Location: Pantego, Texas, United States

Tuesday, October 28, 2008

Coyote blog thinks European style socialism is coming to America with Obama. I don't agree, I think Obama is after something different. I think European socialism is basically a class system, based on my limited exposure to Europeans. People do not have much social mobility. The poor stay poor and the rich stay rich. And the system insures that everyone stays in their proper place. I don't think that is what Obama wants. I think he wants to move the black people up to a higher station. In America they can move up based on their own efforts, but many of them have not tried. So, Obama wants to edict an advancement for them. Here are coyote blogs comments:

European-Style Political Economy Coming to America

A lot of folks, particularly on the left, look with some fondness at the political economy of continental Europe. They are attracted by high job security, short work weeks, long vacations, and a strong welfare system. They make the mistake of seeing in these traits a more promising society "for the little guy," when in fact just the opposite is true.

The European Corporate State

The political economy of companies like Germany and France are actually incredibly elitist, dominated by perhaps a hundred guys (and I do mean guys) who run the country in a model only a few steps removed from Mussolini-style fascism or the Roosevelt's National Industrial Recovery Act. In these countries, perhaps 20 corporations, ten or fifteen large unions, and a group of powerful politicians and regulators run the economy.

US workers sometimes make the mistake of seeing the political power of European unions and equating this power with being a more egalitarian environment for workers. But the European political economy is rule by the in-crowd over the out-crowd that exceeds any of the patronage relationships we complain about in this country. What we don't often see from our American perspective is the way the system is structured not to protect poor from the rich or the weak from the strong, but to protect incumbents (whether they be corporations or skilled workers) from competition.

In the European labor markets, mobility is almost impossible. The union system is built to protect current high-skilled workers from competition from new workers, whether in the same country of from abroad. Large corporations that form part of the cozy governance of the country are protected from new competition, and are bailed out by the government when they hit the rocks.

As a result, unemployment is structurally high in countries like France and Germany, hovering for decades between 8 and 12% -- levels we would freak out at here. Young and/or unskilled workers have a nearly impossible time breaking into the labor market, with entry to better jobs gated through apprenticeships and certifications that are kept intentionally scarce. Joe the plumber is an impossibility in Europe. Some Americans seem to secretly love the prospect of not easily being fired from their job, but they always ignore the flip side -- it is equally hard to ever be promoted, because that incompetent guy above you can't be fired either.

Entrepreneurship in Europe is almost impossible -- the barriers just to organizing your own corporation legally are enormous. And, once organized, you will quickly find that you need a myriad of certifications and permissions to operate in your chosen field -- permissions like as not that are gated and controlled by the very people you wish to compete with. The entire political economy is arrayed in a patronage system to protect current businesses with their current workers.

Here is a test, that works most places in the US except possibly in Manhattan. Ask yourself who are the wealthiest and/or most succesful people that you know. Then think about where they went to school. Sure, some of the more famous Fortune 25 CEOs went to name schools, but what about the majority of succesful people you meet in your life? If you are like me, most of them did not go to Ivy League or what one might call elite schools. They had normal state college educations. You will typically find a very different picture in Europe. While of course there are exceptions, it is much more likely that the wealthy people one meets were channeled through a defined set of elite schools.

Corporations in Europe, particularly the cozy few who wield influence with the government, seldom fail and/or really gain or lose much market share. I always thought this a telling statistic: (Fortune 100 by year here)

[Olaf Gersemann] points out that of the top 20 largest publicly traded companies in the US in 1967, only 11 are even in the top 60 today, much less the top 20. In contrast, he points out that of the 20 largest German companies in 1967, today, thirty-five years and nearly two generations later, 19 are still in the top 60 and 15 are still in the top 20.

Its also an inherently anti-consumer society. The restrictions on foreign trade, entrepreneurship, and new competition all reduce consumer choice and substantially increase prices. EU anti-trust enforcement, for example, barely pretends any more to look out for consumer interests. Most of the regulators decisions are better explained by protection of entrenched and politically influential European competitors than it is by consumer power or choice.

"Progressives" in this country often laud the lower income inequality numbers in Europe vs. the United States. The implication is that the poor in Europe are somehow better off. But in fact this is not true. Careful studies have shown that the poor are at least as well off in the US as in Europe, particularly when one corrects for the number of new immigrants in the US. (That's another difference, by the way -- Europe is virtually closed to immigration, at least as far seeking new integrated citizens is concerned). What drives income inequality is that our middle class is richer than Europe's middle class, and our wealthy have more income than Europe's wealthy.

To this last point, I have always felt that comparisons of the wealthy in the US to those in Europe, and comparison of income inequality numbers, are a bit apples and oranges. The US is a country where access to most of the best perks is via money - they have a price. In Europe, access to most of the best perks can't be bought by money, they can only be accessed by those with the elite establishment club card. To some extent, the income numbers understate the difference between rich and poor in Europe for this reason.


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