United States of France?

The same policies that have failed in Europe won’t work here.

By James Sherk
Monday, November 3, 2008

America’s financial system is on government life support. Unemployment is rising almost as quickly as the stock market is falling. Small wonder that many voters find Sen. Barack Obama’s campaign for “hope and change” appealing. Who doesn’t want change right now?

But hope and change are vague terms that allow everyone to project onto Obama’s campaign the changes they want. Far fewer voters realize what changes, exactly, Obama has promised: changes that would essentially change America — into France.

America is the world’s leading economic power because American workers are productive and entrepreneurial. The U.S. economy — and government policy — place relatively few barriers in the way of upward mobility. Americans who work hard can rise as high and far as their skills will take them, and many do.

Of the poorest fifth of Americans, three-fifths work their way into a higher income quintile within a decade. Remarkably, many of the much-maligned “rich” weren’t born that way. Only two-fifths of the top 1 percent of earners today earned as much ten years ago. The rest worked their way to the top during the last decade. Tens of millions of American families really do live the American Dream.

Today that dream seems under attack. High energy costs and the resulting financial crisis have dealt a severe blow to the American economy. But these are not uniquely American problems. These economic storms have also buffeted France, Germany, Britain and most other developed countries. Americas dynamic economic system didn’t cause this crisis any more than Germany’s heavily regulated system did.

Now consider the change Obama wants to bring. He promises to raise the top tax rate on the most financially successful Americans to confiscatory levels above 50 percent. Two senior Democratic committee chairmen have also proposed taxing the IRA and 401(k) retirement accounts that most Americans hold.

Obama wants to nationalize most health care, paid for with your tax dollars, and to spend hundreds of billions more on a raft of new federal programs. One pays workers who take jobs that pay less than their previous employer. Obama has pledged to take away secret ballot organizing elections so unions can publicly pressure workers into joining, or else. Once unions organize companies, the government would micromanage them, with federal bureaucrats writing every detail of new labor contracts.

None of these policies would have done anything to stop the current crisis. But they would remake America’s entrepreneurial economy in the image of a European social welfare state. Most Western European economies are characterized by high taxes, expansive social programs, nationalized medical care, high union coverage — often whether workers want a union or not — and tight government controls over business decisions. It is much easier for business owners in Italy to divorce their wives than to fire underperforming workers.

The results have been predictable. High taxes give European workers little reason to try to get ahead — the government simply takes most of your extra earnings. When promotions come only on the basis of union seniority, and poor performers are guaranteed a job no matter how little work they do, workers have little reason to become more productive. Employers hire only when they absolutely must. Billions of tax dollars are wasted on politically important but economically unproductive “investments.”

This has lead to widespread stagnation. Unemployment in Europe was 60 percent higher than the United States last year, and the unemployed stayed out of work much longer. Even in the current downturn, workers in the United States who lose their jobs typically find new work within three to four months. In Europe the average worker stays unemployed for over a year. American workers are much more productive than Europeans — worker productivity in the European Union grows at less than two-thirds the rate of America. Unsurprisingly, American workers earn 40 percent more than their European counterparts. The French model doesn’t work.

That’s why France and the rest of Europe are abandoning it. France, Germany and most of continental Europe have reformed their economies, lowering taxes, loosening labor market restrictions, and reducing the scope of their social programs. Europe can no longer afford an economy that discourages productivity and entrepreneurship.

But even as Europe abandons the French model, Sen. Obama wants to embrace it. The same policies that have failed in Europe won’t work here. Higher taxes on saving and working, government bureaucrats deciding how many workers companies can hire and how much — or little — workers will earn, government run health care, and not quite voluntary union membership discourage entrepreneurs from taking risks and starting new businesses. They discourage productivity and innovation. They discourage growth and prosperity.

Sen. Obama proposes changing America, but change is a vague promise. Most Americans want to change course, but the change Obama promises would change America into a social welfare state where the American Dream is all but impossible.