Many Europeans believe liberal economic reforms are incompatible with social justice. The US and the UK, they point out, have more liberal markets for products and labour than in continental Europe – but also higher levels of poverty and income inequality. European countries therefore face a choice. They can either free their product and labour markets and accept the downsides or they can protect social solidarity by resisting Anglo-American neo-liberalism.
But the belief that market liberalisation increases social inequalities is not borne out by the evidence. The UK certainly has higher levels of poverty and inequality than France or Germany. But pointing this out is just selective use of evidence to support a predetermined conclusion. If there were a strong correlation between levels of market liberalisation and social outcomes, one would expect to see the pattern replicated across the European Union – not just in a carefully selected group of countries.
Is such a pattern discernible? No. The nation with the lowest levels of poverty and income inequality in the EU, as well as the lowest rate of long-term unemployment, is Denmark – a country with competitive product markets and some of the least restrictive labour laws. Countries with the worst social outcomes (Greece, Italy and Portugal) all have restrictive product and labour market laws. Liberalisation, it seems, no more threatens social justice than regulation guarantees it.
So what explains these differences in social outcomes? The answer, one might think, must be differences in spending by governments. Social spending is certainly high in egalitarian countries such as the Nordics. But it is just as high in France, where social inequalities are more marked. Likewise, it is as high in the supposedly heartless UK as it is in the egalitarian Netherlands. Contrary to popular belief, the UK is not governed by a callous minimal state.
Somewhat related: local discussion on Madison’s Equity Task Force.