Reforming Europe: Is the Third Way the Only Way?

prisme3Prisme N°3 January 2004

Bruno Amable

Also available in Japanese

The subject of reform is at the heart of current economic debate in Europe. The “Sapir Report” is the latest example. It denounces the institutions of the European model for keeping the European Union from growing at a sufficient pace. These institutions, it claims, are creating roadblocks to structural changes, changes that have been made vital by the important role of innovation in today’s world. The Report claims that the answer lies in implementing reforms to increase “microeconomic” efficiency.

This text examines critically this argument. If Europe were to adopt these reforms, European countries would have to switch to a different model of capitalism. That would mean abandoning the European model – characterized by a high degree of social security and employment protection – for the neo-liberal model, with its reduced social security and flexible labour markets.

This booklet compares the growth and innovation performances of France and Germany with those of the U.K. and the U.S., as well as with those of Sweden and Finland. These comparisons reveal the need to question, at the very least, the current rhetoric of the uncontested superiority of the neo-liberal model. I underline that even if the different models are capable of providing comparable overall performances, they do not have the same consequences in terms of income distribution and coverage of social risks.

Consequently, choosing a model, by its very nature, is a political choice. Therefore, choosing the reform means choosing to forge ahead with changes that took place during the Conservative Revolution in the U.S. and the U.K. (i.e. the Margaret Thatcher and Ronald Reagan years). A new dimension of this debate is that centre-left parties are adopting the political project of converting to the neo-liberal model, which is usually only associated with conservative parties.

This text concludes by examining two scenarios of structural change. The first scenario envisages the completion of the reform and the transformation of the European model to a neo-liberal one. The second scenario involves a transition towards a social-democratic model of capitalism. Neither scenario is without significant political consequences.