Third way or third rail?

I have always been somewhat suspicious of the various "social pacts" that describe the way western Europeans were supposed to divvy-up the spoils. Labor union reps sit on coporate boards of directors and the chieftains of labor and capital are well represented in the various political establishments. Very clubby. Along the way, entitlements and high taxes add up to the sweet life that Americans should envy -- and emulate. Really?

The recent "no" votes on the proposed EU constitution suggest that it is not that simple. High unemployment rates and so-so growth performance, mass immigration, paranoia about the U.S. and more have added up to considerable and not-yet-focused disaffection.

David Brooks sums it up in this morning's NY Times.

"Fear and Rejection"
By DAVID BROOKS

"Forgive me for making a blunt and obvious point, but events in Western Europe are slowly discrediting large swaths of American liberalism.

"Most of the policy ideas advocated by American liberals have already been enacted in Europe: generous welfare measures, ample labor protections, highly progressive tax rates, single-payer health care systems, zoning restrictions to limit big retailers, and cradle-to-grave middle-class subsidies supporting everything from child care to pension security. And yet far from thriving, continental Europe has endured a lost decade of relative decline.

"Western Europeans seem to be suffering a crisis of confidence. Election results, whether in North Rhine-Westphalia or across France and the Netherlands, reveal electorates who have lost faith in their leaders, who are anxious about declining quality of life, who feel extraordinarily vulnerable to foreign competition - from the Chinese, the Americans, the Turks, even the Polish plumbers.

"Anybody who has lived in Europe knows how delicious European life can be. But it is not the absolute standard of living that determines a people's morale, but the momentum. It is happier to live in a poor country that is moving forward - where expectations are high - than it is to live in an affluent country that is looking back.

"Right now, Europeans seem to look to the future with more fear than hope. As Anatole Kaletsky noted in The Times of London, in continental Europe "unemployment has been stuck between 8 and 11 percent since 1991 and growth has reached 3 percent only once in those 14 years."

"The Western European standard of living is about a third lower than the American standard of living, and it's sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas. There is little prospect of robust growth returning any time soon.

"Once it was plausible to argue that the European quality of life made up for the economic underperformance, but those arguments look more and more strained, in part because demographic trends make even the current conditions unsustainable. Europe's population is aging and shrinking. By 2040, the European median age will be around 50. Nearly a third of the population will be over 65. Public spending on retirees will have to grow by a third, sending Europe into a vicious spiral of higher taxes and less growth.

"This is the context for the French "no" vote on the E.U. constitution. This is the psychology of stagnation that shaped voter perceptions. It wasn't mostly the constitution itself voters were rejecting. Polls reveal they were articulating a broader malaise. The highest "no" votes came from the most vulnerable, from workers and the industrial north. The "no" campaign united the fearful right, led by Jean-Marie Le Pen, with the fearful left, led by the Communists.

"Influenced by anxiety about the future, every faction across the political spectrum found something to feel menaced by. For the Socialist left, it was the threat of economic liberalization. For parts of the right, it was the threat of Turkey. For populists, it was the condescension of the Brussels elite. For others, it was the prospect of a centralized European superstate. Many of these fears were mutually exclusive. The only commonality was fear itself, the desire to hang on to what they have in the face of change and tumult all around.

"The core fact is that the European model is foundering under the fact that billions of people are willing to work harder than the Europeans are. Europeans clearly love their way of life, but don't know how to sustain it.

"Over the last few decades, American liberals have lauded the German model or the Swedish model or the European model. But these models are not flexible enough for the modern world. They encourage people to cling fiercely to entitlements their nation cannot afford. And far from breeding a confident, progressive outlook, they breed a reactionary fear of the future that comes in left- and right-wing varieties - a defensiveness, a tendency to lash out ferociously at anybody who proposes fundamental reform or at any group, like immigrants, that alters the fabric of life.

"This is the chief problem with the welfare state, which has nothing to do with the success or efficiency of any individual program. The liberal project of the postwar era has bred a stultifying conservatism, a fear of dynamic flexibility, a greater concern for guarding what exists than for creating what doesn't.

"That's a truth that applies just as much on this side of the pond."