Democracy à la carte
By Felix G. Rohatyn
Monday, May 28, 2007
NEW YORK:
As France prepares for the changes promised by the new government of President Nicolas Sarkozy, there is likely to be a lively debate over the virtues and failings of American democracy and capitalism as viewed from different sides of the Atlantic Ocean.
This debate is all the more important since in one form or another, it is taking place all over the world. Driven by globalization, low interest rates, deregulation, free trade and lower labor costs, the creation of wealth in countries from China to Scandinavia is a powerful promoter of capitalism. It is not always, as we see in China and in Russia, a promoter of democracy.
Democracy has many faces, and American democracy, viewed from abroad, has some unique facets. During my four years as U.S. ambassador to France, I saw the interest that the French have for everything American; I believe that to be true of all Europeans.
While they admire much of what we do and fully recognize the historic American contribution to Europe, there is much that is contrary to their beliefs and, in some cases, frightening to them. The death penalty, the power of religion over our politics, our opposition to international law, our quickness to resort to force are just some examples of deep differences in values.
There is also a certain historical level of anti-Americanism that reflects these differences, but they are offset by the recognition of a broad community of interests. Global economic instability, the fear of terrorism, the proliferation of nuclear weapons ultimately outweigh everything else. However, the war in Iraq unleashed a level of public hostility to America that was more virulent than anything in memory.
The new tone of the Bush administration's dialogue with Europe has softened, and the positive attitude of Sarkozy with respect to trans-Atlantic relations in general and the United States in particular will hopefully close a painful chapter in our relations. However, there will still remain, in Europe and in most of the world, questions about Anglo-American market capitalism and its social impact.
When President George W. Bush speaks of freedom and democracy, Europeans think of the economic freedom that is fundamental to American capitalism. They are, however, troubled by the social objectives imbedded in American capitalism - by the lack of a solid social safety net, by the speculative aspect of our markets, by the growing inequality created by our large differentials in wealth and by the harsh aspects of extensive deregulation.
Some of these issues are now being raised in America. During our last presidential campaign, then-Senator John Edwards captured the nation's attention by talking about "Two Americas," a theme I saw repeated recently in the French newspaper Le Monde referring to France.
However, the vision we Americans have of our own capitalism is one of a market-driven system, where government regulation and a strong Protestant ethic help insure that the public interest is protected. In that vision, the Federal Reserve Bank maintains a stable currency while a responsible budgetary policy enables strong investment in technology and innovation by the private sector. A progressive tax system is expected to provide for a fair distribution of wealth to society as a whole.
Seen from abroad, however, the reality seems somewhat different, especially when it comes to the state of our finances. Despite a booming finance sector and a generally strong economy, we are at risk. Our economy is vastly over-leveraged and vulnerable to a major shock.
Huge government deficits are being generated by a rapidly growing military budget; taxes are being cut instead of raised to pay for the war; a weak dollar and burgeoning bubbles in the real estate market are the present reality and the present risk. And the tax cuts which strongly favor upper-income groups accelerate the growing inequality in wealth and income that is creating an ever more sharply divided America, even though low-income households have seen significant improvements in their earnings.
A global financial crisis could well happen as a result of our present fiscal policies. Many experts take the view that this is very unlikely; that foreign central banks will indefinitely support the dollar, and that the global system is self-correcting. Perhaps so. The risk that the experts are wrong may be small, but it is a risk we should not take since it is a gamble we cannot afford to lose.
American antipathy to taxes is not new. In 1782, the French ambassador to the United States noted: "The Americans suffer the torching of their farms, the loss of their ships and endure the trials of war with courage, of which they have not enough to levy taxes, which would prevent the greatest part of their calamities." The tax increases by Presidents Jimmy Carter, Ronald Reagan, George H .W . Bush and Bill Clinton improved the functioning of our economy, but we have not changed our attitude.
Now Sarkozy, with a new government and a very strong public mandate, has the option to choose from various forms of capitalism - essentially between the Anglo-American model and the Franco-German model.
In the United States, we will have to make a similar choice when we vote for a new president. America has proven that in a more and more globalized world, major economic powers cannot afford, for very long, to march along sharply diverging paths and far from the middle of the road.
France will seek higher growth, more investment, lower unemployment, essentially more pay for more work, and a stronger France in a stronger, more integrated Europe. A stronger Europe also means a stronger, more prosperous America; we are each other's biggest partners.
America will hopefully be liberated from the cancer of Iraq and will be seeking political, social and economic stability. Universal health care, better education, greater public investment, an improved fiscal situation and energy conservation will be high on the agenda.
We will require a major effort to regain our moral leadership in the world, which we have damaged so seriously. This is in our own best interest as well as in the interests of the rest of the world.
No matter how strong China, India and Russia become, a strong and stable America will always be the indispensable country. If we fail in that regard, the world will be an even more dangerous place.
In many ways France and America will be starting a similar process. On both sides of the Atlantic we will seek political freedom, economic fairness and the creation of wealth. However, the roads we take may well be different.
Felix G. Rohatyn is an investment banker and a former U.S. ambassador to France. |
