Social Democracy and Global Competitiveness

When I read this portion of Ross Douthat’s column a few days ago, I scratched my head:

Social democracy has its benefits, but global competitiveness isn’t one of them. As Jim Manzi points out, in an essay on “Keeping America’s Edge” in the latest issue of National Affairs, “from 1980 through today, America’s share of global output has been constant at about 21 percent. Europe’s share, meanwhile, has been collapsing in the face of global competition — going from a little less than 40 percent of global production in the 1970s to about 25 percent today.”

Central Station, Stockholm, Sweden (photo by me, available under cc license)

Central Station, Stockholm, Sweden (photo by me, available under cc license)

The implication here is of a huge shift in relative living standards that never happened. The fact that this doesn’t take account of population growth is suspicious.

Jon Chait, for his new blog, delves in deeper and discovers a few salient points. One, Manzi is comparing US economic performance since 1980 to European performance since 1973—which is nuts. Two, Manzi is defining “Europe since 1973” to include the Soviet Union and sundry Central European countries that spent half that period in the Communist bloc:

So, let’s look at a straight-up measure. How did the United States perform in comparison with European social democracies? Well, since 1980, the original 15 members of the European Union saw their real per capita income grow by 58%. Real per capita GDP in the United States grew by… 63%. And that measure actually overstates the difference. The European Union does not include Switzerland, Norway or Iceland — three countries that clearly qualify as European social democracies. Those three countries had 71% growth in per capita GDP since 1980 — thanks to Isha Vij of the Center for American Progress for pointing this out to me — which, if added to the EU 15, would bring the growth record of the United States and the social democracies even closer to parity.

There are three main differences in living standards between the United States and Europe. One is that the US has long been somewhat wealthier than the biggest European countries, dating back to the 19th century. Two is that the US is much less egalitarian than Europe—a bigger share of European output is in the hands of the poor and the middle class, and a smaller share in the hands of the rich. The third is that Americans work more than most western Europeans:

Hours_Worked 1

These last two show us what I think is the real meaning of social democracy for a developed country—you get more equality and more vacation, with no real impact on the rate of growth. There’s a case to be made that less vacation and better televisions are a better deal than more vacation and worse televisions (the two things I like to do on vacation are go to Europe and watch TV, so I have mixed feelings about this) and there’s a tradition of philosophical argument which holds that the failure of modern mixed economies to be sufficiently solicitous of the interests of the wealthy is a major source of injustice. But though some level of income inequality would seem to be necessary to achieve economic growth, within the range that actual developed countries exist at there’s no evidence that inegalitarian policies boost growth.