Europe’s insiders will never vote for a reform agenda

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The states of Western Europe are the first states in history in which insiders represent a large proportion of the population. So every presentation of the reform agenda simply provokes the opposition of the majority and the victims are those who can never hope to become insiders.

Most people in the business and financial community believe that western Europe needs a reform agenda based on more active capital markets, less regulation of business and employment and lower levels of taxation and social protection. They shake their heads wearily as the European public persistently rejects these proposals. And there have been many opportunities to shake those heads in the past few months.

Germany’s far from radical Christian Democratic Union could only take the chancellorship from the tired Gerhard Schröder by forming a grand coalition with his Social Democrats. Modest proposals to introduce short-term contracts for young French workers were rejected in demonstrations on the streets of Paris. Last week, Italian voters chose to replace Silvio Berlusconi, who talked about the reform agenda even if he did not do much, with Romano Prodi, whose coalition is unwilling even to allow him to talk about it.

Throughout history, politics has been a process in which insider groups use their control of the state apparatus to gain economic and social advantages over outsiders. In Nigeria and other poor countries, groups compete to become insiders and loot resources for their personal benefit. Latin America has been divided for almost two centuries as a landowning class supported by the military tries to keep at bay a landless majority.

Since the advent of democracy, controlling economic elites seeking to hold on to political power have needed non-economic issues on which they can mobilise popular support. Belligerent nationalism and the need to maintain traditional moral values are familiar devices to persuade the poor to vote for the rich. The modern Republican party exemplifies this, benefiting from the religiosity of middle America and the credibility that terrorism gives to the notion of external threat.

But continental Europe is now determinedly secular and has learnt the lessons of destructive wars. Moral issues have little political resonance and the nationalist card can no longer be played. The states of western Europe – rich, liberal and tolerant democracies – are the first in history in which insiders represent a large proportion of the population. Many insiders work in the public sector: many who do not still enjoy the benefits of secure jobs, generous social welfare and high levels of public services. These armies of the privileged will not vote to give these privileges up, however much this may anger the business and finance community, which does not exercise the influence it enjoys in the US, and which it gained in Thatcher’s Britain and maintains under New Labour.

Europe’s demographic problems are real and globalisation threatens to turn many unskilled workers from insiders into outsiders. But the exaggeration of these threats only makes people more determined to hold on to their entitlements. The argument that you should give up something you value now because you may be forced to give it up in future is rarely persuasive, especially if these projections are not very credible.

So every presentation of the reform agenda simply provokes the opposition of the majority. Students demonstrating against the French reforms did not want the distinction between insiders and outsiders eroded: they want to become insiders, and for most this is an entirely realistic aspiration. The victims are those who can never hope to become insiders – immigrant minorities, unemployed young people in sink housing estates.

Unless there is a big social or economic crisis – possible in Italy but not at all likely in any other western European state – the reform agenda will not be adopted. In the meantime, the very existence of the reform agenda means that even piecemeal proposals that might otherwise obtain majority support – to remove excessive privileges from public sector workers or farmers or to liberalise energy markets – are very difficult to implement. Opponents of these measures represent them as the thin end of the wedge. They are right: advocates contend that they should be the thin end of the wedge.

Europe’s economic problems are real, intractable and not very serious. They are the product of democracy and prosperity.

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