Transatlantic model wars

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The world needs to rebuild financial capitalism, and that means more regulation, says France’s Nicolas Sarkozy. It is time to make capitalism “moral” by directing it to its proper function: serving economic development and the forces of “production”, not “speculation”. Mr Sarkozy’s rebuke was mild by some standards. Immense power, amounting to a “despotic economic dictatorship” has fallen into “the hands of a few”, thundered another leader. He added that the over-mighty few are often not “owners” of assets “but only the trustees and managing directors of invested funds.” A fallacy had spread: that the market does not need any “public authority” to restrain it, because “self-direction” will do the job better.

There is no faulting Europeans for consistency when it comes to distrusting financiers, liking businesses that make things you can touch and looking to regulators to keep markets in good moral order. Mr Sarkozy was speaking on September 23rd at the United Nations. The second leader cited was Pope Pius XI, speaking after the Wall Street crash of 1929. The quotes come from a 1931 encyclical calling for economic governance by guild-like “corporations” of industrialists, workers and the like, overseen by a “special magistracy” of high-minded officials.

Europe’s long squeamishness about finance is more than a historical curiosity. It is also as good a guide as any to future policy responses that will appeal to European voters. And questions of instinct and theory matter for another reason: they show a big divide between Europeans and Americans. Capitalism is actually practised in similar ways on both sides of the Atlantic. But in much of Europe, it is still easy to win applause with speeches about America being run by “the law of the jungle”.

In truth the American economy is both heavily regulated and irrigated by torrents of public money. Count the lobbyists in Washington, DC: you don’t need lobbyists in a jungle. America also spends a lot on public goods such as education and health, albeit differently. A new French government paper on the European social model notes that, once you add in company health insurance, American net “social spending” lies in the same range as many EU countries, at about a quarter of GDP.