Social model is developed countries' solution, not the problem

In a Bloomberg column, Paul Fourier, a leader of one of France's largest labor union groups, explained why Wall Street rescues Main Street (aka, the Swedish model) and not Main Street rescues Wall Street (aka, the Japanese model) is the best solution for handling a bank solvency led financial crisis.

His arguments will resonate with regular readers as they focus on the moral imperative when handling a bank solvency led financial crisis to inflict minimum damage on the real economy and its poorest citizens.

In the wake of the financial crisis, Europe’s leaders are calling the continent’s social model into question -- it is “done,” according to European Central Bank President Mario Draghi. 

That’s a travesty. 

The crisis is, above all, financial. Yet governments aren’t addressing the malfunctions that caused this problem. Instead, they are forcing ordinary people to pay and attacking the social systems that support them.

This is the direct result of having adopted the Japanese model with its emphasis on protecting bank book capital levels.

Take the example of Greece. The country is being pushed to accept an austerity plan of unprecedented severity, predicated on reducing public spending and slashing salaries, pensions and social systems in the most brutal way. This has forced the country into an economic, social and political crisis that will last for many years. 

Ireland, Spain, Portugal and Italy are also being pushed to accept an austerity plan of unprecedented severity.

Please note that it is not just the EU peripheral countries as the US is not immune to a similar austerity plan as there is now talk of making significant cuts in the social benefit programs like Social Security and Medicare.

These policies are initiated not by Greeks but by European Union officials in Brussels, at the European Central Bank in Frankfurt, or in London....

Labor unions in the European Trade Union Confederation ... believe austerity is pushing Europe -- and many industrialized countries outside the region -- into a recession, unemployment and poverty. Democracy, both political and social, has to be restored....

 It is a very important point that austerity is being forced on countries by unelected technocrats.  By their policy choice, these technocrats are forcing the real economy to absorb the losses on the excesses in the financial system rather than the banks.

Priority has to be given to growth and employment, rather than pleasing the markets. 

We need new economic, social and monetary policies. We need to move toward a new distribution of wealth that favors income derived from labor over capital; wages and productive investments over financial investments and dividends....  

More of the wealth that companies produce should be used to increase salaries (together with social-security payments), and to pay for training as well as research and development. Doing so would help companies to innovate and strengthen their position in the market. 

Above all, we need to maintain employment in the public services, the quality of which benefits companies as well as individuals. Cutting public spending can only be done to the detriment of the very things that underpin the growth of large industrialized economies: excellence in education, an effective health system and quality public services. To undermine these strengths is to misunderstand the challenges that we face today.

Social-protection systems based on solidarity between the generations, between men and women, rich and poor, have to endure in their current form. To attack them is to cast onto the mercy of the marketplace our ability to maintain our health, to safeguard our pensions and to raise our children in good conditions. Invariably, this produces two-speed protections and weakens the poorest.... 

Leaders on Europe’s political right are refusing to question the economic model they have been supporting for decades. The financial crisis has shown that this model, based on deregulation, privatization and reduction of the state’s role, is exhausted, if not bankrupt. 

Either by error or ideological stubbornness, Europe’s current leaders are imposing the heaviest burden of reform on those who are least protected.

As oppose to on the banks which in a modern financial system are designed to absorb the heaviest burden in the form of recognizing the losses on the excesses in the financial system.