As the leaders of the G-20 gather in London, an interesting dichotomy in views has become apparent. The continental European leaders are generally reluctant to follow the US lead in adopting massive government stimulus programs to try to jump-start their faltering economies.
Deservedly, the bulk of the blame is being placed on the collapse of the US financial system and the way that has rippled throughout the rest of the world. And not surprisingly, there is an appetite for new rules of the game to make sure that such a collapse cannot occur again. Leading the reform agenda is the idea that these new entities — these hybrids composed of commercial banking, investment banking and insurance products — must be governed by an international set of regulations. Gramm-Leach-Bliley allowed them to be created without any corollary rules by which they would be governed. Is it really any surprise that these enterprises grew too big to be allowed to fail, even as greed ran rampant?
In all this an interesting fact is little discussed in trying to understand the different approaches between Europe and the US. European countries generally have a better developed social safety net, while we have allowed ours to develop massive holes. As a result, they have less need for government stimulus. They have universal health care. In many countries, education is free up through university. Trade unions are strong so that wages are relatively high. Unemployment benefits ensure that people who lose their jobs can survive the financial downturn. Because their safety net is intact, they are able to look at preventing the next crisis rather than being forced to focus almost exclusively on solving the current one.
The conservatives will argue that European taxes are also high, which is true. But consider what they get back in terms of government services in exchange for their taxes. How many Americans would be better off if they could count on no additional out-of-pocket costs for health care and education? How many fewer bankruptcies would there be? How many Americans would look at four weeks of paid vacation as a good thing?
For all of the hand-wringing about impending socialism, one fact is completely ignored. Of the countries whose people score higher on happiness scales, most, if not all, of them have strong government-provided safety nets. And just where does the US rank in terms of standard of living? Varying criteria can be used to measure standard of living. But according to the United Nations Human Development Report of 2007-8, the US ranked fifteenth.
Human Development is a development paradigm that is about much more than the rise or fall of national incomes. It is about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests. People are the real wealth of nations. Development is thus about expanding the choices people have to lead lives that they value. And it is thus about much more than economic growth, which is only a means —if a very important one —of enlarging people’s choices.
Fundamental to enlarging these choices is building human capabilities —the range of things that people can do or be in life. The most basic capabilities for human development are to lead long and healthy lives, to be knowledgeable, to have access to the resources needed for a decent standard of living and to be able to participate in the life of the community. Without these, many choices are simply not available, and many opportunities in life remain inaccessible.
This means that we can do better. We have assumed that because we represent a significant portion of global GDP and spend as much or more on defense as the rest of the world combined that we must have the highest standard of living. Yet we lag in infant mortality rates, in life expectancy, in science and math scores, and more. We spend twice as much per capita on health care as any other nation yet do not achieve the best outcomes. We have the highest per capita incarceration levels in the entire world. Several countries have a greater percentage of their populations in school at all levels. Perhaps a little humility is in order — a little less chest beating, a little less rugged individualism, and a recognition that we do have responsibilities and obligations to each other.
UPDATE: Much was made yesterday that Nicolas Sarkozy, President of France, was threatening to walk out if the G-20 didn’t get serious about regulations. Here‘s an op-ed piece he wrote. You decide if he’s likely to walk. Actually, he sounds quite rational. I’m hopeful that the four principles he says were agreed to in the previous G-20 meeting will be fleshed out in London.