A Virtuous Global Circle
The central message of Andrew Glyn's analysis is that the economic problems
facing Europe today, and their solutions, are not much different than they
were in the 1960s. The extent of globalization and the constraints it imposes
on national policy autonomy are typically grossly exaggerated. I agree wholeheartedly
with Glyn's basic position, but I would like to augment it in three ways.
First, the effects of globalization are often inappropriately conflated with
other important developments in the 1990s and beyond--the economic effects
of the end of the cold war, Europe's would-be monetary union (the Euro), and
the graying of industrial society. This conflation makes more likely the specter
of an anti-globalization backlash. Second, I will take up Glyn's challenge
"to devise a convincing institutional framework within which to resolve the
social conflicts generated by high employment" (assuming it can be regained).
This entails delineating a feasible open economy model of "corporatism" in
which organized labor plays a central and positive role in governing the economy.
Finally, I want to underline the virtuous circle between domestic egalitarianism
and international openness as a political economic model for the world.
1. Globalization is not a catchall for the problems of the 1990s.
Politicians and analysts alike tend to roll together a series of discrete
developments into "globalization." There is no gainsaying that market integration--particularly
with respect to financial markets--has mushroomed in recent years. But it
does not follow that this explains Europe's economic malaise in the 1990s.
Glyn makes the negative case. Let me sketch an outline of Europe's real problems.
The end of the Cold War had dramatic and dire consequences for the European
economies. The geopolitical instability it created was always likely to depress
investment for some time. But this was compounded by German unification, to
which the Bundesbank responded by sharply increasing interest rates. Declining
German demand was bad for all Europe, but it was made much worse by the transmission
of high interest rates to other countries through the EMS. In turn, the Maastricht
deal on monetary union was a political pact about stabilizing post-Cold War
Europe, but this was to be achieved by (unwarranted and inappropriate) macroeconomic
austerity in the first instance.
Moreover, even if one were to equate globalization with EMU ("European governments
have no choice but to fix exchange rates to stop currency speculation"), the
reality of the Euro may well belie common expectations. Monetary policy will
probably be significantly looser than under the current de facto Bundesbank
regime because a large number of "soft money" countries (e.g., the Mediterranean
countries and France) will likely be members. In turn, fiscal expansions will
probably be more prevalent (either within countries or via Brussels). This
is why the Bundesbank is so fearful of a pan-European Euro, but Helmut Kohl's
tenacious resolve has always won out up to this point, and I do not think
the situation will change between now and the end of next year (when Euro
members and conversion parities will be set).
The biggest problem facing Europe's welfare state in the first decades of
the new millennium is not globalization but aging. Increasing ratios of dependents
to those in work and paying taxes make welfare reform essential. What is critical
from an egalitarian standpoint, however, is that the solution not be the privatization
of pensions. To follow Chile's path would dramatically lessen the state's
redistributive capacities. Instead, progressive politicians and unions must
cut into entitlements for wealthier retirees, and eligibility ages must conform
better to life expectancy. This is dangerous political terrain, but traversing
it is crucial to the future of the welfare state.
2. Corporatism, Keynesianism, and Globalization. The genius of the
northern European model from the late 1930s through the early 1980s was that
it combined full employment and non-inflationary growth with progressive redistribution
of social risk and wealth. This was achieved through a corporatist compromise
in which organized labor regulated wage growth in accordance with external
competitiveness constraints, government compensated workers through the welfare
state, and business profited from social stability and highly productive labor.
According to many people, things are very different today. Trade unions are
portrayed as unnecessary evils, the welfare state is in crisis, and mobile
capital demands deregulation, labor market flexibility, and a shrinking state.
Sober assessment of the fate of corporatism in Europe, however, shows much
more stability than the conventional wisdom suggests. Voluntary wage regulation
coordinated by centralized unions and coupled with policy concertation with
governments is still the norm (in fact, increasingly so, with new converts
in southern and eastern Europe). Outside Thatcher's Britain, the biggest "regressive"
change in recent years has been Sweden's movement towards a more Germanic
model. This has entailed reducing the power of public-sector unions relative
to those in sectors exposed to trade--made necessary by Sweden's use of public-sector
job creation to achieve broader social objectives, largely concerning women.
More generally, it is important to recognize both the limits and benefits
of corporatism in the global economy. Full wage equalization that pays no
attention to market position and competitiveness constraints is no longer
feasible, if it ever was. But wage coordination built around an exposed sector
wage leader is feasible, even in the context of extensive public sector employment.
This not only reduces the inflationary consequences of the classical Keynesian
expansions Glyn advocates; it also facilitates the maintenance of welfare
state provisions that in other circumstances (i.e., the Anglo-American countries)
might be considered anti-competitive. Moreover, the coupling of a highly skilled
labor force with social and political stability is attractive to capitalists,
as the "new" growth theory literature shows.
3. Egalitarianism and Openness. Numerous commentators today draw alarmist
parallels between the 1990s and the 1930s. The attractiveness to voters of
Pat Buchanan and Ross Perot (not to mention France's Jean-Marie Le Pen and
Russia's Vladimir Zhirinovsky) raises the specter of a resurgent populist
and xenophobic isolationism built on the support of losers from globalization.
Just as was the case in the post-World War II period, however, the way to
overcome these pressures is through the combination of an open international
economic order with domestic policies that cushion the dislocations associated
with laissez-faire and hence reduce the ranks of the economically insecure.
As Glyn shows, the globalization of financial capital does not damage this
combination to nearly the extent that is commonly postulated. We should be
much more confident about the resilience of the class compromise that has
been the hallmark of postwar capitalist democracy. Indeed, rather than using
the specter of globalization to rationalize scaling back the role of government--which
only fuels the isolationist fire--politicians and policy elites should highlight
the synergies between open international markets and the welfare state.
Furthermore, now is a very good time to inject arguments about the benefits
of coordinated welfare state capitalism into policy debates about marketization
and democratization. The World Bank and International Monetary Fund are now
more open than they have ever been to the idea that government has a critical
role to play in making markets work. Their focus, however, is still too narrow--on
reducing corruption and promoting the rule of law. The message they need to
hear is that market competition and government redistribution of risk and
wealth are not mutually inconsistent, but mutually reinforcing. This is the
lesson of the golden age of capitalist democracy, and it is one that should
still be preached not only in Western Europe, but in the rest of the world
as well. It is simply not the case that countries must accept capitalism,
Anglo-American style, in order to thrive in the global economy.