IN THE LONG TERM, FRANCE IS DEAD ANYWAY:

Glimmer of Hope in Europe (ALBERTO ALESINA and FRANCESCO GIAVAZZI, April 25, 2007, NY Sun)

The current conservative government folded up reforms as soon as a few thousand students marched the streets of Paris. But considering that Mr. Sarkozy sometimes has a difficult personality and many voters dislike him personally, the fact that he is ahead in the polls shows how much the French are worried about their future if nothing changes.

Things are also changing in Sweden, the champion of the Nordic model: competition in the markets for labor, goods, and services, and the country has one of the most efficient social safety nets in the world. Six months ago, Swedish voters replaced the Social Democrats that had been in power for over 10 years with an young, energetic prime minister, Fredrick Reinfeldt, committed to reassessing the country's social model. While maintaining the generosity of the welfare system, he promised to eliminate distortions and further protect free markets. He wants to merge deregulation of markets, including labor markets, with a tax transfer system consistent with the Swedish predilection for low inequality, but with the least possible amount of market distortions.

In Denmark, deregulation of the labor market has made the unemployment rate even less than that of America. Some unproductive hiring in the public sector has helped, but the direction of the reform is right.

In Germany, its chancellor, Angela Merkel, despite the internal strife of her "grand coalition" has introduced a health reform which will slow down the explosion of health spending, something that America has not done yet. Even in Italy some timid steps toward more open markets, especially in services, have finally happened. Unfortunately, when it came to the sale of the Italian telecommunication giant, Telecom, state capitalism rose its ugly head, stopping foreign bidders, including AT&T, in order to protect Italian insiders.

European citizens are not ready for an anti-tax revolt, but they are increasingly more reluctant to pay high taxes if they are not accompanied by good public services. In the countries where governments are chronically unable to provide good services, taxes can only go down.

Let's be clear: Europeans will always prefer a more generous welfare state than Americans, but perhaps they are beginning to understand two things. One is that generous social insurance can be coupled with competition in markets for goods, services, and labor. Second, you do not need to increase public spending to 50% of the gross domestic product to protect the truly poor.

So Mr. Sarkozy can enact reforms because the French hate him anyway? That would seem a tenuous basis for hope.

Posted by Orrin Judd at April 25, 2007 9:51 AM