Where Now for European Social Democracy? - Policy Network

ROGER LIDDLE 59However, it cannot be disputed that Europe’s impressive post-warproductivity catch-up with America had ground to a halt by the 1980sand there is mounting evidence that, since 1995, America has startedto extend its lead. According to the Commission, “the growth rate inproductivity per employed person in Europe has been going downsince the mid-90s and is now fluctuating between 0.5 per cent and1 per cent, against 2 per cent in the United States”. 2The Sapir report 3 provides a plausible explanation of how thestructure of the European economy has not changed fast or radicallyenough to close this widening gap. “The post-war system came underattack because the patterns of both consumption and production hadshifted in favour of different types of product requiring a different formof industrial organisation ... This called for less vertically integratedfirms, greater mobility both intra and inter firm, greater flexibility oflabour markets, a greater reliance on market finance and a higherdemand for both R&D and higher education ... However, these necessarychanges in economic institutions and organisations have not yet occurredin Europe and it is this delay which accounts for our growth deficit.” 4Some on the Left accept the facts of slower growth and higherrates of unemployment in core Euroland, but argue that it is better tolive in a more equal society where the unemployed receive high socialbenefits, than go the American road of high employment combinedwith bad jobs, high insecurity, poverty pay and more extremeinequalities. But the argument that there exists a crude trade-offbetween unemployment and inequality ignores the experience ofNordic countries and The Netherlands which have managed to combinerelatively high employment with more equal societies than France,Germany, Italy or the UK. Also, demography raises a serious questionabout the sustainability of European welfare states that finance highsocial benefits out of imposts on employers and employees. In Europe,over-60s, as a proportion of the population of conventional workingage, have increased from 20 per cent in 1960 to 35 per cent in 2000.The figure is forecast to grow to 47 per cent in 2020 and 70 per centin 2050. 5 This increasing dependency ratio could lock some Europeanwelfare systems into a vicious circle of rising social charges on the costof employment. In turn this would lead to higher unemployment,