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Friday, July 29, 2005


It's the quality of life, stupid

To see why capitalism is broadly preferable to communism, one only has to compare South Korea with North Korea. Or to look at the wreckage in Eastern Europe, which will take decades to put right.

Such comparisons answer the criticism that capitalism makes people poor. The problem is rather the damage that capitalism does to the social fabric. This is why I disagree with market fundamentalists (who, as J K Galbraith recently noted, are embarrassed to use the word 'capitalism', preferring the euphemism 'free market').

Paul Krugman, writing in today's New York Times, notes how right-wingers are always banging on about 'choice' and 'family values' while pursuing policies that undermine both. He takes a brave step for an American, by drawing comparisons with France.

article is worth reading in full but, since one must register to read it online, I'll quote it in full:


Americans tend to believe that we do everything better than anyone else. That belief makes it hard for us to learn from others. For example, I've found that many people refuse to believe that Europe has anything to teach us about health care policy. After all, they say, how can Europeans be good at health care when their economies are such failures?

Now, there's no reason a country can't have both an excellent health care system and a troubled economy (or vice versa). But are European economies really doing that badly?

The answer is no. Americans are doing a lot of strutting these days, but a head-to-head comparison between the economies of the United States and Europe - France, in particular - shows that the big difference is in priorities, not performance. We're talking about two highly productive societies that have made a different tradeoff between work and family time. And there's a lot to be said for the French choice.

First things first: given all the bad-mouthing the French receive, you may be surprised that I describe their society as "productive." Yet according to the Organization for Economic Cooperation and Development, productivity in France - G.D.P. per hour worked - is actually a bit higher than in the United States.

It's true that France's G.D.P. per person is well below that of the United States. But that's because French workers spend more time with their families.

O.K., I'm oversimplifying a bit. There are several reasons why the French put in fewer hours of work per capita than we do. One is that some of the French would like to work, but can't: France's unemployment rate, which tends to run about four percentage points higher than the U.S. rate, is a real problem. Another is that many French citizens retire early. But the main story is that full-time French workers work shorter weeks and take more vacations than full-time American workers.

The point is that to the extent that the French have less income than we do, it's mainly a matter of choice. And to see the consequences of that choice, let's ask how the situation of a typical middle-class family in France compares with that of its American counterpart.

The French family, without question, has lower disposable income. This translates into lower personal consumption: a smaller car, a smaller house, less eating out.

But there are compensations for this lower level of consumption. Because French schools are good across the country, the French family doesn't have to worry as much about getting its children into a good school district. Nor does the French family, with guaranteed access to excellent health care, have to worry about losing health insurance or being driven into bankruptcy by medical bills.

Perhaps even more important, however, the members of that French family are compensated for their lower income with much more time together. Fully employed French workers average about seven weeks of paid vacation a year. In America, that figure is less than four.

So which society has made the better choice?

I've been looking at a new study of international differences in working hours by Alberto Alesina and Edward Glaeser, at Harvard, and Bruce Sacerdote, at Dartmouth. The study's main point is that differences in government regulations, rather than culture (or taxes), explain why Europeans work less than Americans.

But the study also suggests that in this case, government regulations actually allow people to make a desirable tradeoff - to modestly lower income in return for more time with friends and family - the kind of deal an individual would find hard to negotiate. The authors write: "It is hard to obtain more vacation for yourself from your employer and even harder, if you do, to coordinate with all your friends to get the same deal and go on vacation together."

And they even offer some statistical evidence that working fewer hours makes Europeans happier, despite the loss of potential income.

It's not a definitive result, and as they note, the whole subject is "politically charged." But let me make an observation: some of that political charge seems to have the wrong sign.

American conservatives despise European welfare states like France. Yet many of them stress the importance of "family values." And whatever else you may say about French economic policies, they seem extremely supportive of the family as an institution. Senator Rick Santorum, are you reading this?
[Santorum is Republican Conference Chairman and a leading opponent of social welfare.]

Oh, and one more comparison with a communist country. The USA has a lower rate of adult literacy and a higher rate of child mortality than Cuba.

Orange Book Tendency please take note!
This comment has been removed by a blog administrator.
I don't understand how working time regulation equals "welfare state".

I agree absolutely that people need to be able to choose their own balance between work and family life. If government regulation is the only way of giving people a choice, then government regulation it may have to be. Personally, I'm dubious about that notion... my natural instinct is against regulating things.

I'd say that copying France, a country with a very high unemployment rate, should not be Plan A. It might be Plan B (or Plan Z), but might there not be a better way? I don't claim to know what it is, but I don't accept the notion that we have to trade unemployment for a substantial minority so that those families with two working parents can spend a bit more time on holiday.
Rob - Krugman is not arguing that "we have to trade unemployment for a substantial minority so that those families with two working parents can spend a bit more time on holiday." His argument is that the trade-off is between disposable income and quality time.

France's high unemployment is, in any case, not due to the lower average working hours of the working population. If the working population were to work longer hours, all other things remaining equal, the effect would probably be to lower the number of jobs still further.

I find the visceral hostility of American conservatives towards Europe an interesting phenomenon. My view is that it is rooted in America's puritan ethic. Their economic arguments are mere cant - what they really dislike is the idea that other people might be enjoying themselves.
France's unemployment may not be directly or solely due to the working time regulations, but something must be causing it. There appears to be a correlation between lower regulation (in general) and lower unemployment, as the barriers to work are lower and the incentives higher.

At the risk of sounding a bit like Tony Blair, I don't think there's only the two opposites to choose from. The US model is clearly undesirable in many ways, but the French model is not without its flaws. Government regulation tends to have a "one size fits all" approach, which might benefit some but might hold back others (for example those who want to work more hours). The current UK policy (state-provided childcare) is the worst of both worlds. But what would be the best?

As I said, it's a question I don't have the answer to, but I think it's an answer worth looking for.
This recent Economic Survey of France by the OECD suggests some answers.
"If the working population were to work longer hours, all other things remaining equal, the effect would probably be to lower the number of jobs still further."

But the point is that other things would not remain equal. Otherwise you have the lump of labour fallacy
True, but the solution to French unemployment is not for the French workforce to take two-week paid holidays instead of the six at present, as puritanical American conservatives argue.

The OECD study (quoted in an earlier comment) describes a complex problem and suggests a mix of responses.
"The OECD study [...]describes a complex problem and suggests a mix of responses"'''''

...including weakening the regulation of working hours. Which suggests that your earlier statement:

"France's high unemployment is, in any case, not due to the lower average working hours of the working population."

is in fact incorrect.
The OECD is correct in identifying that, for example, the 35-hour rule has been a failure, not even achieving what the Jospin government originally claimed for it. The only real beneficiaries of this rule have been well-paid executive workers.

However, the OECD is not arguing for the complete removal of all working hours regulations, nor is it arguing that lower average working hours are per se a cause of unemployment.

As Paul Krugman argued in his NYT article (the original point of this posting), it is a matter of striking the right balance. Quality of life isn't just about money.

It is also basically a moral question, not an economic one - whether one views workers as human beings or as mere objects.
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