The Economist makes its living as much off its covers as its reputation. This past week was no exception: “Europe’s New Pecking Order,” with a triumphant French model Sarkozy looking down at a glum German model Merkel and a nearly invisible “Anglo-Saxon” model Brown.
Well, Brown’s in a hole, all right. And the Economist points out that the long-term cost of the statist French model is slow growth, high unemployment, and tremendous difficulties assimilating immigrants. But before we also accept the down and out picture of the Anglo-Saxon model, maybe we should look at what Britain has actually done.
In the fifteen years after they won the Cold War, the U.S. and Britain have done something curious: amidst the hubbub about the end of history and the triumph of capitalism, they retreated from the model that helped them win. On the other hand, the Continent, under the relentless pressure of failure, moved the other way.
In 1997, the average governmental share of GDP across the OECD was 38.8 percent, higher than Britain’s 38.4 percent. Key European competitors, such as Germany, at 45.7 percent, had substantially larger states. By 2008, Germany’s share had declined, to 43.4 percent, a 2.3 percent drop, while Britain’s had increased to 41.9 percent, a 3.5 percent rise. Within a decade, Britain went from being a country with a limited state and a flexible economy to one that looked more like a Continental economy.
Anyone who thinks that Britain is a model of “Anglo-Saxon” deregulation hasn’t paid much attention for the past ten years. As the Tax Payers’ Alliance points out, since 1998, “[The UK's] use of ‘command and control regulation’ has actually increased, pulling it from 9th to 21st in the OECD rankings of its 30 members, alongside ex-communist countries such as Hungary and the Czech Republic.”
The problem was that regulators – including Gordon Brown’s creation, the Financial Services Authority – got it wrong. But while the failed banks are being punished, the regulators who failed are getting more power.
We’ve seen all this before. When the Great Depression struck, France seemed immune: as Le Figaro put it in 1931, “For our part let us rejoice in our timid yet prosperous economy as opposed to the presumptuousness and decadent economy of the Anglo-Saxon races.” Not until the mid-1930s did the Depression hit home in France. Since then, France has lost a world war, had four different regimes, and innumerable governments. And yet the pattern of French resilience in the early stages of a world economic crisis remains.
To my mind, this suggests that what matters in this painful short term is not so much French policies, but the nature and behavior of the French — as savers. It is not so surprising that France, which relies less on the financial sector than the U.S. or Britain, and less on exports than Germany or Japan, is doing better in the face of a financial crisis that has led to a world slump in exports.
Of course, active financial markets and exports are powerful engines of long-term growth. And that is why, as the Economist concludes, the French model is not likely to stay on top for very long.