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Amid the global downturn, life is somewhat sweeter in the countries of northern Europe.
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NEW YORK--In many of history's most successful economic reforms, clever countries have learned from the policy successes of others. Eighteenth-century Britain learned from Holland; early 19th-century Prussia learned from Britain and France; mid-19th-century Meiji Japan learned from Germany; post-World War II Europe learned from the U.S.; Deng Xiaoping's China learned from Japan.
Through a process of institutional borrowing and creative adaptation, successful economic institutions and cutting-edge technologies spread around the world, boosting global growth. Today, too, there are some great opportunities for this kind of "policy arbitrage."
For example, while many countries are facing a jobs crisis, one part of the capitalist world is doing just fine: northern Europe, including Germany, the Netherlands, and Scandinavia. Germany's jobless rate this past summer was about 5.5 percent, and its youth unemployment rate was about 8 percent--remarkably low compared with many other high-income economies.
How do northern Europeans do it? All of them use active labor-market policies, including flex time, school-to-work apprenticeships (especially Germany), and extensive job training and matching.
Likewise, in an age of chronic budget crises, Germany, Sweden, and Switzerland run near-balanced budgets. All three rely on budget rules that call for a cyclically adjusted budget balance. And all three take a basic precaution to keep their entitlement spending under control: a retirement age of at least 65. This keeps costs much lower than in France and Greece, for example, where the retirement age is 60 or below, and where pension outlays are soaring as a result.
In an age of rising health care costs, most high-income countries--Canada, the European Union's Western economies, and Japan--manage to keep their total health care costs below 12 percent of GDP, with excellent health outcomes, while the U.S. spends nearly 18 percent of GDP, yet with decidedly mediocre health outcomes. America's is the only for-profit health system of the entire bunch. A new report by the U.S. Institute of Medicine has found that America's for-profit system squanders about $750 billion, or 5 percent of GDP, on waste, fraud, duplication, and bureaucracy.