Convergence of Economic Systems – Take Two


NORDICUM 4-5/2008

By Risto Penttilä

During the Cold War era, there was plenty of talk about convergence between socialism and capitalism. In the aftermath of Senator Barack Obama’s tour of Europe, there is talk about convergence between US capitalism and European market economy. This convergence may well prove to be more real than the previous one.

Senator Obama’s warm welcome is a visible sign that Europeans are ready to enter into a more cordial relationship with America. As one French commentator put it, Europeans are ready to fall in love with America again. Yet, infatuation with Washington may prove short-lived. Foreign policy commentators have already pointed out that a President Obama would (like a President McCain) ask Europeans to do some unpopular things ? such as to contribute more troops to Afghanistan. Thus, a rapprochement between Europe and the United States cannot be built on foreign policy alone. Could it be built on the convergence of their economic models?

The suggestion that Europe could learn anything from America sends shivers down the spine of European Social Democrats and Christian Democrats alike. Yet, since the end of the Cold War Europe has adopted many American practices. European businesses are run in the same competitive spirit as American ones. Corporate taxation has been lowered in all European countries. Public services have been outsourced. Individuals have been forced to take more responsibility of their lives. Labour markets are less regulated than they were in the past. In some countries, such as in Great Britain, the cost of education is approaching (albeit very slowly) the cost of education in the United States.

The most significant change affecting the EU-US comparison is, however, the enlargement of the European Union to include Romania and Bulgaria. The accession of these poor countries means that the gulf between the rich and the poor is now as great in the European Union as it is in the United States. It will be interesting to see whether the poorest of the poor will fare better in the EU than they do in the US. In any case, one of the most striking differences between the two continents has been levelled off for the time being.

Is it now America’s turn to follow the example of Europe? The proposition that America could learn from Europe raises as many eyebrows in the US as the suggestion that Europe should emulate America does in Europe. Yet, there are plenty of signs that the United States is becoming more like Europe.

In the aftermath of the announcement that the US government will not allow Freddie Mac and Fannie May to go bankrupt, a US lawmaker said according to media reports that he thought he had waken up in France. Indeed, state intervention is the new vogue in Washington. It is not as brash as state capitalism in Russia or China. American state capitalism seems (as the Congressman quipped) to be more like the Gaullist tradition of not letting National Champions go belly up.

Another new trend in America is the acceptance of the idea of a universal health care. There are disagreements between different plans but the salient point is this: only the libertarian Cato Institute in Washington is unyielding in its opposition to the idea. Nearly everyone else is willing to entertain the idea that a universal health care system may be part of America’s future. At the same time the tax burden of American corporations has become heavier than in many European countries. And if Barack Obama’s tax plans are implemented, professionals in higher tax brackets will pay about as much in taxes as their European cousins.

How about religion? Isn?t religion the one issue that separates the Old Continent from the New? Only if you accept a very narrow definition of religion. While traditional religion is getting stronger in the United States, a system of beliefs and practices connected with climate change is winning converts in all parts of Europe. At the same time religious groups in the United States are joining hands with climate activists. The result is as staggering as it is surprising: European secularists and American evangelists are being united under a common cause.

How far will convergence between Europe and the United States go? Will Americans demand public day care centres for all? Will Europeans begin to extol the virtues of freedom and capitalism? Not likely. But with a new president and a set of emerging great powers challenging the dominance of the West, America and Europe may gravitate toward each other.


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