Tuesday, January 27, 2009

The Next Paradigm Shift?: Toward a New Political Economic Model

The last paradigm shift in our political economy was one away from government and toward market driven.

According to author Daniel Yergin, and other analysts and solons at the Davos-fest, who mapped the shift to market driven, we may be heading to a more European model. Since "welfare" has developed such a negative connotation, perhaps we need to coin a new term to replace "welfare state": one pundit mentions "the social state"; how about "The Humane State" ? Or better yet, "The Sane State"?

Is Europe's welfare system a model for the 21st century?
By Katrin Bennhold

Tuesday, January 27, 2009

DAVOS, Switzerland: Along with skiing and partying into the night, Europe-bashing has long been a favorite sport, whenever the world's business and political elite gather here for their once-a-year winter schmoozefest.

But this year many of the critics have fallen conspicuously silent. As top executives, government leaders and a wide range of experts gathered Tuesday for the weeklong World Economic Forum to talk about the challenges facing the battered global economy, the question many were asking was this: Could Europe's much-reviled social welfare system actually end up being the model for the 21st century world?

In the United States, the global stock market rout has wiped out trillions of dollars in retirement savings and rising unemployment is leaving more people without health insurance. In response, officials of the new administration of President Barack Obama have been busy studying the Swedish bank bailout of the 1990s and the Swiss and Dutch health care systems and have been quietly contemplating whether Europe's high fuel taxes and carbon trading system are the right way to limit the burning of fossil fuels that contributes to global warming.

In China, where the demise of the American consumer has exposed the perils of excessive savings at home, the government has not only recently proffered a big Keynesian-style stimulus program but has also just announced a three-year plan to provide universal health care. Though modest by comparison, China's health care plan goes in the direction of what has long been considered a fundamental right in Europe.

"When the world's biggest economy and the world's biggest emerging economy look for lessons in the same place at the same time, you know something is up," said Kenneth Rogoff, a professor at Harvard University and former chief economist of the International Monetary Fund, who is one of the 2,500 participants in Davos this year. "We are seeing a paradigm shift towards a more European, a more social state."

Such shifts are rare.

The Depression of the 1930s eventually ushered in Keynesian demand-side policies and, after a devastating world war, firmly established the need for some sort of welfare state in every major industrial democracy.

The oil price shocks of the 1970s and a wave of inflation helped turn the governing approach in the other direction, empowering Ronald Reagan and Margaret Thatcher and other advocates of lower taxes, smaller government and deregulation.

A year ago, at the opening of the 2008 World Economic Forum, a front-page article in the International Herald Tribune suggested that global capitalism was again ripe for such a generational transformation. Amid the worst financial crisis since the Depression, that transformation is now in full swing.

With whole swaths of the banking sector being propped up by trillions of dollars in taxpayer funds and hundreds of billions more being dedicated to deficit-financed public spending programs across the world, the most striking feature so far is the comeback of big government.

The the full article from today's International Herald Tribune appears here:

http://www.iht.com/articles/2009/01/27/business/27shift-416683.php

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