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PDF FormatDo France, Germany and Italy enjoy a greater measure of “social solidarity” than Great Britain and the United States? Solidarity is not an easy thing to quantify, yet one measure is the electoral success of extremist political parties, which can reflect the extent of discord within a society. Extremist parties, it turns out, have gained strength and legitimacy in precisely those countries which boast a “unifying” social-democratic system. In the 1980s such parties gained strength in many West European countries, and by the end of the decade were playing significant roles in national politics throughout Europe. In France, the National Front of Jean-Marie Le Pen grew from a marginal force to regularly take twelve to fifteen percent of the electorate; as the recent elections showed, in close elections the Front now has the power to make or break governments. In Germany, stringent anti-Nazi laws have not prevented the neofascist Republikaner from gaining seats in local and regional (Land) elections and coming close to winning seats in the Bundestag in 1989. In Italy, the extremist, secessionist Northern League has become a prominent political movement, and was one of the chief coalition partners in Silvio Berlusconi’s right-wing coalition in 1994. In Austria, the far-right Austrian Freedom Party (FPO) has become one of the main political parties, receiving almost 25 percent of the vote. The contrast with the United States and Britain is remarkable: In both countries, extremist groups are marginalized, and the electoral power of extremist political parties is negligible. While radical militia organizations in the U.S. are a source of concern for many Americans, they enjoy nothing like the public legitimacy and political standing of their counterparts in Europe.
Why are increasing numbers of Europeans voting for xenophobic, illiberal parties? It is too simple to see their success as the result of marginalized social groups, such as the unemployed. The electorate of the extremist parties is drawn from all levels of society, including well-educated professionals belonging to the contemporary “knowledge elite,” as well as small businessmen and workers.44 While there are national differences in the composition of Europe’s various extremist constituencies, the one recurrent, unifying characteristic is uncertainty: A profound lack of confidence in the ability of established parties and institutions to provide a secure future.45 The growth of neofascism thus reflects, not surprisingly, a vote of no-confidence in the modern European democratic state, including the welfare state’s promises of cradle-to-grave security. Given the state of European economies and the status of public finances, both rich and poor there have reason to be worried. The failure of the welfare state contributes to the loss of confidence in democratic institutions as a whole.46
What Europe’s social democrats perceive in all this is societies in crisis, with high unemployment, slack growth, resurgent racism and what they consider a slavish devotion to fiscal orthodoxy that aggravates all three problems. They recommend “direct action” to fix the problem: Spend more public money to create jobs, sustain the unemployed and prevent workplaces from closing. In other words, their answer to the current crisis of the welfare state in Europe is more welfare. This approach ignores a staggering amount of evidence: The road European welfare states followed to arrive at their present pass, the unaffordability of current welfare commitments, and the impracticability in the long run of adding to those commitments.
The lesson of Europe’s welfare economies over the last twenty years is that étatist economic policies do not work, while market-oriented policies do. The welfare state contains the seeds of its own destruction. Its policies for succoring the poor lead to their permanent exclusion from society, and its policies for providing universal economic security threaten that security, not only for the poor but for all.47
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There are important differences between Israel’s economy and that of the European welfare states, differences which make Israel all the more vulnerable to the dangers of a return to étatism. Israeli society is younger than that of the United States and most European countries, but like all Western societies, it is aging.48 In many European countries, the number of dependent old people per active worker (the “dependency ratio”) is likely to double within the next generation or so; in Israel this will come about more slowly. By the same token, however, Israel is far more vulnerable than Europe to the threat of mass unemployment: Because Israeli society is younger, relatively more young people join the labor force each year, and relatively fewer leave it through retirement. In addition, immigration continues to inject many new workers into the job market each year, almost as many as the number of native youth entering the workforce. In other words, Israel’s labor force grows far more rapidly than in Europe and, as a result, Israel must create proportionally more jobs every year than most European countries. Over the course of a generation, the failure of European economies to create jobs has brought about an unemployment problem of crisis proportions. In Israel, it would take far less than a decade to create a similar crisis, which would have grave social and political implications.
The problem might be further exacerbated by Israel’s still-restricted capital market. Creating new jobs means creating the capital necessary to employ new workers. This means, in turn, that the Israeli economy must create attractive, competitive and efficient capital markets in order to sustain the high level of savings and investment needed for large-scale job creation—particularly if the jobs being created are to provide their holders with a standard of living similar to that of Israelis who are already employed. It also means doing as much as possible to remove other impediments to the creation of new jobs, such as high taxes on labor and restrictions on labor mobility that deter employers from hiring workers. Policies that threaten the rate of savings and investment (such as excessive taxation), or that make the Israeli labor market even less flexible than it is now (such as protectionist tariffs and minimum-wage legislation), threaten not only the livelihood of hundreds of thousands of young people and immigrants, but also the economic and social stability of the country as a whole.
Moreover, the Israeli economy is changing rapidly. It is not just bigger than it was in 1990, it is also very different. High-technology industries are expanding rapidly, so much so that unemployment among highly qualified, technically trained people is, practically speaking, zero. Traditional, low-technology industries such as textiles and food processing are well on their way to extinction, undercut by cheap foreign labor. It is precisely such changes that European economies are poor at implementing because of their inflexible labor markets—which are a major cause of Europe’s high unemployment.49 Little purpose will be served if Israel tries to hold on to jobs making canned pickles or sweaters: In the face of growing global competition, no government policy will ever be able to increase employment substantially in these industries. National subsidies and tariffs that are designed to preserve jobs in declining industries end up imposing these costs on more dynamic sectors of the economy where the majority of Israel’s new jobs must be created in the future. Yet part of what market opponents in Israel want is to hold back economic change, and most of the policies they advocate would undermine the economic dynamic Israel must maintain in order to keep job growth high.
Over the last three years, Israel’s economic growth has slowed, reaching only 1.9 percent of GDP in 1998. Investment in 1997 fell by about nine percent, to 19–20 percent of GDP, and 1998 saw a 9-percent increase in the number of businesses that experienced financial difficulties serious enough to affect their ability to maintain their workforce or even stay in business. Meanwhile, unemployment rose by almost two percentage points. The point is that even with a 1.9-percent growth rate, which in many European countries would be considered an average year, in Israel this looks and feels like a recession. With a European-style growth rate of two or three percent, Israel can expect to create new jobs at about the rate European countries do, but this is simply unacceptable given the character of Israel’s workforce. In Europe, moderate growth at these levels means a gradual rise in unemployment; in Israel the rise will be rapid and socially disastrous. Israel cannot afford a European-style economy—economically, socially or politically.
