February 21st, 2008 by Steve Farrell

Cheer up, things could be worse. America could have followed the “Third Way” model of socialism. As part of a 114 page report entitled, “Rich States, Poor States,” written by Arthur B. Laffer and Stephen Moore, and published by the American Legislative Exchange Council this “Third Way” form of socialism has been a failure in those countries in Western Europe who were enticed by the siren songs of “third way” proponents. Here is an interesting excerpt from “Rich States, Poor States:”

What about the “third way?” This was supposed to be a midway point between the failure of communism and the brutishness of laissez-faire capitalism. Part government and part private sector working together to grow economies and incomes in a way that is productive and fair to all citizens. This has been a popular notion in Western Europe in recent decades and among the intellectuals on this side of the Atlantic. Gov. Granholm of Michigan soundsalmost French when she says her state must raise taxes in order to invest and grow the economy. Governors in Illinois, Washington, and Connecticut have made similar claims.

Unsurprisingly, the “third way” model has not performed well in Europe—particularly, in France, Spain, Italy, and Germany—and it is now being abandoned. One of the original motivations behind the creation of the European super-state was to create a counterweight to the economic superpower status of the U.S. Two competing economic models would vie for supremacy: the relatively laissez-faire market-based American model, and the welfare state, democratic socialist model of Europe.

So far, in the 21st century, this has been not much of a contest at all. The U.S. has substantially outperformed Old Europe in terms of wealth and job creation. The economic growth rate of the E.U. nations since 2003 has limped along at about half the rate of the U.S., although growth rates are picking up there. The unemployment rate in Old Europe has been consistently about 50 percent higher than the jobless rate in the U.S. and U.K. Since 1980, the U.S. has created some 40 million new jobs versus about one-quarter that number in the Euro-zone, despite Western Europe having a 40 percent higher population base. In France the unemployment rate has hovered around 10 percent for nearly a decade now, and almost half of those without jobs are long-term unemployed, meaning they are out of work for at least a year.

If the divergence in economic performance between the U.S. and Europe that we have seen for the past 20 years were to continue for the next 40, the American worker will be roughly twice as wealthy as his European counterpart.

The Europeans have created a vast constellation of domestic policy interventions that are cloaked in the seductive rhetoric of compassion, fairness, and cultural sophistication. In reality they have suffocated work incentives and entrepreneurial activity. These anti-growth policies include highly generous welfare benefits for the unemployed; state ownership and/or subsidization of key industries (like the $15 billion bailout to Airbus); workplace rules that make it difficult for employers to hire and fire workers; prohibitions against closing down plants; heavy protections of labor unions against competitive forces; mandatory worker benefit packages that include health insurance, child care allowances, paid parental leave, and four to six weeks of vacation for employees; super-minimum wage laws; shortened work weeks; and, alas, high taxes on business and labor to pay for these lavish benefi ts. In sum, Europe penalizes work and subsidizes non-work, and unsurprisingly,they have gotten a lot of the latter and far too little of the former.

The countries that are showing hyper rates of economic growth are not following the Euromodel. China, India, Ireland, and Eastern Europe have assiduously avoided infection by the Western European disease. They arefollowing the pro-growth operating system described in the ALEC-Laffer model presented here for states. This makes the case for states moving aggressively toward pro-growth changes all the more urgent. Michigan does not just compete for jobs against Minnesota and Massachusetts, but also Malaysia and Madagascar.

So beware of the European “third way” model. It has condemned the Euro-zone to two decades of anemic growth. The Europeans now recognize this; our state officials should, too.

Steve Montgomery is a staff writer with Stiff Right Jab.

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