None of these policies would have done anything to stop the current crisis. But they would remake America’s entrepreneurial economy in the image of a European social welfare state. Most Western European economies are characterized by high taxes, expansive social programs, nationalized medical care, high union coverage — often whether workers want a union or not — and tight government controls over business decisions. It is much easier for business owners in Italy to divorce their wives than to fire underperforming workers.
The results have been predictable. High taxes give European workers little reason to try to get ahead — the government simply takes most of your extra earnings. When promotions come only on the basis of union seniority, and poor performers are guaranteed a job no matter how little work they do, workers have little reason to become more productive. Employers hire only when they absolutely must. Billions of tax dollars are wasted on politically important but economically unproductive “investments.”
This has lead to widespread stagnation. Unemployment in Europe was 60 percent higher than the United States last year, and the unemployed stayed out of work much longer. Even in the current downturn, workers in the United States who lose their jobs typically find new work within three to four months. In Europe the average worker stays unemployed for over a year. American workers are much more productive than Europeans — worker productivity in the European Union grows at less than two-thirds the rate of America. Unsurprisingly, American workers earn 40 percent more than their European counterparts. The French model doesn’t work.
That’s why France and the rest of Europe are abandoning it. France, Germany and most of continental Europe have reformed their economies, lowering taxes, loosening labor market restrictions, and reducing the scope of their social programs. Europe can no longer afford an economy that discourages productivity and entrepreneurship.
But even as Europe abandons the French model, Sen. Obama wants to embrace it. The same policies that have failed in Europe won’t work here. Higher taxes on saving and working, government bureaucrats deciding how many workers companies can hire and how much — or little — workers will earn, government run health care, and not quite voluntary union membership discourage entrepreneurs from taking risks and starting new businesses. They discourage productivity and innovation. They discourage growth and prosperity.
Sen. Obama proposes changing America, but change is a vague promise. Most Americans want to change course, but the change Obama promises would change America into a social welfare state where the American Dream is all but impossible.
– James Sherk is the Bradley Fellow in Labor Policy at The Heritage Foundation.