LA Times: Sunday, February 6, 2000
DAVOS, SWITZERLAND--When President Bill Clinton was scheduled to give his speech here last week, security officials told the capacity crowd to clear the room so the president s security team could check for bombs.
The audience of corporate and media big shots and government officials from around the world refused and the president's s security team backed down.
That was about the only setback the United States shared at the World Economic Forum. Europeans, Japanese and developing - country, leaders came to Davos awed by the longest economic boom in the. history of the United States,. Both Europe and Japan have unemployment rates higher than the U.S.; both are still searching for the secret of growth as the United States powers ahead, apparently unstoppable.
Two new developments have made a deep impression on the Europeans this year. First, despite all the best efforts of Europe politicians mid central bankers to talk it up, the euro, once touted as a currency that would challenge the dollar, continued to sink like a stone. In fact, it reached a record low against the dollar during the forum
The euro problems embarrass and annoy the Europeans. What has gotten them scared is the net.
European companies and economics have fallen behind the U.S. when it comes to the Internet. High connection costs, corporate conservatism and government suspicion kept Europe from jumping on the Internet bandwagon while key U.S. companies moved ahead. With news of the AOL-Time Warner merger , still reverberating in world financial markets, proud European companies, and their governments, suddenly realized that the Internet-powered new corporate sector in the United States could soon be eating European business for lunch and dinner. Not only can e-oriented U. S. companies gobble up European companies using high stock values and a strong dollar; net-wise U. S. companies can also offer lower transaction costs and greater flexibility than their European rivals, winning customers and market share across many market sectors and industries.
This has lit a fire under European companies, though not yet under the governments. The World Economic Forum, which started as a European-based corporate retreat 30 years ago, is still heavy with European managers. They flocked to standing-room-only meetings on e-commerce and its implications for corporate management and rnarketing, listening attentively to every word of wisdom from the lips of such, U.S. corporate superstars as Michael S. Dell and Stephen M. Case.
But if euro-business is migrating to the net as fast as it can, European governments are still looking for excuses. One of the dirty little secrets of America? service and Internet boom is that low wages and flexible labor markets helped make it all happen- Economic change means job instability. Start-up companies need to expand, and sometimes contract, their labor forces quickly; employees must be willing to work long hours for speculative rewards-stock options instead o-f high salaries. Established companies must close old divisions as they adjust to changing conditions, throwing older workers on the street while hiring kids who have grown up on the new technologies.
European governments and voters hate this, Lifetime -employment at good wages with long vacations and cushy pensions at an early age remain key goals of many European voters and labor unions. Even small changes in this system can set off massive strikes and demonstrations in many European countries.
European Union politicians at Davos spoke bravely about Europe? commitment to competitiveness and bragged about steps Europe was taking to become more e-commerce-friendly, but serious labor-market reform was clearly off the table. Europe knows it needs to start swimming in the bracing seas of the new economy, but finds the water too cold. Europe has put an its bathing suit and goggles, invested in a set of flippers and even dipped a toe or two in the water, but it just can't bring itself to jump in.
Faced with that, European investors and companies are shifting their money into the U. S. market. Indeed, many commentators believe it is the strong and steady outflow of capital from Europeans who lack confidence in the EU? future that has weakened the euro so dramatically against the dollar.
But the Europeans aren't the only ones facing unpleasant political realities- Clinton? speech gave strong evidence that politicians in the United States are having second thoughts about basic economic policies as well
While reaffirming his commitment to free trade, Clinton, made a powerful plea for a moral dimension to the world economic system. In a major rhetorical shift, Clinton--who earlier in his administration steadfastly ignored calls by critics for incorporating serious, as opposed to cosmetic, standards on labor and environment into the World Trade Organization and the North American Free Trade Agreement--is now ready to concede that further progress on trade liberalization depends on addressing these issues. The protesters in Seattle weren? right about trade, Clinton said, but their views need to be taken into account.
As we have learned to expect with this president, Clinton? speech was partly about short-term political goals. With Vice President Al Gore depending on labor support in his battle with former Sen. Bill Bradley for the Democratic nomination, Clinton wants to keep labor sweet, That? especially important with the fight over permanent normal trade relations with China looming this spring; labor will be fighting tooth and nail against a position Gore and Clinton have promised to support,
Even so, Clinton's Davos speech was a milestone, At the end of the longest boom in its history, with wages rising in all income groups and the stock market booming, the president of the United States told the worlds business leaders that laissez-faire capitalism is a political dead end. 'Workers--that is to say, voters-simply don? like it, even when it works.
Just as Europe is trying to summon up the political will to jump into the icy waters of deregulated labor markets and the "creative destruction" of new-era economics, Clinton thinks the United States wants to climb out for a while.
If s not clear where this takes us. Both in Europe and the United States, economics is in the driver? seat- politicians are scrambling to adjust. The e-commerce boom promises to accelerate the creative destruction on both sides of the Atlantic that has brought so many blessings, along with inequality and anxiety, to the U.S. economy.
Whether politicians like it or not, business will continue to embrace new technologies and methods. It is likely that in both the U. S. and Europe, not to mention developing countries and Japan, helping societies meet the core demands of the new economic order while preserving moral values will be the most challenging and the most important task that politicians and governments will face.
Will they succeed? If s too early to tell. But at Davos, at least, the signs are that government and business leaders in both the United States and Europe are well aware of the importance, and the difficulty, of the tasks ahead.
Walter Russell Mead, a Contributing Editor to Opinion, Is a Senior Fellow at the Council on Foreign Relations. he Is the Author of "Mortal Splendor: the American Empire in Transition" and Is Writing a Book About U.S. Foreign Policy
October 14, 2002