Wolfgand Munchau doesn't mince words. In today's Financial Times he explains Why social models are irrelevant (subscription required):
The least helpful contribution one can conceivably make in any economic debate is to recommend that one country adopt the social model of another. That is guaranteed to get you absolutely nowhere.
These days, it is difficult to find a European think-tank that does not advocate adoption of the Scandinavian social model. But the notion that the social model in small, consensual, wealthy and ethnically homogenous northern European countries such as Sweden and Denmark should serve as a model for large economies with huge wealth and income differences and mass immigration such as Germany or Italy is surely bordering on insanity.
Yet this is precisely the debate that European Union leaders will be having when they meet for their special summit at Hampton Court near London on Thursday. Instead of focusing on reforms of the social model, they should look at reforms of the EU’s economic system. The latter refers to the regulation of markets and macroeconomic governance. The former relates to risk insurance and social transfer systems. In the European debate, we have been committing a big classification error by confusing these two systems.
His solution is more flexibility, not less social protection:
The reason why economic reforms are more important than social reforms is closely related to globalisation. Globalisation requires us to be more flexible. This means we need more flexible markets and a more flexible economic policy. But more flexibility increases demand for more risk insurance and also for more social protection.
The right answer is therefore to liberalise markets, while retaining welfare and insurance systems. Instead, Europeans have been doing the opposite. We have scaled down our welfare systems without opening up our markets.
What Munchau misses is that this is precisely what continental European politicians mean when they talk up the Nordic model: flexibility plus security (or, as the Danes call it, 'flexicurity'). Unfortunately, most seem keener to retain welfare/security than to introduce greater flexibility and openness. Munchau continues:
There is enough economic reform to keep us busy for several years. But instead, European leaders are wasting time debating the Scandinavian social model. The public rightly perceives this debate as a source of further economic uncertainty. It is no surprise that the so-called reformers are being defeated right, left and centre.
I also question how applicable the Nordic model is to countries like France, Italy or Germany - but I understand the new-found interest. When economic reform is clearly needed, but praising the American or Anglosphere model is considered anathema, the Nordic model is an appealing alternative for continental politicians who need to reassure a public nervous about competition and free trade.
That may mean adopting aspects of the Nordic model; certainly, it means adopting some of the rhetoric. But this is not "bordering on insanity". It is realpolitik. Even World Bank economists have been heaping on the praise, and I don't think they're insane.
Hat tip: Mark Thoma. More on the Nordic model tomorrow...
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