Germany's Backward Reforms

CAMBRIDGE: A successful economy needs quite a bit of competition and flexibility. Yet attractive as they sound, competition and flexibility have their enemies. Competition means that a society has economic winners and losers, and everyone feels pressure to perform; flexibility means that the status quo is not written in stone. Indeed, the status quo can be thrown out the window at any time.

The US has embraced flexibility and competition with a vengeance. The payoffs are seen in soaring employment, a decade-long stock market boom, and rapid rates of innovation and productivity improvements. For some observers, however, today’s slowdown in America puts those payoffs in doubt. But this eagerness to declare the American model bankrupt is dead wrong.

Look at the European model: cling to the status quo, don't make waves, workers councils, Mitbestimmung, unions, and masses of well-paid unemployed people. Clever leftish governments parley with an oh-so-comfortable public, one far from demanding revolution. Europe's poor showing on the supply side is not a lack of performance, indeed, it is a political choice. Make no mistake: Europe is rich and content; Europe would not have it any other way.

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