The future of Europe

...One-third of German GDP goes for social spending, and social-insurance contributions (split 50-50 between employers and workers) amount to about 40 percent of gross pay...

...The average German manufacturing worker, the highest-paid in Europe, receives about $27 an hour in wages and benefits, of which $12.50 comes in the form of social benefits...

...There are some large individual firms in these sectors, such as NV Philips in the Netherlands, Erickson in Sweden, Siemens in Germany, Cable and Wireless in the United Kingdom, and Nokia in Finland...

...But social-security expenditures accounted for 25 percent of the total GDP in Europe, compared to 15 percent in the United States and 10 percent in Japan...

...Written during the war, the report proposed the end of hunger and poverty, and the use of the resources of the state to provide not only a "safety net" against the hazards of unemployment, but a framework of benefits that would guarantee an individual and a family the basis of self-respect...

...And Japanese factories in England are moving toward the production of a million cars a year by the year 2000, when all limits on Japanese imports into Europe are due to end...

...France opened a large new steel industry in Alsace-Lorraine and began the development of chemicals and electricity...

...In a remarkable report issued in December 1993, the European Commission proposed lowering the minimum wage and cutting social security payments in the hope of creating fifteen million jobs by the year 2000...

...FALL • 1994 • 447 world...

...By the year 2015, the number of Germans over age sixty-five will rise by 50 percent, from twelve million to nearly eighteen million...

...But the key to political federation was the Maastricht Treaty signed in December 1991, which adopted "convergence criteria" that would give the European Parliament veto power in several areas...

...will find astonishing (though the legacies of tribalism, colonialism, and ill-fitting national boundaries remain, especially in Africa...

...And it is the growth of "technology complexes" and "networking" that cross borders and favor regional developments that is now the source of economic growth...

...Yet in the crucial areas of microchip technology and software, there are no major players in Europe...

...The only parallel is Switzerland, which, after the Congress of Vienna in 1815, became a Federal Republic, half Catholic, half Protestant, with three different languages (German, French, and Italian), and twenty-six cantons, or local districts, with their own system of courts...

...Steam power gave us locomotives and steamships...

...The modern welfare state was proposed fifty years ago in Great Britain by the famous "Beveridge Report" (though Germany had 446 • DISSENT initiated some social insurance fifty years before, to "buy off " the growing socialist movement...

...One way to answer this question is to measure the budget deficits in each country as they widen or narrow...

...But the markets are now "mature," with little growth, and the intra-European competition will pit the major producers against each other...

...England is an island that was bedded on coal, especially in the Midlands...

...The Attlee Labour government in Great Britain initiated the program...

...It began with textiles and light industry, but when these were taken over by Hong Kong and cheaper producers, Japan moved into optics and instruments, and then to steel, shipbuilding, and automobiles...

...By the year 2030, the number of Germans over age sixty will be double that under age twenty...

...Forty or so years ago, Marxist theory said that the capitalist state would spend for warfare, but not for welfare...

...England and Germany were the sources of these transformations...

...Germany spends more on subsidies for its older "smokestack" industries, such as coalmining and shipbuilding ($6.4 billion), than for basic research ($5.6 billion...

...In Italy it was 9.5 percent, of which 7.4 was structural...

...The most crucial was the creation of steam pumps, so that one could pump the water out of coal mines and dig deep down...

...Can the transitions be made...

...4. A Political Federation...

...Theirs were small workshop industries run by family firms...

...For the past three years, Europe has been in the midst of an agonizing economic recession...

...The plan vastly increased the power of the state, which for the first time assumed responsibility for the relief of poverty and the welfare of the society...

...Textiles and steel were the foundations of England's early wealth...

...The single largest economic and social problem in Europe today is unemployment: about thirty-five million persons are without work...

...All of this is politically explosive, especially since few political parties or the trade unions want to take the strong medicine necessary to reduce wage costs, increase labor mobility, or limit pensions and social spending...

...Europe is still struggling with the industrial society, particularly steel and automobiles...

...The industry last year lost $4.5 billion, and it has sought to "dump" steel abroad to cover costs, prompting retaliation by the United States (which itself had lost 500,000 jobs...

...The effort to create a "new Europe" can be identified in four steps, as follows...

...Germany was considered to be the major powerhouse...

...In the last decade and a half, Europe—and here I concentrate specifically on Western Europe—has begun an experiment that, from a historical perspective, is unparalleled—at least on such a scale...

...But European demand is estimated to grow by less than 400,000 cars a year, which is about half the decline in Fiat sales last year alone...

...Spain is a special case, where 23 percent of the population is listed as unemployed, due largely to the delayed transition out of agriculture and the failure of industry to take up the slack...

...Four big industries—autos, machinery and machine tools, electrical engineering, and chemicals—account for about 60 percent of Germany's $425 billion export trade...

...Emphasis added...

...According to Luigi Spaventa, one of the most talented economists in Europe, and the minister of the budget in the caretaker "technocratic" government, pensions are the largest "fiscal drag" in the Italian budget...

...BMW, the large luxury-car maker in Germany, has just taken over the English Rover (leaving England with no British-owned car manufacturer) and thus will increase the competition for mass sales...

...Beveridge proposed a comprehensive system of national insurance, financed by employer contributions, that would provide unemployment benefits, health services, and old-age pensions...

...According to the OECD, the present value of future pensions in Germany is 1.6 times current GDP.* In Italy, deficits in social programs accounted for half of the 1992 budget deficit, or a huge 10 percent of GDP...

...Even more important, the revolution in materials technology, which is only now getting seriously under way, means that the older resource-based production becomes less important than technological substitutions (for example, fiber optics for copper...

...Europe can succeed only if it can make the transition to postindustrial sectors...

...No one expects more than 1 percent growth in 1994...

...After World War II, both were transformed...

...Consumer protection, health, and education would come under community scrutiny, and steps would be taken to encourage a common foreign and defense policy...

...And yet, in that same period of time, the plains of Europe saw some of the most devastating wars in the history of human civilization: from Napoleon's revolutionary army crossing to and retreating from Russia to the two world wars, involving all the major and minor powers, in which more than fifty million people were killed...

...A corollary factor is rigid labor markets (the costs of reducing a work force by benefit payments, and the unwillingness or inability of workers to move, for family reasons or because of cultural differences...

...But the more important question is how much is structural, likely to persist even in a recovery...

...Fiat, which has been the major (if not the only) Italian firm, has concentrated its hopes on a new small car, the Punto...

...In the past twenty years it helped close down many mills and eliminate 500,000 jobs...

...It is losing out in computers, communication electronics, office technology, lasers, and energy technology...

...The European Commission wants to reduce capacity to about 80 percent of the current 190 million tons and cut 50,000 more jobs...

...FALL • 1994 • 445 1. The Common Market, which is basically a customs union among the members, an area of free trade, and an external common tariff...

...But it is welfare that now may be strangling the capitalist state...

...This is now legally in effect...

...These eat away at government revenues and reduce productive investment...

...With chemicals, for the first time, humans could make things that were not found in nature, such as plastics, and with oil, the petrochemicals...

...a worker's $16 an hour has only $4.50 in benefits...

...But the government, which wanted to privatize part of the company, refused...

...And in 1993, every country in Europe experienced negative growth...

...And the twentieth century saw the rise of the two most deadly ideologies in history, communism and fascism, which ended in the Gulag and the Holocausts of Stalin and Hitler...

...But there were other ways, equally important, unremarked in the textbooks...

...But the first-step agreement to keep exchange-rate parities among members has broken down, because of actions last year by the German Bundesbank...

...And that poses a challenge to the national state...

...In 1992, real GDP growth in Europe was 0.5 percent...

...All this, theoretically, is manageable in the cycle of industrial restructuring...

...In Europe, the major structural problems are social welfare costs and aging, inefficient industries propped up by subsidies...

...There are now six major automobile companies in Europe—Fiat, Renault, Peugeot, Volkswagen, and the subsidiaries of Ford and General Motors...

...Volkswagen, the highest-cost big-volume car producer in Europe, which last year made 3.5 million cars, did not earn a pfennig...

...The strong rigidities in the major industrial sectors have inhibited structural changes...

...And there is a large administrative bureaucracy in Brussels...

...Economic costs have reduced industrial competitiveness, while the large social-insurance benefits reduce labor mobility, since workers often prefer to draw on unemployment compensation rather than move elsewhere...

...Under the Maastricht agreement, setting up convergence criteria on public-sector debt and deficits, only Luxembourg, of the twelve European Community members, is in compliance...

...Japan, from 1960 to 1990, was the world's shining example...

...But increased competition has hurt Germany badly, especially in autos, which account for nearly 20 percent of German exports...

...All this, in a sense, was the application of an idea of rationality unknown to the non-Western world...

...By digging up the coal, one could create a steel industry...

...By applying steam power to machines, we began factory production...

...Yet little has turned out that way...

...The other major structural problem is industrial...

...In contrast, in the U.S...

...Italian workers receive more in benefits than wages in their $21-anhour compensation...

...Germany is today in the midst of a techno-Angst, and for good reason...

...Italy expanded its textile and chemical industries, as well as rubber...

...And now the model of social democracy faces an impasse...

...And with steel, the associated products in metals engineering, shipyards, and automobiles...

...Germany's pension-law reform, which went into effect last January, provides that by 2001, the normal retirement age for men and women would be raised to 65...

...In Europe, public spending as a whole (government administrative expenses, subsidies to industry and farmers, and social welfare) amounts to about 49 percent of Gross Domestic Product (as against 37 percent twenty years ago...

...Europe led the way in the first two industrial revolutions...

...With electricity we had both the new sources of amplified power and the transformation of night and day by light, as well as the ability to send coded messages and then voice on electrical lines, creating the telegraph and the telephone...

...Looking ahead, there are the rising costs of pensions...

...An OECD (Organization for Economic Cooperation and Development) study last year showed that in Europe the causes of the recession were largely structural...

...The European Coal and Steel Commission (the forerunner of the European Community itself) was formed in 1951 to "rationalize" the industry...

...Social spending has reached a limit in Europe for political, economic, and even moral reasons...

...A European Parliament now exists, with members elected from all nations...

...See my "Behind the European Currency Crisis," Dissent, Winter 1993...

...The result is that it cut its work force by 15 percent...

...But these are not sizable enough to affect the major problems...

...Here, in principle, the new freedoms are established, though there are many practical barriers...

...Since the end of World War II, Western imperialism has almost completely disappeared, with a rapidity that future historians This article is part of a larger study of the future of Europe, dealing with political, monetary, and cultural issues, and concentrates here largely on Europe's economy and welfare systems...

...One forgets that before World War II, France and Italy were not industrial societies...

...And in France it was 5.7 percent, of which 3.1 was structural...

...But gluts and surplus capacity remain...

...That compares with 37 percent in the United States and 32 percent in Japan...

...Yet in the area of microchips, the United States produces 47 percent and Japan 41 percent of all micro-electronic units...

...Western Europe, in the fifty years after World War II, was re-created on the model of social democracy...

...In philosophy, music, painting, and literature, it transformed our conceptions of perspective and perception, of tonality and the diatonic scale, and of the relation of fiction to reality...

...The Eastern European model has collapsed...

...The shipyard industry is gone almost completely...

...The European Commission, for example, wanted to reduce the tonnage of Ilva, a government-owned steel plant in Taranto, in southern Italy...

...The major problem is that Europe has not made the transition, as have the United States and Japan, largely to the postindustrial sectors of information and knowledge (computers and telecommunications...

...The economies will probably turn up for cyclical reasons, but the deeper problems remain...

...But beyond all this is the larger, more fateful, historical question—the role of Europe in a new and enlarged world society, with a global economy, and a great shift of power to the Pacific-rim nations in the twenty-first century...

...And all the major countries of Europe went in heavily for the manufacture of automobiles...

...We are no longer in a world where everything is guaranteed...

...This was the creation of the large chemical and electrical industries...

...In Germany, the budget deficit as a percentage of GDP was 4.1 percent, of which 3 percent was structural...

...The German economy was hit the worst, experiencing a 2 percent drop in GDP, and industrial production in 1993 was 7 percent below that of 1992, reflecting the worst postwar recession...

...This is the basis for the coming political crisis of the left in Europe...

...There are "rays of hope" —the growth of small-scale, cottage-type manufacturing areas, based on network-linked companies that share market information and allow workers to move about—as in the Prato and Veneto in northern Italy (making textiles and furniture, for example), or in southern Germany, with small machine-tools and parts, or in the Jutland area of Denmark...

...Just as "motors" were the engines of industrial production, "microprocessors" are the engines of the postindustrial, information-based economies...

...The latter part of the nineteenth century saw the rapid spread of imperialism to almost all of Africa and Asia (with the exception of Japan), so that before World War II, 80 percent of the land mass of the world, and 80 percent of the world's peoples, were under Western domination...

...Some of this is cyclical, reflecting the usual ups and downs of the business cycle, and the effects of the worldwide recession...

...The most surprising issue is social welfare...

...War between the Great Powers—Great Britain, Germany, France, Italy—is entirely unlikely...

...And all over Europe, manufacturing jobs are shrinking rapidly...

...All this is why Europe was able to lead the world in its industrial transformations...

...Hourly manufacturing labor costs in Germany are about 35 percent higher than in the United States, Japan, or even Great Britain...

...In the field of biotechnology and genetic engineering, which is predicted to be a $100 billion industry by the year 2000, German companies now spend an estimated 75 percent of their research-and-development budgets abroad, principally in the United States...

...Even if there were a unified Europe, could it still play a major role in the economics, politics, and culture of world society in the next century...

...448 • DISSENT Germany finds itself in increasing difficulty...

...The European Economic Arena, consisting of the twelve European Community countries (plus Scandinavia, Switzerland, and Austria, if they join), is now the largest trading bloc on earth, with more than 40 percent of the world's Gross Domestic Product (GDP) within its fold...

...The second industrial revolution began in Germany around the 1880s...

...Italian old-age pensions are the most generous in Europe (and a person can retire, in many instances, at age 55, then seek another job) and about 40 percent of the members of the CGIL, the largest trade-union movement in Italy, are today on retirement pensions...

...But after the oil shock of the 1970s, and the increasing costs of energy, it moved quickly into knowledge-based, and electronic and computer-based, industries...

...In addition, there were family allowances for children, services for the disabled, and social-service counseling for family and mental health problems...

...And in Germany and other regions, local communities have bought the steel mills and continue to subsidize them to save jobs...

...The same problem, only writ larger, exists in automobiles...

...Eastern Europe was shaped on the model of communism or state socialism...

...Assar Lindbeck, the Swedish economist, has argued that incentives to work and to produce are destroyed when the state takes away too much from those who are working and gives too much to those who are idle...

...This would mean a harmonization of economic policies, ceilings for public deficits, and, eventually, a single currency used by all members...

...Since Galileo, it has been the cradle of modem technology, particularly with navigation and scientific instruments...

...The structural question is central for understanding the long-term prospects of the economy...

...And every country in Europe followed suit...

...In France, Italy, Germany, Denmark, and Great Britain, more than 10 percent of the labor force is unemployed, and this figure may rise to 12 percent, as an average, by the end of 1994...

...The fall of the Berlin Wall and the reunification of Germany were going to create a two trillion dollar dream economy whose skilled workers and world-class manufacturers would make it the envy of the world...

...The welfare state has been most costly in Germany, with Italy second...

...This is the effort of the twelve countries, now all democratic, to create a single harmonious community that would coordinate their economic and political institutions and by the year 2000—at least according to the original plan—create a unified currency and an integral political federation...

...But where is Europe to go...

...2. The Single Market (a situation similar to that in the United States except for the currency), in which there would be complete free movement of capital and labor, the harmonization of welfare and labor policies, and the free establishment of services (financial, insurance, and legal) throughout the community...

...The first one was in England, where the invention of steam power by James Watt, and the application of energy to machines, began the transformation of the * Both Germany and Italy are increasing the retirement age to restrain expenditures...

...But Maastricht, and the fear of a central bureaucracy, has proven to be a stumbling block toward a united Europe...

...In a statement presenting the report, Jacques Delors, the president of the commission and a French socialist, declared: "If we want to safeguard the current model of European FALL • 1994 • 449 society and its welfare state, we must adopt this program...

...Both communism and fascism have collapsed, their ideologies transformed into new nationalisms, especially in the old Soviet-dominated areas...

...But state-owned and subsidized steelmakers in Italy, Spain, and Germany have resisted...

...3. An Economic and Monetary Union...