an elected class of familiar politicians. Insofar as ‘Europe’ had a distinctive goal, its economic strategy was still grounded in the calculations and ambitions of the Fifties. As for its politics: the confident, interventionist tone of pronouncements from the European Commission—and the authority and open chequebooks with which European experts descended on distant regions—bespoke a style of government rooted firmly in the social-democratic heyday of the early Sixties.
For all their laudable efforts to transcend the shortcomings of national political calculation, the men and women who were constructing ‘Europe’ in the Seventies and Eighties were still curiously provincial. Their greatest trans-national achievement of the time, the Schengen Agreement signed in June 1985, is revealingly symptomatic in this respect. Under the terms of this arrangement France, West Germany and the Benelux countries agreed to dismantle their common frontiers and inaugurate a shared regime of passport control. Henceforward it would be easy to cross from Germany to France, just as it had long been unproblematic to move between, say, Belgium and Holland.
But Schengen signatories had to commit themselves in return to ensuring the most stringent visa and customs regimes between themselves and non-participating countries: if the French, for example, were to open their frontiers to anyone crossing from Germany, they had to be sure that the Germans themselves had applied the most stringent criteria at
XVII. The New Realism
‘There is no such thing as Society. There are individual men and women, and there are families’.
‘The French are starting to understand that it is business that creates wealth, determines our standard of living and establishes our place in the global rankings’.
‘At the end of the Mitterrand experiment, the French Left appeared more devoid of ideas, hopes and support than it has been in its entire history’.
Every politically significant revolution is anticipated by a transformation of the intellectual landscape. The European upheavals of the 1980s were no exception. The economic crisis of the early Seventies undermined the optimism of Western Europe’s post-war decades, fracturing conventional political parties and propelling unfamiliar issues to the center of public debate. Political argument on both sides of the Cold War divide was breaking decisively with decades of encrusted mental habits—and, with unexpected speed, forming new ones. For better and for worse, a new realism was being born.
The first victim of the change in mood was the consensus that had hitherto embraced the post-war state, together with the neo-Keynesian economics that furnished its intellectual battlements. By the late 1970s the European welfare state was starting to count the cost of its own success. The post-war baby-boom generation was entering middle age, and government statisticians were already warning of the cost of supporting it in retirement—a problem that loomed closer on the budgetary horizon thanks to widespread reductions in the retirement age. Of West German males aged 60-64, for example, 72 percent were working full time in 1960; twenty years later, only 44 percent of men in this age group were still employed. In the Netherlands the fall was from 81 percent to 58 percent.
Within a few years the largest generational cohort in Europe’s recorded history would cease to contribute taxes to the national exchequer and would begin to extract huge sums—whether in the form of guaranteed state pensions or, indirectly but with comparable impact, by making increased demands upon state-maintained medical and social services. Moreover, being also the best-nurtured generation ever, they would almost certainly live longer. And to this concern was now added the growing cost of paying unemployment benefits, by 1980 a major budgetary consideration in every Western European state.
These widespread anxieties were not unfounded. The post-war welfare states rested upon two implicit assumptions: that economic growth and job creation (and thus government income) would continue at the high levels of the fifties and sixties; and that birth-rates would remain well above replacement level, ensuring a ready supply of new tax-payers to pay for their parents’—and grandparents’—retirement. Both assumptions were now open to question, but the demographic miscalculation was the more dramatic of the two. By the beginning of the 1980s, in Western Europe, the population replacement ratio of 2.1 children per woman was being met or exceeded only in Greece and Ireland. In West Germany it stood at 1.4 per woman. In Italy it would soon fall lower still: whereas in 1950, 26.1 percent of Italians—more than one in four—was under 14 years old, by 1980 that figure stood at 20 percent, or one in five. By 1990 it would fall to 15 percent, approaching one in seven.[248]
In prosperous Western Europe, then, it appeared that within two decades there would not be enough people around to pay the bills—and prosperity itself seemed to be the culprit, together with reliable contraception and a growing number of women working outside the home.[249] The result was ever higher charges on those in a position to pay. Already the cost of pension and national insurance provision in some places (France, notably) weighed heavily on employers—a serious consideration in a time of endemic high unemployment. But direct charges on the national exchequer were a more immediate concern: as a percentage of GDP, government debt by the mid-1980s was reaching historically high levels—85 percent, in the Italian case. In Sweden, by 1977, one-third of the national product was taken up by social expenditures, a budgetary charge that could only be met either by deficits or else by raising taxes on the very constituencies—employed workers, civil servants and professionals—on whom the Social Democratic consensus had hitherto depended.
Public policy since the 1930s rested on a broadly unquestioned ‘Keynesian’ consensus. This took for granted that economic planning, deficit financing and full employment were inherently desirable and mutually sustaining. Its critics offered two lines of argument. The first, quite simply, was that the array of social services and provisions to which Western Europeans had become accustomed were not sustainable. The second argument, offered with particular urgency in Britain—where the national economy had staggered from crisis to crisis for most of the post-war decades—was that, sustainable or not, the interventionist state was an impediment to economic growth.
The state, these critics insisted, should be removed as far as possible from the market for goods and services. It should not own the means of production, it should not allocate resources, it should not exercise or encourage monopolies, and it should not set prices or incomes. In the view of these ‘neo-liberals’, most of the services currently furnished by the state—insurance, housing, pensions, health and education—could be provided more efficiently in the private sector, with citizens paying for them out of income no longer (mis-)directed to public resources. In the view of one leading exponent of free-market liberalism, the Austrian economist Friedrich Hayek, even the best-run states are unable to process data effectively and translate it into good policy: in the very act of eliciting economic information they distort it.
These were not new ideas. They were the staple nostrums of an earlier generation of pre-Keynesian liberals, brought up on the free-market doctrines of neo-classical economics. In more recent times they were familiar to specialists from the work of Hayek and his American disciple Milton Friedman. But with the Depression of the 1930s and the demand-led boom of the Fifties and Sixties, such views had been typically dismissed (in Europe at least) as politically myopic and economically anachronistic. Since 1973, however, free-market theorists had re-emerged, vociferous and confident, to blame endemic economic recession and attendant woes upon ‘big
