Internationalization and National Models of Solidarity

These models, in my view, have two pillars in common. They try to combine the dynamics of capitalism, on the one hand, and, on the other, some form of social solidarity. Therefore, I should say something about capitalism, something about solidarity, something about models—or rather the limits of national models—and fourth, that I do not see one European model. On the contrary, I see many in healthy competition.

Acceptance of the Market Economy and its Political Consequences
All of these models are based on the dynamics of capitalism, and that in my view is unsurprising. There seems to be worldwide agreement on the market economy. And that is what we not only profess, but what we act upon today. In each of the three regions represented in the Trilateral Commission, there is one exception to confirm the rule. In the Americas, it’s Cuba; in this part of the world, it’s North Korea; and in Europe, since Albania has opted out—unfortunately, for the record—the only country that I could find running its economy from above is the Vatican.

In contrast to generations ago, today we see a lot of social democratic governments running basically conservative economic programs. Of course, there are still differences between the social democrats and the more conservative parties. However, from time to time I am pleased to see that conservative parties have at least some difficulty in trying to sensibly differentiate their preferred programs from those actually being executed by social democratic governments. You also see it in the people. If you speak today to the union leaders in the Netherlands you might mistake him for an analyst. He is not. If you speak to the Dutch Prime Minister and compare how he looks and speaks today with how he looked and spoke twenty years ago, you will notice similar pictures and speech of Mr. Gerhard Schröder.

I think we should be grateful for this common sense in managing our economies. It is good for the economy, but more importantly for society as a whole. It adds to stability and consistency. The impact on the economy is less devastating than it used to be, when a government on the left would succeed a government on the right, or vice versa, and completely reverse the previous government’s policies. The Third Way, therefore, if we really cut through the rhetoric, is in some ways apologist semantics for sound economic policy of a capitalist nature run by modern social democrats.

The Breakdown of Solidarity
These are not the days of solidarity in my view. There is an underlying move away from solidarity to individualism. We all know that there is a strong emphasis in the world today on the rights of the individual. We see it in international legislation. We see it in lifestyles. We see more one-member families and we see more families break up. We see it in fashion, dress codes, and shopping habits. It’s even enforced, if not leveraged, by the age of IT, where our youngsters spend hours with computers in a virtual world, the zenith of individualism.

What we do see is that the call and content of solidarity in social democratic plans have changed. Today we speak in many countries about socialist programs à la carte, which you just have to think about. We have differentiated wage agreements, from central wage bargaining to sector bargaining going on, and even to local and individual bargaining. We see also that group feelings and loyalties are in decline. We see the secularization of churches. We see the lack of loyalty in sport clubs. (Barcelona today is almost exclusively composed of Dutch players and we take the Scandinavians.) We see a lack of loyalty to employees. We see whole departments in banks change from one bank to the other.

Now let me add that I don’t think this is all for the good. I think it’s questionable whether this trend can continue. The manageability of society requires some fundamental cohesion and loyalty and the same goes for each organization, whether this is a church, a sport club, or a business.

Internationalization and Limits to National Models
What are the limits of these so-called models of solidarity? In my view, internationalization will put national models of solidarity and cohesion under pressure. There is some strong empirical evidence that national models do succumb to this pressure if they’re not competitive. And that is the key word—competitive. The two examples that I’d like to use are the Swedish model in the eighties, much admired in the world, and the Dutch model in the ’;70s, not very much admired in the world. But today we are admired and I will come back to that.

Sweden in the eighties had a system engineered close to full employment. But Sweden, in fact, was close to being cut off from the world. They had their own policy. They devalued when they thought that was the thing to do. They had very strict controls on capital movements and in that way they lived a little bit in isolation. And they could keep their employment artificially high. But once they opened up to the world it changed completely and dramatically. What used to be the admired Swedish model found itself in shambles, basically.

Now, the opposite of that was the Dutch model in the ’70s. We were open to the world. Our economy has always been open to the world, but we had our own solidarity of an artificial nature. We thought we could have high undifferentiated wages, but this led to substantial government deficits and high unemployment, and that had to be put right. So, there is strong empirical evidence that national models do succumb to internationalization if they are not competitive. And this internationalization is day-to-day pressure in Europe.

The single market has been in existence since 1992. And the euro, which has now existed for a year, has really made an impact. Capital goes where it finds its best returns. There is transparency of markets and you come to the point that you start questioning the use of export statistics within Europe. For example, the large part of the domestic product of the Netherlands is exported to the rest of the Common Market. There is vastly increased competition within Europe. There are few cozy corners left. And there is very little price inflation. European business is becoming European, if not worldwide. There are many businesses, one of which is my own, that have a far larger share of their turnover outside their own home country than in their domestic market. And also you see a strong internationalization of management. This also means that national solidarity for these firms becomes subordinated to more international interests. The business lobbies change correspondingly from talking to national governments to increasingly talking to international governments, like the Brussels authorities and what have you.

Labor solidarity in Europe is also of a different dimension. Today, we have a European Workers Council. Their powers are limited, but they now are confronted with shifting employment from one country to the other. Europe had a famous case about vacuum cleaners, where a company decided to move their facilities from France to Scotland. That really meant that national unions had to face up to this issue. So in other words, the limits of models of national solidarity have been reached.

Continuing Healthy Competition Among National Models
The field of competition in continental Europe is vastly reduced in the euro area. First of all, we have, now that the euro is in existence, one authority for monetary policies—that is basically the ECB—but the fiscal authority is still with the nation-states. But fiscal policies have their natural limits and are also limited by inter-state competition. The only remaining key field of competition which is left to the market is therefore industrial relations. Each country has to stay competitive internationally and, at the same time, preserve some social coherence.

If we look at the Dutch approach and the economic figures over the past decade, I think it has been successful. We have a government budget surplus, albeit low, and we have low unemployment—2-3 percent, although there is some hidden unemployment. We have high growth and we have been quite active, in fact, in acquisitions abroad. So the Dutch example, in a way, may be an example of which we can be proud. This national model seems to have worked, although I would hate to tell you too much about it because then we could start believing in it, and that, of course, is close to the kiss of death.

The Real Benefit of the European Market
A final word on competition and corporate governance. Although there is equal competition in Europe, we see a lot of mergers and acquisitions across borders. This is an issue that each state has to address. We basically know three systems of corporate governance in Europe: the Anglo-Saxon system where shareholders prevail; a more Latin-oriented system; and co-determination. And within the co-determination system there is a benign sort of practice in the Netherlands to a very strict practice with all its rigidities, in my view, in Germany, and a number of systems in between. Companies will choose in the future on the basis of competitiveness and their preferences and cultures. So far, Europe has been able to acknowledge the national identities without a superstructure. We do have a number of industries where this may not be enough and we may have to do something to allow economically desirable transnational mergers. If we talk about banks and airlines, we see that this is very much the case. There seems to be a tendency of industry conglomeration by country, whereas the real benefits of the European market will be in the field of exploiting transnational mergers and acquisitions.

So, it seems to me that the models based on the dynamics of capitalism and social solidarity can be preserved. But, the limits of national models of solidarity have to be acknowledged and there has to be a healthy competition among them.