Posted 6:18 PM by Dil
The slick man of Europe

America good, Germany bad - that's the received opinion, but, economically, this view is no longer tenable

Will Hutton
Sunday November 23, 2003
The Observer

Britain signed a landmark enterprise agreement last week with the US to celebrate our aspiration to follow the American way. Yet this alleged enterprise capital of the world has a trade deficit equal to 5 per cent of its gross national product, has racked up international debts now close to $3 trillion and last April lost its place as number one world exporter to Germany.
This latter economy, running trade surpluses as proportionately big as the US's trade deficits, is written off as an economic basket case whose approach we want to avoid like the plague. But perhaps, just perhaps, the story is a little more complicated than America works and Germany doesn't.

To see any merit in the German economic and social model in Britain these days is to invite howls of derision, especially from the Treasury. And it's true that German economic performance has not been much to write home about recently; one in 12 Germans is unemployed while economic stagnation, inflating social expenditure and an eroded tax base have meant that the German budget deficit has exceeded the eurozone rules for three successive years, rules the Germans lobbied hard for. You'd have to be a saint not to enjoy just a little Schadenfreude at Germany's plight.

But much more is at stake. Germany stands as a proxy for European matters economic and social, and as long as it ails while America seems to prosper it blights the argument for Europe, for social democracy, for stakeholding and for the euro. The international common sense, faithfully aped by the Government, is that while the American world of 'flexible' labour markets and companies that seek to do no more than maximise shareholder value may be tough, the system works in comparison with Germany's so-called social-market economy, mired in regulation, overpowerful trade unions, an expensive welfare state and featherbedded unemployed.

And yet. While it may be true that German companies have to export because demand at home is so poor, you don't get to be number one world exporter if everything is as useless as the country's critics allege. When Chrysler was taken over by Daimler-Benz and Rover by BMW, the Germans were appalled at the primitive technology and low skills of their Anglo-Saxon rivals.

BMW's relaunch of the Mini is an object lesson in how to do high-tech, design-led quality manufacturing. But Chancellor Brown is not preparing to send young British entrepreneurs to Germany to learn anything. Rather, they go to America, trailing behind Germany in industrial sector after sector.

Capitalism US-style may have its virtues, accept the Germans, but at heart it's a financial engineering rather than a business-building culture - and in the long-term, creating great businesses and international brands will pay off. German managers are passionate about the superiority of their system which has created great wealth-creating machines, companies that are as attentive to their workers, customers, technology and supply chains as they are to their shareholders. They even believe in co-determination, where unions and managers talk about strategy, as a means of enlisting their workers' engagement and loyalty.

Talk to the more reflective British business leaders and they agree; one FTSE 100 chief executive I spoke to last week believes that Germany's great industrial brands (Siemens, BASF, VW etc) and the system that stands behind them are huge aces in an era of globalisation.

By contrast, Britain is virtually naked. Small wonder Rolls-Royce, one of our last great international brands, is threatening to move its product development overseas, citing not just the US but Germany as examples of where the wider structure is more supportive.

Germany's problem is not the institutions, regulations and processes that create such formidably strong companies; it is that it has allowed the social part of its celebrated social-market economy to become too expensive, in particular towards the unemployed. Too little observed outside Germany, the Germans are now prepared to act.

Chancellor Gerhard Schröder has bitten the bullet and for the last six months has been engaged in an epic struggle to persuade his party to vote for halving the time the unemployed get unconditional unemployment pay while insisting that they train and take up job offers where they exist. Pensions are to be frozen for two years, and token payments introduced for health treatment, a shock more fundamental to the German Left than foundation hospitals.

Last week, at a conference in Bochum, he confronted his Social Democrats (SPD) with the reality - the welfare state was too expensive and the unemployed are too little challenged to accept work. There was no alternative to change.

The shock to the SPD has been profound. Membership has haemorrhaged, the unions are in open revolt, poll support has plumbed new depths and Rudolph Scharping, its deputy leader, has resigned. Some leading party officials told me before Bochum that they feared the party might split, but Schröder was re-elected and the line held.

He is trying to sustain social-democratic values but in an affordable way to allow them to regain legitimacy. By British or US standards, the unemployed will still be well-treated. Beyond him, there are real conservatives in the German CDU, anxious to go further.

Yet even German conservatives want to sustain the essence of the German social market system. There is a long folk memory about the consequences of unemployment in the 1930s. In any case, part of Germany's problem is not its system, but two bad decisions that would have poleaxed any economy: swapping the West German mark for the East German currency after reunification on a one-to-one basis, despite East Germany's chronically poor productivity and then, nine years later, compounding the mistake by entering the euro at an uncompetitive rate. A lesser economy would have imploded.

Germany is not out of the woods; it still has 4.4 million unemployed. The impact of reform will be slow and it is hamstrung by being unable aggressively to reflate its economy by the euro's self-defeating rules so in need of change. But it is fighting to modernise its social-market economy rather than Americanise it; it's a system which has delivered Germany's fantastic physical infrastructure, its high rates of social mobility, its superior health experience and its world-beating companies.

For ordinary people, it is as least as good a place, perhaps better, in which to live, bring up kids and have a genuine chance as Britain or America, if only it could solve its unemployment problem. Social democracy, Germany and Europe do have things going for them. Would that the Labour Party's leaders could think so as well; all economic and social virtue does not lie in George Bush's America.

Posted 3:25 PM by Dil
Britain in Europe? Not a hope

Pro-European voices have fallen silent just as they are needed most

John Stevens
Friday November 21, 2003
The Guardian

Predictably, it has been Chris Patten, with his Hong Kong-honed facility for capitulation, who has made the definitive obeisance of the pro-European Conservatives at the coronation of Michael Howard. He has been infesting the studios and corridors of a central London swathed in the Stars and Stripes for the presidential visit, insisting that the differences between his own opinions on Europe and those of the new Tory leader are now less than those between Tony Blair and Gordon Brown.
But Howard is a committed anti-European. He believes Britain should never adopt the single currency. He has talked openly of leaving the union altogether and joining the North American Free Trade Agreement. His adherence to the Republican neo-conservative worldview has been absolute. At least his hapless predecessor had the instinctive patriotism of the Little Englander. Has the commissioner, who owes his job to his promise to the prime minister to put his communautaire principles before his party, taken leave of his senses? Alas no, only of his courage.

Patten's ridiculous remark proves that today, the prospect of Britain becoming a leading member of an ever closer union of the nations and peoples of Europe is more remote than at any time since the Treaty of Rome. It is almost impossible to imagine a successful euro referendum in the next parliament. It is all too possible to envisage Britain consigning herself, for at least a generation, to a second class of EU membership. It is even easier to believe that we will be, before the decade is out, de facto, the 51st state of the US, rather than the companion of Germany and France.

This is a staggering state of affairs for what has been, for some 60 years, the central theme of British politics, crucial to defining our post-imperial national identity. For Europe never was, and never shall be, just an issue marked "foreign policy". It is about whether we wish to be the sort of society, for example, that achieves high standards in civil liberties, health, transport infrastructure and environmental protection, that rejects an apartheid between private and public schools, that promotes a highly trained, productive and empowered workforce, that balances having identity cards with much lower levels of incarceration.

It is, above all, about reanimating our unique qualities, our commitment to freedom, democracy and tolerance, and our extraordinary commercial, scientific and technical creativity, which once won us a great empire, by redirecting them to a nobler cause: that of building a model for an eventual international order based upon the rule of law.

But, Patten and Howard might object, are not the present prospects for the EU, itself, very poor? An over-regulated labour market and a bloated fiscal deficit have given Germany more than twice our level of unemployment and less than half our rate of growth. A union of 25 member states seems incapable of being an effective instrument for coordinated policy. France flouts the euro stability pact. All true. Also true is that Germany and France see, as they did in the 1950s, the way out of their difficulties in further fusing their economies. Today, that means moving towards a form of genuine political union, which would initially include Belgium, Luxembourg and the Netherlands.

The new Tory leader and the chancellor ridicule Paris and Berlin's ambitions to rival America. Yet, in a free market, ambition is everything. Where, by contrast, is our ambition? To be a satellite of the US? To be a low-cost offshore service provider to this new continental block? Howard and Blair parrot Donald Rumsfeld's assertion that "old Europe's" ambition will divide the west. Without question, the grow ing transatlantic rift constitutes a severe threat to Britain, and makes the eclipse of pro-Europeanism here especially serious. But it is George Bush's dream of US hegemony, his grotesque unilateralism, his desire to keep Europe weak and divided, which is undermining the power of the west, as many in Washington recognise.

Only this president would launch a wholesale attack on Franco-German military cooperation the day China put a man in space. We, more than any other nation, have the capacity to direct Europe towards an equal partnership with America. Our traditions can make the EU into a blueprint for international democracy, to balance the power of the global economy. One based upon progressive integration and cultural diversity, not pre-emptive force and cultural homogeneity. Whether we go more with Europe or America over the coming years, thus assumes an awesome importance, not just for ourselves but for the world.

Why, when this much is at stake - and when the public appetite for a correction of our priorities away from the US has, arguably, never been greater - have British pro-Europeans run away?

· John Stevens was a Conservative MEP from 1989-99. He is on the council of Britain in Europe