[sam h]

The most successful countries in Europe right now do indeed tend to be smaller, but it is not clear that size itself is the reason for their success. The small northern European countries have tended to very successfully blend open-trading economies with high levels of social protection and high levels of political stability. For many of these countries, an extensive welfare state is clearly part of the optimal policy package.

The larger continental European countries, basically France and Germany, just need to be discussed separately. Both have had much more difficulty in enacting reforms to adapt to new global realities. Part of this is that the entrenched actors, like labor unions and business associations, are more powerful and/or less compliant with the desires of social democratic parties. For France, there is also a certain amount of economic nationalism. Right-wingers in France are still statists. Germany looks more pragmatic. Everybody there knows that change is needed, and I think it will happen in the next decade. You also can't talk about Germany without understanding how massive the costs of absorbing East Germany have been. It's like if we united with Mexico right now and US labor markets and US social services were just extended.

Overall, the big point is that you can't have an intelligent discussion about these changes unless you start talking about the countries separately and, when talking about reforms, looking at separate policy areas. Some policies in France and Germany certainly need to be changed, but others may not. There are a lot of advantages that can come with having a very healthy, well-trained and well-educated workforce. How those advantages play out in a 21st century marked by a type of international economic competition based around knowledge and innovation is very hard to tell right now. The only thing for sure is that wholeheartedly adopting a US-style model is neither feasible nor in the best interests of any of these countries.