, Romano Prodi, also a former prime minister. He promises to undo the few tiny reforms Signor Berlusconi had enacted and entrench the welfare/regulatory state even further — which everybody knows will keep Italy economically stagnant. But his margin is so tiny that his only real mandate is to not change things.
Americans have little reason to be smug. Everybody in this country knows the promises made to Americans under Social Security and Medicare cannot be kept without cutting out almost all other government programs or raising taxes to much more confiscatory levels — which will stifle economic growth. But when President Bush simply talked about reform (his own proposals were admittedly too vague to be taken seriously) the political class and most of the American people rejected the idea.
Will Americans learn from this current outbreak of Eurosclerosis and face the implications of their own politically popular but economically unsustainable promises of entitlements? Don’t hold your breath.