Commentary

Still the City Upon a Hill

By Olaf Gersemann
October 4, 2004

It’s Europe, stupid. The continent “has become the new ‘city upon a hill.’” Or that is what Jeremy Rifkin, one of the most notorious American critics of U.S.-style capitalism asserts in his most recent book. In what constitutes a better way of life, Rifkin says, Europe now surpasses America.

As a European who has been living in the United States for five years, that made me laugh. I only stopped giggling when it dawned on me that Mr. Rifkin might be believed not only in Europe but in America as well. That’s because it’s arguably Europe’s economies that urgently need to become more American in many ways, not America’s economy that should be “Europeanized.”

All the major economies in continental Europe — France, Germany, and Italy — are in deep trouble. Their economic output per capita has fallen way behind the U.S. for the last 20 or so years. According to the United Nations’ Human Development Index, which ranks quality of life worldwide, France comes in 17th. Germany is 18th, and Italy is 21st. Ranked 7th, by contrast, the United States does better than any other large industrialized country.

But the European model provides more fairness, more equal opportunity, right? Wrong. More than anything else, equal opportunity means equal access to education and the labor market. In both cases, the United States might not do as well as one might wish. But continental Europe’s Big Three are certainly doing considerably worse.

Take Germany as an example. According to “Pisa,” a study conducted by the Paris-based Organization for Economic Cooperation and Development (OECD), reading skills of 15 year-old German students depend more on the socioeconomic status of their parents than do those of students in any other industrialized country. “Even the United States, so often singled out as an example of big social disparities in educational opportunities, displays considerable but still significantly lower socially caused skill differences,” concluded an anaylsis of the Pisa results by the Max-Planck-Institut für Bildungsforschung, a renowned public research institution in Berlin. What’s more, over the last decades the correlation between skills and family background in Germany actually increased.

Sure enough, you may argue that this is compensated somehow by the fact that college attendance in the U.S. might cost you a fortune — while in Germany the federal government explicitly “repudiates tuition fees to ensure equal opportunities”. Nevertheless it is the U.S., not Germany, where a larger share of high school graduates go on to college. Or, use a different indicator: According to the OECD, in 2001, a 17 year-old in Germany could expect to receive 2.1 years of tertiary education. In Italy and France, this average was 2.4 and 2.6 years, respectively. In the U.S., it was 3.5 years, the second highest among industrialized countries.

Thus, the German system of tuition-free college attendance does not yield more equal opportunity. What it creates, though, is massive transfers from the bottom of the income ladder to the top. According to the most comprehensive study available, “up to 90 percent of the entire cost for educating university students” is borne by non-college graduates.

From the European point of view, it only gets darker once the labor market enters the picture. Between 1970 and 2003, employment in the U.S. rose by 75 percent. In France, Germany, and Italy taken together the rise in employment only amounted to 26 percent — half of which is due to the fact that after German reunification in 1990, formerly communist Eastern Germany was included in the statistics.

What is more, it’s America that produces more highly paid jobs. Take the production of knowledge-intensive service industries as an indicator. According to Global Insight, an economic research firm, real output of those industries rose by 195 percent in the U.S. between 1980 and 2003. Italy, Germany, and France mustered only 140, 118, and 103 percent, respectively.

Finally, it’s not only harder for the Europeans to find a well-paying job. It’s obviously also much harder to find any job at all. In the United States, 65 percent of those who lose their job found new work in less than three months in 2002. In Italy, Germany, and France only between 12 and 26 percent managed to do so.

On the other hand, a much larger share of the unemployed in Europe than in the U.S. remains unemployed long term. In Italy, three out of five unemployed persons can’t find a job within a year. Those people are in great danger to be shut out from the labor market permanently. Increasingly, therefore, those big continental European countries resemble class societies, made up by those who do have a job and those who don’t.

Maybe those millions of unemployed workers in Europe nevertheless find some comfort when they now learn from Mr Rifkin that they reside in “the new land of opportunity”. Just don’t bet your house on it.

Olaf Gersemann is the Washington correspondent for the German business weekly, Wirtschaftswoche, and author of the Cato Institute book Cowboy Capitalism: European Myths, American Reality (2004).