The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction
• Part 1: Rights, Property, and Markets
• Property Or “property Rights”? *
• “design Faults” In Locke’s Theory of Property Taint Ownership With Guilt *
• Is Ownership a Myth? *
• How to Get a Free Lunch? Just Apply For It *
• The Problem of Contract Enforcement *
• The Public Goods Dilemma *
• Trying the Free Market *
• The Statist Legacy *
• Part 2: The Common Sense of Non-economics
• The Yakoubovich Syndrome, Or Lies, Damn Lies, and Economic Policy *
• Winning Policy Battles But Losing the War Against Economic Realities *
• Paying Ourselves More of Their Money *
• The Doctrine of “unequal Exchange” the Last Refuge of Modern Socialism? *
• Corporate Managers Are They Going to Kill Capitalism? *
• When the Economy Needs Morals *
• The Political Economy of Force-feeding *
• Hostile to Whom? *
• Mannesmann’s Courtesy Could Prove Rare *
• Part 3: French and Russian Tragicomedies
• Can Putin Build a Real Economy From Oil and Rigor? *
• Russia and the New Europe Growing Apart *
• Russia Hopping Along On Clay Feet *
• The French Tragicomedy *
• How the French “social Model” Could Self-destruct *
• A Little Bit of History Repeating *
• There Is No French Exception *
• The Hobbling of Private France *
• Part 4: The Capitalism They Hate
• The Capitalism They Hate *
• Striving to Get Richer and Poorer *
• “bread and Circuses” In the Modern Welfare State *
• Who Minds the Gap? *
• Float Or Sink? the Millstone of the “social Market” In Germany *
• How Germany and France, the Sick Men of Europe, Torture Themselves *
• Shall We Borrow From the Children? *
• Low Pay *
• Freedom to Strike Or Right to Strike? *
• Part 5: Creating Unemployment
• Stamp Your Feet and Demand a Fair Deal *
• Paternalism and Employment *
• The Things Labor Unions Are Up to *
• The Instability of the Welfare State *
• Some Bad News Could Be Good News *
• Built-in Unemployment Social Protection Costs More Than It Is Worth *
• Let ’s Throw This Model Away *
• How to Stifle Employment By “social Protection” *
• Workable Alternatives *
• A Tale of Two Models *
• A Vicious Circle of Social Kindness *
• Part 6: The Future of Europe
• The Economic Consequences of a United States of Europe *
• A Giant Free-trade Area Or a Political Counterweight to America? *
• European Crosscurrents and the Federalist Drift *
• How Confederacy Could Turn Into a Federal Superstate *
• Majority Rule By Any Other Name *
• What Now For “europe”? Why the People Failed Their Masters *
• Free-riding On the Euro *
• Some Democratic Economics *
• The Soviet Legacy *
• A War of Attrition Between Economic Reality and Political Dreams *
• A Brightening of the Economic Skies Over Brussels? *
• Turkey Knocking On Europe’s Door *
• Turkey and the Eu Club *
• Europe More Secular and More Islamist *
• A Bill of Rights Europe Did Not Need *
• Europe’s Social-democratic “government” *
• Power Corrupts, So Let ’s Make It Less Absolute *
• Part 7: Economics, True and False
• On the Economics of Protecting Employment *
• The Costly Mistake of Ignoring Opportunity Costs *
• “globalization” and Its Critics Mutual Gain Vs. Cloud-cuckoo Land *
• Are High Oil Prices a Form of Exploitation? *
• Immigration What Is the Liberal Stand? *
• More Nonsense On Stilts Mr. Bentham Is At It Again *
• Risk, Value, and Externality *

WORKABLE ALTERNATIVES*

Just a few weeks ago, German or French workers accepting to work longer hours for the same pay, forgoing pay rises already agreed to, and conceding flexible work practices would have been but a delirious vision. All the news flow went the other way, and has been going the other way for decades. Shorter hours, higher pay, more “codetermination,” more workers’ “rights,” and fewer prerogatives for management seemed an inexorable trend. It demarcated the “European social model” from such deviations as the Thatcher reforms, the Dutch sobering-up, or the Swedish attenuation of their welfare state. The “model” entailed chronically high unemployment, which governments and unions took as a good reason for imposing still shorter hours to share the available work—and so the merry-go-round kept going round.

All of a sudden, the business scene is swarming with deals, concluded under negotiation or tentatively floated at board level, in which labor makes concessions in exchange for management forgoing job cuts or—the ultimate threat—moving operations and leaving the employees behind. Everyone in Paris, plus a vocal minority in Berlin, now indignantly cries “blackmail.” Is it?

OCCASIONS OF BLACKMAIL

Strictly speaking, a threat meant to extort a concession from someone is blackmail only if the threatened act is a tort. Making employees redundant or moving production from Baden-Württemberg to South Africa is not a tort. Nor is it, until further notice, unlawful. Any attempt to make it so would entail an ever-lengthening string of other controls to shore it up, leading to massive evasion, a speeding up of the euro-zone’s economic decline, or both.

However, while deals in which labor won all the concessions used to pass muster with public opinion, the deals management has recently been winning seem to create concerns for justice. For in a loose, colloquial sense there is indeed an element of blackmail in these novel agreements. They have the ring of blackmail because they have posed such drastic choices. It is as well to say, though, that anything less drastic would have failed to reverse the long-established trend of less work for the same pay.

The sophisticated case for the blackmail argument is that our choices are free when we have no or only a slight preference for one alternative over the next-worse one, but that the choice becomes progressively less free as the next-worse alternative gets worse and worse. With full employment, saying no to the boss and looking for other work is hardly worse than accepting his terms. With grim job prospects and unemployment at the French or German level, however, the next-worse alternative to accepting the bosses’ terms is bad indeed. The workers, as the saying goes, have “no alternative.” They are being blackmailed.

One might well ask: And whose fault is that? Who caused the loss of French and German economic vigor since the mid-1970s and its concomitant unemployment? Who dreamed up the “European social model,” who built it up by relentless tinkering, who is “struggling” for job creation, and who is resisting any timid attempt to let loose the normal forces of normal job creation?

Government apologists who boast of a relatively high level of inward foreign investment as proof that their economies are not as unhealthy and unattractive as all that, should look instead at the dismal trends in business investment from domestic sources. Across all industries, returns on capital in the Franco-German “core” of Europe are mediocre. Where the average is mediocre, too many individual branches and firms have sunk or fear soon to sink below the break-even point. The threat to relocate unless more work comes forth for no greater pay is an obvious enough escape route. Once a few bold spirits have shown the way by braving the political signposts that signalled “no entry,” “no through road,” the rush to cut costs by putting drastic choices before labor has quickened and broadened.

What of the near-term future? “Blackmail” is widely resented but will not be easily resisted. Despite its obligatory “social” overtones, German discourse still regards the employer-employee relation as a matter of contract and not the reserved domain of public law. Moreover, after several decades of asking water to flow upward, it is recognized that its natural inclination is to flow downward. Most Germans have some respect for economic realities, and major new legislative attempts to suspend them are on balance not very likely.

FRENCH HOSTAGES

The French case could hardly be more different: President Jacques Chirac has resolutely vetoed attempts to repeal the thirty-five-hour workweek, which he deems a “social right,” and calls tampering with it a “slippery slope.” His premier, Jean-Pierre Raffarin, has condemned the use of unequal bargaining power and declared that he will “not accept blackmail” of labor. On June 28 the official government spokesman promised measures in 2005 to “control the relocation of enterprise,” with a preliminary “social dialogue” to start next September. If this is what a government that calls itself center-right proposes to do, how would a government that called itself Socialist go about it? Some would answer that in France you could not tell the difference.

In any event, it is hard to see how the French, or any other, government can in practice “not accept” the purported blackmail of wage-earners. It can hardly make firing them any more difficult than it already is. It could, as a last resort, try and stop employers from escaping their own hard-to-fire employees by relocating abroad. Pushed to its logical limit, the remedy would be to take existing enterprises hostage within the national jurisdiction—never mind that there would thereafter hardly be any new ones. The suggestion is cloud-cuckoo silly. No logic, except possibly the renowned Cartesian one, could seriously advance it.

[* ]First published in the Wall Street Journal Europe, October 6, 2004. Reprinted by permission.