International -- European Business: COMMENTARY
COMMENTARY: ENDING WELFARE AS EUROPE KNOWS IT (int'l edition)
When Bill Clinton first arrived in the White House, Europeans who had been shocked by the social imbalance brought about in the U.S. by Reaganomics felt reassured by the new President. More than any recent American leader, Clinton looked like a European social democrat: a champion of free university education, national health care, and reforms to strengthen labor unions. Three years later, Clinton has not only abandoned such ideas, but he has gone conservatives one better by doing in America's national welfare system.
Europe's belief that it had a social soulmate in Washington has thus ended with a sharp reality check. "The two Democratic Presidents who were the founding fathers of welfare, Franklin D. Roosevelt and Lyndon B. Johnson, must be turning over in their graves." said France's leading daily, Le Monde. "The federal government is abandoning an essential role--that of correcting the social inequalities created by a market economy."
Predictably, editorial writers thundered that the harshness of American capitalism must not be allowed to cross the Atlantic. Policymakers warned that cutting welfare would be like pouring gasoline onto simmering social tensions fostered by America's high poverty rate and wide income gap.
UNDERCLASS. But maybe Europe, faced with its own social woes, should consider how the Clinton plan may push welfare recipients to take jobs. True, a plunge into the unknown, such as Clinton's, would be uncharacteristic of Europe. In the name of social harmony, Europe is struggling to contain, rather than reform, its crumbling welfare state. But in so doing, it risks nourishing a dangerous social malaise that may have more parallels with the U.S. than European policymakers care to admit. Says economist Dennis Snower, a welfare-state expert at London's Birkbeck College: "It's possible that the American reforms would do a lot more good in Europe than they'll do in the U.S."
The Old World's faltering economic dynamism and massive welfare burden are themselves brewing a volatile social mix. From the disenfranchised exclus roaming the stark suburbs of Paris to the skinheads who hang out at Berlin's beer-and-wurst wagons, economic stagnation and lavish welfare programs are giving rise to a permanent--and politically disruptive--underclass.
These ill-educated, unemployed young people form a different group from the single-parent families targeted by Clinton's welfare reform. Europe's welfare system gives such young people no incentive to accept low-paid, low-skilled jobs. And because benefits are so generous, the burden they impose on welfare coffers runs far higher than in the less comprehensive U.S. system. By dissuading welfare recipients from seeking jobs, the extensive benefits also are creating a serious problem of long-term unemployment. More than half of Europe's jobless have been out of work for longer than a year--five times the level in the U.S.
For now, Europe's political leaders find radical reform of the welfare state unpalatable. But U.S. social spending cuts and global economic pressure to rein in public spending, may make just such a shift inevitable. The risk is that efforts to yank away benefits could drive more European voters toward the xenophobic, protectionist fringe groups that have been growing in recent years.
SUFFOCATION. That is why Europe should speed up its tentative steps to introduce incentives to work, generate more entry-level jobs, and reduce the overall burden of public services. In Britain and the Netherlands, governments are experimenting with letting unemployed workers retain some benefits when they enter the workforce. Denmark has reduced taxes on lower-wage earners to shrink unemployment rolls. And Sweden is discussing proposals to introduce individual worker-funded unemployment accounts that would replace traditional jobless benefits. The goal: To give incentives to the jobless to draw less unemployment compensation and to seek new work faster.
But such measures are not likely to solve the problem if Europe does not deregulate faster to spur economic activity. From zoning laws to restrictions on retailing, controls that governments are loath to give up are suffocating entrepreneurship and stifling the growth in service businesses that has been behind America's impressive job creation.
Overhauling welfare and giving up economic controls might strike many in Europe as even more radical than Clinton's welfare reforms. But unless Europe takes such remedies seriously, the welfare choices they will soon face may make Clinton's policy seem mild by comparison.By Bill Javetski