Only Europe can safeguard our social democratic future

US-style capitalism is already leading to a disparity of wealth and opportunity

de David Clark

Last week’s announcement by the deputy leader of the French Socialist party, Laurent Fabius, that he intends to campaign against the European constitution in next year’s referendum, is a significant twist in the debate. His decision may have more to do with personal ambition than political conviction (he hopes to be a frontrunner for the next presidential elections), but his demand for a stronger European social dimension will have resonance far beyond France’s borders.

Leading British trade unionists have already floated the idea of withholding support from the constitution after Tony Blair sought to placate rightwing opinion with assurances that it would do nothing to advance workplace rights. This may have been a reaction to the spin rather than the substance of the constitution, but it is hard not to sympathise. Why should they be expected to rally behind a prime minister who is so openly dismissive of their aspirations?

There is a real prospect that the left will see the referendum as a cost-free opportunity to kick Blair. If so, it would be a serious miscalculation. The only people to benefit from a no vote would be those who want to dismantle what has already been achieved and turn the EU into little more than a free-trade area. Not all of these are Conservatives.

As some of Gordon Brown’s recent comments demonstrate, the most stubborn resistance to European integration now comes from Labour’s new right. The constitution, with its explicit endorsement of the "social market economy", was always going to provoke the opposition of those who still dream of a world without markets. They now enjoy the tacit support of Labour "modernisers" who wish to dispense with the social, at least in relation to economic policy.

Like most parties of the reformist left, Labour long ago abandoned the idea of socialism as a distinct mode of production in which private property and markets would be abolished, and settled for the task of pursuing social justice within broadly capitalist parameters. The decision to rewrite Clause 4 can be seen as the moment when theory belatedly caught up with practice. The significance of Brown’s latest attack on Europe as "inward-looking, inflexible and sclerotic" is that it shows how close Labour now is to repudiating social democracy and with it the idea that a different kind of capitalism is possible.

In Brown’s view, the "varieties of capitalism" debate has been conclusively resolved in favour of the US business model, with its low levels of employment protection, minimal regulation and fixation with shareholder value. Brown’s hostility to Brussels reflects the refusal of most continental Europeans to accept what he holds to be self-evident: that the social market economy has had its day.

Yet there is no real basis for arguing that the US model is superior. Many of the differences are a matter of choice, such as the willingness of European workers to trade wage growth for more leisure time by working fewer hours. It is notable that French and German productivity levels per hour worked remain comparable to America’s and significantly higher than Britain’s.

Performance also reflects differences in demographic circumstance, such as migration flows, fertility rates and population density, which have nothing to do with levels of market regulation or taxation. The biggest single contribution to America’s recent productivity growth has been in the retail and wholesale sector, where an abundance of space has allowed a shift to more efficient out-of-town developments. This is not something our relatively crowded continent can match, however much its apes America’s flexible labour markets.

Rarely acknowledged is the huge comparative advantage America gains from having a single currency that allows trade across a vast market with continental economies of scale. Even less so, the fact that the dollar’s global status allows it to run large external deficits that other countries finance by holding US treasury securities at favourable rates of interest. Tellingly, this is one sense in which Europe’s detractors do not want it to emulate America.

The attempt to pin Europe’s recent underperformance on the supposed failure of its social model has a clear ideological purpose: to shift public policy to the right. Of course, some continental countries have a very real problem with high levels of structural unemployment, but this is not a general or inevitable feature of the European model.

Brown is as guilty of peddling the myth of US superiority as any Conservative politician, but it would be wrong to dismiss his motives as straightforwardly rightwing. He hopes that by importing US-style capitalism, Britain can maximise efficiency and growth and generate the revenues needed to raise long-term investment in public services. He seeks, in other words, to marry a neo-liberal economy to the social democratic state.

The problem with this approach is that the economy does not form a discrete and separable sphere of human activity. Economic structures generate values and outcomes that help to shape political culture. If they result in ever-widening disparities of wealth, as they are continuing to do in Britain, the ethic of social solidarity from which public services draw their legitimacy will weaken.

There are also resource and other limits on the capacity of the state to compensate for the failure of the market to provide security and a decent income when standards are constantly being driven down. We can already see this in our looming pensions crisis. High levels of taxation and public spending are only part of the reason why the countries of northern Europe produce more egalitarian outcomes. Just as important is an economic framework that facilitates social partnership and shares the benefits of growth more fairly. New Labour’s unwillingness to grapple with this elementary truth is the main reason why the Third Way has proved to be such a cul-de-sac for progressive politics.

The European social model remains the only viable counterpoint to the economic brutalism of the American way. The question for the left should be how best to strengthen it. The answer is for Europeans to work in concert and pool their collective resources more effectively. The European constitution does this by deepening political union, strengthening Europe’s capacity to act and declaring in favour of fundamental social rights. It may not go far enough, but it would be foolish to expect that its rejection would lead to something better.

The debate on Europe is about much more than constitutions and currencies. It is fundamentally a question of whether an alternative to the Washington consensus remains possible. The left should be in no doubt about what is at stake.

· David Clark is a former Labour government adviser; his pamphlet, The Labour Movement Case for Europe, is available from www.britainineurope.org.uk

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