YOU ARE HERE: LAT HomeCollections


Forget Europe as a Model for Creating Jobs : Clinton's health plan has the same blind spot--broader benefits require higher taxes.

March 20, 1994|JACK KEMP | Jack Kemp, a Republican former congressman from New York, is co-director of Empower America, a conservative advocacy organization based in Washington

One of the most consistent facts about American economic life over the past several years has been the almost weekly announcement of massive job cutbacks or layoffs by Fortune 500 firms.

What should America do? President Clinton thinks he has the answer. "We simply must figure out how to create more jobs," he said back in January. "We have a lot to learn form the Europeans," he added, citing European job-training programs and the ability to move people "from school to work into good-paying jobs."

There is only one problem with this job- growth tutorial. Europe has nothing to teach. Every country on that continent, except Switzerland, is experiencing unemployment well above America's 6.5% rate. Several European countries have unemployment rates well into double digits, including Belgium, 14%; Denmark, 12.4%; France, 12%, and Spain, 23.1%. Britain is the only European nation with an unemployment rate lower today than a year ago.

Europe's high unemployment rates have a single root cause: the failure to create enough new jobs. Between 1982 and 1992, the six largest European countries combined created just 6.9 million jobs, while the European labor force increased by 7.5 million. Over the same period, the United States created 18 million new jobs, while the labor force grew by 16.8 million.

There are many reasons why we created so many more jobs in the 1980s, but one of the most important is that European employers pay significantly higher taxes on labor. In Belgium, for example, government-mandated charges on labor as a percentage of GDP have risen from 19.6% in 1970 to 29.5% in 1991; in Italy, from 12.7% to 23.6%. Only Great Britain's rate has remained steady. By contrast, the U.S. rate was 15.9% in 1970, 19.4% in 1991.

So, this much we can learn from Europe: A welfare state with national health insurance and expensive fringe benefits has an insatiable appetite. And the main burden of financing this largess always falls on working men and women.

With his national health-care plan, President Clinton would set America on Europe's descending path. Although he tells us that few workers will pay more than they do now, history is clear: All national health-insurance schemes inevitably cost far more than anyone projected when the programs were adopted.

Government has a dismal track record in predicting the burden its programs will impose on future taxpayers. Look at Medicare. When that program was enacted in 1965, the Johnson Administration estimated that it would cost $8 billion per year by 1990. The actual cost? $98 billion.

Even if we take the Clinton projections at face value, his health plan will still lead to a 27% increase in federal taxes by the year 2004, according to a study from the Alexis de Tocqueville Institution.

Clinton defends this vast expansion of federal taxation on the grounds that higher taxes will be offset by lower health-insurance costs. This is just a semantic game. Would people really be better off if the government increased their taxes by the amount of their annual food costs while providing free food at the same time? Of course not, because the government cannot provide anything as efficiently as the market and because the costs would quickly rise far beyond expectations, leading to tax increases or reduced benefits. Also, in the process, people would lose the freedom to choose.

Health care will not escape this fate. Quality will decline because patients and doctors will be forced into more rigid government constraints. As in Canada, a model for the Clinton Administration, people will wait months or even years for simple operations, and many will be denied access to treatment because the plan managers judge them too old to benefit, never mind their physicians' opinions.

To these costs we must add a price paid in jobs. As the European example shows, higher benefits lead to higher taxes, which, in the end, lead to higher unemployment. A recent DRI/McGraw Hill study predicts that by the year 2000, the Clinton health plan would cause 1 million jobs to disappear--a conservative estimate.

Instead of invoking a European model of job creation that creates no jobs, President Clinton should study the lesson of America's job explosion in the 1980s. He would find that the key to job creation lies in unleashing the creative power of America's entrepreneurs and small business owners through lower taxes on both labor and capital. Viewing entrepreneurs as a endless funding source for an insatiable federal government is a prescription for employment stagnation--or worse.

Los Angeles Times Articles