by Nathan Arbor
As debates about the significance of the Greek debt crisis continue, there has been too little attention paid to a fundamental problem that the advocates of the Euro ignored or brushed aside years ago — actually, about the same time Greenspan, Rubin and Summers were brushing aside the problem of unregulated derivatives. The problem, simply put, is that every nation has a culture of work that cannot be changed quickly, except in extremis.
Paul Krugman pointed to one aspect of this problem in his 1998 piece in The New York Times, “The Euro: Be Careful What You Wish For,” when he noted that Europe can’t deal with “asymmetric shocks” the way the United States does, because “Europeans are reluctant to move even within their countries, let alone across the many language barriers.” But this is just one element in the complex set of work habits and expectations that growing up in a particular nation, at a particular time, makes “natural” for the great majority of a nation’s working population.
Martin Jacques has argued forcefully, in When China Rules the World (Penguin, 2009), that the assumption that post-Cold War economic development will always mean Westernization, is certainly mistaken. Less dramatically, we’ve known for a long time, from the experiences of globalized manufacturing corporations (e.g. auto makers), that working with differences in the culture of work is critical to success.
I remember being on a plane from London in the mid-80s, seated next to an American on his way home to Detroit. He worked for Ford, and had just come from a frustrating visit to the Ford plant in Devon. What was the problem? He couldn’t understand the English. Ford was having a terrible time getting its Devon employees to work additional hours, and this was mind-boggling to the fellow beside me, given how fiercely workers at the Ford plants in the United State insisted on opportunities for over-time work. Apparently, no single incentive, or combination of incentives, that the Ford guy brought to Devon had solved the problem.
In cases like the unregulated derivatives and the Devon auto-workers, the reliable argument of “the smartest guys in the room” has been that the solution is always a matter of getting the incentives right, and the assumption is that this can be done very quickly if not immediately. What we learned in the case of the derivatives is that this argument is either trivial (because certain kinds of outcomes, like bankruptcy and death, are effective correctives) or facetious, because it ignores culture and even time. As we watch the consequences of the Greek crisis continue to unfold, it might be worth thinking about what else, besides market incentives that lack strong cultural and temporal features, will be required if the Euro and the EU are to flourish.