by Steven Hill, author of Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age and Director of the Political Reform Program at the New America Foundation
Picture two flags, side by side, one the Stars and Stripes, also known as Old Glory, the other the European Union royal blue with a circle of twelve gold stars, like a halo. While Europe is considered the “old world,” the United States actually is far older than the European Union. The European Union is the new kid on the block, a fundamentally different “Europe,” reconstructed from the rubble of World War II with America’s generous assistance. Because modern-day Europe is so new and still in formation, it is frequently misunderstood by Americans. Numerous myths and half-truths about Europe now pass as conventional wisdom, and these myths have clouded Americans’ perceptions and understanding of Europe. It will be helpful to the future of the transatlantic relationship to clarify some of these myths.
Myth 1. Europe has a weak, sclerotic and noncompetitive economy.
FACT. Europe has the largest economy in the world, producing nearly a third of the world’s economy, almost as large as the United States and China combined. It has more Fortune 500 companies than the United States and China combined, and some of the most competitive national economies in the world, according to the World Economic Forum. From 1998 through 2008 (until the global economic collapse), Europe had a higher per capita GDP growth rate than the U.S. , and currently the continent previously known as the “land of high unemployment” has a lower unemployment rate than the U.S. (U.S. 10%, European Union, 9.5%, Germany 7.6%, France 10%).
Europe is the largest trading partner both of the United States and China. Europe’s stocks and investment returns have out-performed those in the U.S., making Europe an international investment magnet. In fact, Europe is corporate America’s biggest target for foreign investment, and U.S. businesses make far more profits there than anywhere else in the world, over twenty times more than what they have made in China.
But Europe’s economy is not just powered by Fortune 500 companies and big corporations. It has more small businesses than the U.S. that provide two-thirds of Europe’s jobs, compared to about half the jobs in the United States.
Myth 2. The European “welfare state” hamstrings its businesses.
FACT. Hardly a welfare state, Europe’s economy and comprehensive social system are two halves of a well-designed “social capitalism” that is better geared than America’s “Wall Street capitalism” to support families and individuals, and keep them healthy and productive. Europeans are supported with quality health care, a comfortable retirement pension, paid parental leave after childbirth, paid sick leave, child care and “kiddie stipends,” more vacation time, free or nearly free university education, job training, affordable housing, senior care and more. This is more “workfare” than “welfare,” since it keeps workers in good health and able to work. And it reveals real family values, as it provides families the support structure they need in this economically insecure age. The overwhelming evidence shows this has been good for the economy, producing highly productive workers who have sufficient wages to be active consumers.
Myth 3. Europe is a socialist den of government interference and intervention.
Europe is completely capitalist, not socialist, with more Fortune 500 companies and more small businesses than in the U.S. But Europe has figured out how to harness capitalism’s tremendous wealth-creating capacity so that its prosperity is broadly shared. Practices of economic democracy known as “codetermination,” “supervisory boards,” “works councils” and “flexicurity” are crucial to that harnessing. Codetermination allows workers to elect representatives to corporate boards of directors (known as supervisory boards). Half of the board members for the largest corporations in Germany — Siemens, BMW, Daimler and others — are elected by the workers. In Sweden, one-third of a company’s directors are worker-elected. Imagine Wal-Mart’s board of directors having anywhere from a third to half of its directors elected directly by its workers. It’s hard to even conceive of such a notion from the American standpoint. Yet, most European nations employ some version of this. The impact has been immensely significant, and research shows it has fostered a healthy degree of consultation and cooperation between management and workers.
Works councils are the other twin pillar of codetermination. Elected works councils at individual companies allow workers to gain significant input into their working conditions. Works councils, which are separate from labor unions, have real clout. They enjoy veto power over certain management decisions such as redeployment and dismissal of individual employees. They also have “co-decision rights” to meet with management to discuss the firm’s finances, daily work schedules, scheduling of holidays, work organization and other operating procedures; and “consultation rights” in regard to planning for the introduction of new technologies, mergers and layoffs.
Codetermination fosters the right balance of workers’ rights and consultation with robust commerce and entrepreneurship. It is one of the keys to how Europe’s brand of “social capitalism” has managed to harness its economic engine.
Myth 4. Europeans pay more taxes than Americans.
FACT: For their taxes, Europeans receive a seemingly endless list of benefits and services for which Americans must pay extra via out-of-pocket fees, premiums, deductibles, tuition and other charges, in addition to our taxes. For example, many Americans who have health care coverage are paying escalating premiums and deductibles, while Europeans receive health care in return for a modest amount deducted from their paycheck. Other Americans are saving a hundred thousand dollars per child for their college education, yet European children attend for free or nearly so. Millions of Americans are scraping to save the amount they will need for retirement beyond Social Security, but the European retirement system is much more generous. Many Americans pay extra for child care, or self-finance their own sick leave or parental leave after a birth, but Europeans receive all of these and more—in return for paying their taxes. When you sum up the total balance sheet, it turns out that many Americans pay out as much as or more than Europeans — but we receive a lot less for our money.
Myth 5. Europe’s economy will be hurt by its inadequate domestic energy supply and its dependence on Russia for its energy needs.
FACT: Europe’s energy efficiency is the best in the world. As a result of widespread implementation of conservation and renewable technologies, Europe’s ecological “footprint” (the amount of the earth’s capacity that a population consumes) is about half that of the United States for the same standard of living. The European landscape is being transformed slowly by giant high-tech windmills, vast solar arrays, underwater seamills, hydrogen-powered vehicles, “sea snakes,” and other renewable energy technologies. Europe is implementing conservation and “green” design in everything from skyscrapers to fuel-efficient automobiles, high speed trains, low wattage light bulbs, and low flush toilets. Europe has gone both high- and low-tech: It has also developed thousands of kilometers of bicycle and pedestrian paths that are used by people of all ages. In the process, Europeans are creating entire new industries and tens of thousands of new jobs.
As a result of this activity, Europe has reduced its energy reliance on Russia and the Middle East, diversifying its foreign sources of oil and natural gas. The heads of all 27 E.U. nations have agreed to make renewable energy sources 20 percent of the union’s energy mix by 2020 and to cut carbon emissions by 20 percent. For all these reasons, BusinessWeek has stated that Europe is better prepared than the United States for this era of energy uncertainty.