Your Teacher Said What?! (17 page)

And let's not forget the American private sector, not that I ever would: With net private social-welfare numbers added in, the United States takes over the lead, with $7,800 annually, 16 percent
more
than Sweden. Yes, Sweden. And here's the
really
impressive part: Even after absorbing the cost of providing the entire world with security, scientific knowledge, and miracle drugs, the American economy
still
blows everyone else out of the water. It's been doing so for quite a while, and it's still doing so today.

In the twenty-five years from 1980 to 2005, the per capita GDP in the United States grew at a rate 55 percent faster than it did in Germany and 48 percent faster than in France. Even after spending fifty years catching up after the Second World War, Germany's per capita GDP was barely 74 percent of the United States's and France's 72 percent. The reasons aren't very hard to see, since per capita GDP is nothing but the percentage of people with jobs, the annual hours those people worked, and the productivity of those hours: how much output per hour worked.

Which means that the average American worker,
during the worst recession in seventy years,
put in more than 35 percent more hours yearly than the average German worker—and produced 30 percent
more
per hour in actual value.

The American economy is different, all right. But if the difference were just due to the free ride that Europe (and the whole world) has been taking on America's investments in stealth bombers and lifesaving drugs, then the difference would be only about sixty years old or so, because up until the end of the Second World War, European and American economic attitudes were pretty similar.

Which is what I thought when this project started. They're not. What I learned is that an even bigger reason that the social-welfare state is so much more entrenched in Europe than in the United States is simply that it had such a big head start: Fifty years before the New Deal, Germany was offering national health insurance—and by 1889, state-funded pensions. The situation faced by the German chancellor Otto von Bismarck even resembled the one that greeted Franklin Roosevelt when he took office in 1933. Like the 1930s, the 1870s were a time of worldwide economic depression, and one of the few growth industries during depressions is political socialism. The aristocratic Bismarck had little love for free-market capitalists but even less for socialists, and his first response was to outlaw socialist parties. But it was his second response that was the real success: in German,
Staatssozialismus
, which translates into English as “nanny state” (okay, really it's “state socialism,” but it amounts to the same thing).
²³

The result was predictable. When you build a nanny state, you turn a decent-sized chunk of the populace into the sort of people who depend on nannies: infants. Or at least into the ten-year-olds who make the best Progressives and liberals. The whole German—and, soon enough, European—experiment in social welfare was based on the cultivation of people who believed their lives were determined by forces they couldn't control. The governments of Europe (and eventually the Labour governments of Great Britain) were, from the end of the nineteenth century on, committed to fostering a culture of dependency.

They didn't do it out of benevolence, either. The most important reason for building these European nanny states was to keep the locals from turning into revolutionaries, but Bismarck and his followers had another objective, too. All of those goodies given to Germans, in particular, were also designed to counter the dramatic emigration of Germans to the United States. Bismarck's government even made a point of publicizing the fact that, while wages (and opportunities) may have been greater in the United States, the value of those “indirect wages” (i.e., social insurance) should persuade many to stay home.

It succeeded—not only in reducing the rate of emigration but also in selecting the most docile people in Germany to stay and encouraging the least docile to go.

By then, European immigration to the New World was entering its fifth century; America was a nation of immigrants long before Americans decided that the “course of human events” forced them to wave good-bye to Mother England. And we've always been a little ambivalent about it. Immigration is such a thorny issue these days, particularly among conservatives, that I get a little twitchy just thinking about it. When I hear someone arguing that we shouldn't penalize the millions of immigrants who followed the rules about moving to the United States (and the millions more who are waiting at the borders for their paperwork to be reviewed) by granting amnesty to those who are here illegally, I find myself agreeing. And when I hear someone else saying that we can't expel eleven million people who are here illegally, I find myself agreeing with
that
. When one senator says we should reconsider the principle that everyone born in the United States is automatically a citizen, even if their parents came here illegally, I nod my head. When another one points out that we shouldn't amend the Fourteenth Amendment over this, I agree with that, too.

I'm an agreeable guy.

But there's one aspect of the whole mess I'm sure about. If you want to raise a population rich in the attitudes that start them off believing they are in control of their lives, rather than victims, then you want to encourage immigration. Legal immigration, of course, but immigration—and lots of it.

Wherever you find them, immigrants are the most incomemobile segment of society, partly because they start out at the bottom. But they don't stay there, at least not in the United States. After a typical immigrant household has been living here for one decade, its income is typically a third less than that of a native household. But after two decades, they're only earning about a fifth less—and after three decades only about 6 percent less. If they've become naturalized citizens in the intervening years, there's essentially no difference in income.

Immigrants are income mobile, but Americans are just plain mobile, at least compared to Europeans. In Germany, for example, barely 1.4 percent of the population moves from one “state” to another annually. In the United States, the number is nearly twice as high—and the real difference in mobility is much greater than that when you remember that Germany's sixteen states cover fewer square miles than California.

You see the same phenomenon when you look at the difference in the relative ease with which small businesses are formed in America versus Europe. The one-time costs of setting up a new business in the United States run a typical entrepreneur a little less than 2 percent of annual per capita income: approximately $1,000. In France that number is more than ten times greater: more than 35 percent of per capita income. As a result, not only does Europe produce a whole lot fewer entrepreneurial businesses—Germany produces 36 percent fewer start-ups as a percentage of existing businesses than the United States—but existing businesses hang on a lot longer: For every hundred businesses that vanish in the United States, only sixty-three go out of business in Germany. To a typical Progressive, this is a good thing, but it really just reflects far less of the creative destruction that is utterly necessary for free markets.

I'm not sure whether European statism produces economic stasis or if it's the other way around, but I'm absolutely certain that they go together. So if you're scared that team Obama is a little too eager to turn America into a European-style social democracy, you should be.

 

Every year, the Heritage Foundation publishes an index to economic freedom around the world. The index compares ten different aspects of each nation's economy—including tax rates, government spending, the ease with which new businesses can be started, the freedom to hire and fire workers, how well property rights are enforced, and levels of corruption—on a scale of one to one hundred and averages them to come up with a total score. Okay, it's more than a little wonky, but it's also useful.

It turns out that not all of the components measured are really strong indicators of economic success. The top scores in “fiscal freedom” (the taxes paid by individuals and businesses) include countries like Oman, the Maldives, and the Kyrgyz Republic; two of the “best” countries in the category of government spending are Burma and Turkmenistan. However, the top performers in other categories, such as trade freedom and property rights, are also the most free and most productive economies in the world: Western European countries such as France and Germany; English-speaking countries (Canada, Australia, New Zealand, and the United States), Japan, Hong Kong, and Singapore.
²⁴

One result is that on most of the measures of economic freedom that matter, the world's rich countries are hard to tell apart: Germany, Japan, and the United States all enforce property rights, are generally free of corruption, and permit the free flow of capital.

However, there is one measure on which they are wildly different—and it's the one that not only explains the differences in economic performance but also is a clue to its source. It's the category called labor freedom.

Labor freedom is the result of an equation that includes six different values: the ratio of the minimum wage to the average value added per worker, legal hindrances to hiring new workers, the flexibility in the number of hours an employer can ask an employee to work, the difficulty of firing employees, and how much notice and severance are required to do so (I told you it was wonky). The world's top three countries in labor freedom are Singapore, Australia, and the United States, all scoring at least ninety-four out of one hundred. In the same category, France scores a 54.7 and Germany less than 40. (A different study, performed by the Organisation for Economic Co-operation and Development—OECD—in 1999, found that the countries with the strongest employment protections were Italy, Greece, Turkey, and Portugal. The weakest were the United States, the UK, New Zealand, and Canada.)

The European “way” in labor relations has some appeal, of course:

 

“Blake?”

“Yes, Daddy?”

“Do you know how many days there are in a year?”

“Three hundred and sixty-five.” Eyes roll. “Dad, I
am
in fifth grade.”

“And do you know how many of them most grown-ups get for their vacations?”

“Fifty?”

 

The average number of vacation days offered to workers in the United States is about thirteen. The minimum available to workers in the European Community is twenty, and the average is anywhere from thirty-five (in Germany) to forty-four (in Italy). But generous vacations are only the beginning. In Germany, for example, firing someone isn't just a months-long proposition: it's also like playing croquet with a flamingo in Lewis Carroll's
Alice in Wonderland
: Just when you get the head down, the bird's leg shoots up and the hedgehog you're trying to hit runs away. At German businesses with a “works council,” no one can be fired without consulting the council. Laws regulate how many hours employees are permitted to work and how many days they must take off. Other laws include the Commercial Transfer of Employees Act, the Act on Payment of Wages and Salaries on Public Holidays, and (my favorite) the Protection Against Dismissals Act, which, among other things, requires German employers to give employees at least four weeks' notice—and for workers with more than ten years on the job, four
months—
before firing them; to consult with the local works council on all dismissals; and if the fired worker challenges his or her dismissal, to appear in Labor Court to show that the firing was “socially necessary.”

Sometimes it's hard to tell which management decisions are “socially necessary,” but in Europe, managers don't have to make them alone; they have some of the most powerful unions in the world eager to help. In a number of European countries, a collective wage agreement negotiated by employers and unions is applied by law to everyone in the same business—which means that even a company that didn't negotiate the contract is bound by it. German courts even hold that employees are forbidden from taking wages lower than the collective bargaining agreement requires, whether or not they are union members or even whether their employers are signatories to the agreement. In Italy, everyone employed by a company with more than eighteen workers has the equivalent of tenure. One European trade union official is even on record saying that “workers who can afford to do so should work less.” (He also seems to have some special hostility to the United States, where, in his words, “employees need three or four jobs to feed themselves.” This is actually pretty funny given that Americans work fewer hours to buy more food than anyone in history—and especially funny when you think how Europeans love sneering at American ignorance about the rest of the world.)