Europe has rediscovered the social market economy



There are quotes so good that they become trite through abuse. We could therefore think of Jean Monnet’s line according to which Europe will be forged in crises and will become the sum of the solutions with which it approaches them. Cliché or not, the clairvoyance of Monnet – one of the architects of the EU – has resisted in this crisis as in previous ones. The pandemic has helped the EU cross the Rubicon of joint borrowing for tax transfers.

But another change also pushed the EU forward in this crisis, which did not involve finding new solutions but rediscovering something old. For two decades from the 1990s, the parties in power in Europe Рthe center-right but also the center-left, notably under Gerhard Schr̦der in Germany Рwere seduced by a form of market-redistributive fundamentalism: restricting the State, let the markets work their magic, then compensate if necessary. This governing philosophy was already crumbling after years of fiscal austerity, underinvestment and the growing threat of climate change. The pandemic has put the nail in the coffin: the obvious imperative of an intelligent intervention of the State, to manage the health crisis and to support the means of subsistence thanks to the lockdowns, allows Europe to embrace again the social market economy.

The taste with which the European Commission conducts this revaluation of the social aspects of the economy makes it almost unrecognizable compared to its own incarnation of barely a decade ago. Second, he championed fiscal consolidation, deregulation and “competitiveness” in the form of lower unit labor costs, ie by squeezing the wage share of national income. And now?

This month, the commission launched an action plan for the “social economy”, that is, the different types of entities that carry out economic but not-for-profit activities, from social enterprises to social enterprises. mutuals and charities. In the same week, he released proposals to strengthen and clarify the rights of concert workers – by enshrining into law some of the developments that have taken place in courts around the world or by EU governments to ensure that platform workers do not run out. modified by loopholes in labor law.

Meanwhile, his year-long campaign for a European directive on adequate minimum wages is gaining momentum. The Nordic countries, which do not have a statutory minimum wage, opposed it for fear it would undermine their collective bargaining model. Today, Sweden’s new social democratic prime minister, Magdalena Andersson, agreed to a compromise in the Council of National Governments. It is quite possible that the French presidency of the council will complete the process next year.

Wind in the sails of the European social market economy, therefore. But these winds are international. In the United States, Joe Biden’s administration explicitly formulates policy using a doctrine I call progressive supply-side economics, which views social spending as investments in greater labor participation and increased labor market participation. higher productivity of the private sector. The UK, barely a year after leaving the EU in search of divergence, has adopted a European-style wage replacement scheme for those losing their livelihoods due to the pandemic. His conservative government is raising taxes to historically high levels to fund the public health service. And in Japan, a new Prime Minister pleads against “neoliberalism” and promises a more redistributive economic policy.

Thus, the EU and its Member States (in many of them the center-left is bottom-up) are riding the changing global currents of economic thought. This was also true in the previous phase: the uncritical craze for loosely regulated markets was a global phenomenon. The difference is that today, Europe aligns itself with a global phenomenon which takes advantage of its strengths.

In a new article, economists Thomas Blanchet, Lucas Chancel, and Amory Gethin use the most comprehensive inequality methodology to compare Europe and the United States. Europe has more equal income; no surprise there. But two other findings are far from obvious. Europe’s greater equality is not due to a more progressive tax and transfer system. In fact, the United States is redistributing Following to the poorest. Instead, the markets’ own rewards – before redistributive taxes and transfers – are much more evenly shared in Europe. More, in fact, than in America after redistribution.

It is the return of persistent social investments, even during lean years. The global social turning point caused by the pandemic allows Europe to reclaim its DNA. Former German Chancellor Angela Merkel used to say that Europe has 7 percent of the world’s population, 25 percent of its economy, but 50 percent of its social spending. She wanted to report a problem. It looks more and more like an example to emulate.

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