Is free-market Britain fair enough for all?

In a three-part series, the Monitor looks at how Britain, France, and Finland are adapting their social benefits models to the information age.

"Just keep to the left," says the ticket seller at the Hampton Court palace maze. "There are a couple of dead ends but once you've got through those, you'll get out OK in the end."

If only it was as simple for European leaders, who will gather here Thursday to discuss adapting their fraying social benefits models to the information age. In the labyrinth of the globalized world, the 25 European Union member states look increasingly like a gaggle of tourists, arguing about how to negotiate the blind alleys.

Some, like the Scandinavian countries with their supergenerous state welfare, may be happy to "keep left." But others, particularly Britain with its center-right traditions, are warning that Europe won't be able to afford such largess and still compete in the global marketplace.

What some Britons have in mind is the kind of painful reform already pioneered in Britain in the 1980s under Margaret Thatcher, which cemented the "Anglo-Saxon" model and its emphasis on free markets, private enterprise, and smaller government.

At the time, Thatcherism was heresy to Jeremy Rix, a rebellious teenager with a flair for languages and art. He was so outraged by state cutbacks and miserly welfare that he joined street demonstrations, grew his hair long, and argued about politics with his father.

But now, as a 35-year-old company director with a family, Mr. Rix is far more appreciative of how social reform rejuvenated Britain and bequeathed his generation a country that is more dynamic than most in Europe.

"[Mrs. Thatcher] completely reinvented the UK in my view. We're still living with the legacy of that - free market, flexibility, greater wealth," says Rix, who runs his own market research and intelligence consultancy, Metro Research.

"As a teenager I was a bit of a hippie and went on the antiloans marches [protesting against government cuts to student loans]," he adds. But in retrospect, he sees the decade as one of "increasing wealth and freedom."

The upshot is that Britain, according to the World Bank, is the second-easiest European country (after Romania) in which to start a business. In addition, hiring and firing is relatively straightforward compared to countries like France and Germany. At a recent conference in Munich, Rix heard envious mutterings from continental associates who appreciated how free he is to operate. "There definitely is a flexibility in the UK market that you don't have elsewhere," says Rix.

All of this, he says, does not necessarily come at the expense of social protection. True, if you lose your job, the state will not pay you 80 percent of your salary for months as it does, expensively, in some parts of Europe. But a robust job market that enables you to find another post quickly provides a similar "safety net."

"If something awful happened to my business, I know I could go and get another pretty good job quite easily," says Rix.

While some conservatives in Europe say a hearty helping of Thatcherism would revive the Continent's flagging economies, most are still suspicious of the Anglo-Saxon model. Its relatively low taxes and stingy welfare payments have proven generally good for jobs and business, but have done little for poverty and equality. One current of European thought, which favors greater regulation and social protection, scoffingly portrays the Anglo-Saxon model as good only for free-market buccaneers. Another, popular in Scandinavia, is generally appalled by the neglect of the underclass.

Aware of Britain's poor record on social justice, Tony Blair has sought since he was elected in 1997 to remold various aspects of the British system to make it more compassionate, though not less dynamic. In this "Anglo-social" model, steadily increasing taxes fund health-service spending; tax revenues are channeled to poor families and to every newborn child; back-to-work programs help the unemployed; and a minimum wage gives greater succor to unskilled workers.

The Anglo-social model is "a hybrid between the dynamism and flexibility of the US and ... the egalitarianism of Norway and Sweden," says Mike Dixon, a researcher at the Institute for Public Policy Research in London, which spearheaded debate on the model. Its implementation, says Mr. Dixon, has reduced poverty, particularly child poverty, and halted the rise of inequality. The London-based New Policy Institute notes on its website that the number of British individuals living in low-income households has dropped to 12 million in 2004, from 14 million during Blair's tenure, though the poverty rate was still lower in the early 1980s. [Editor's note: The original version overstated the number of poor in Britain and the size of the reduction under Blair's government.]

Blair believes the Anglo-social model is one that the rest of Europe can and must imitate. In a speech to the European parliament in June, he warned that Europe was trailing the US in productivity and falling behind India in producing science graduates. He called for his EU partners to spend less money on regulation and job protection and more on investing in ideas of the future: knowledge, skills, education, and science parks.

"This is modern social policy, not regulation and job protection that may save some jobs for a time at the expense of many jobs in the future," he said. "Of course we need a social Europe. But it must be a social Europe that works."

But does it work in Britain? For the Rix family, Blair's reforms have proven a mixed blessing. Take the new taxes. Three years ago, Blair's Labour Party raised social insurance payments by 1 percent to improve hospitals. The brunt of the added cost was borne by businesses. At Metro Research, Rix has noticed the change. "Our bill has gone up - it makes a difference if we take on a new employee," he says, though the exact amount varies for each employee, depending on salary level and perks.

Then there are the schools. At the local primary school that Rix's 4-year-old daughter Abby attends, there are 30 children in the class - which he feels is excessive. The government agrees, and passed a law outlawing class sizes of 31 or more for students under 7. However, the percentage of such students in illegally large classes rose slightly to 1.2 percent last year.

The new gym at Abby's school was made possible by parental and community effort and investment, not by help from the central government. Thirty miles north in London, however, a new schoolbuilding program has started due to much-vaunted partnerships between the state and the private sector.

One group, Partnerships for Schools, plans to remodel all of Britain's 3,500 secondary schools, and has secured £2.2 billion ($3.9 billion) to put toward the project this year. "This has to be a good thing as [his wife] Tracey was teaching out of a portacabin [trailer] when we lived there," says Rix.

A plan to extend school days with after-hours care over the next three years could make it easier for Tracey to get back to paid work should she want to. Jeremy, on the other hand, might be able to stay home from work if they have more children - and if another one of Blair's plans, this one to grant three months of paternity leave, becomes law. In truth, however, it might be hard for a company director to absent himself for so long.

Indeed, these are small benefits that are dwarfed by the substantial hurdles that lie ahead for a young British family. Getting two children through university in Britain in a decade's time will take more out of the average budget, given Labour's plans to raise annual tuition fees to £3,000($5,300) from the current £1,000. Beyond that, there is the issue of retirement funds - possibly the biggest challenge facing European governments and their ageing populations at the moment.

Rix says he's not expecting much help from the state with any of this. He says his own parents have already shown the way, amassing their own private savings rather than relying on the paltry state handout. (Though Britain did offer its citizens the option of switching some of their social-security payments to private accounts over a decade ago, few were pleased with the results.)

"The future may be unpredictable because of things like university fees and pensions, but I'd imagine that if I was someone of my age in France, it would be just as unpredictable, because what they have may not be sustainable," he says.

The solution, he feels, again goes back to the workplace. Rix and his peers will not be able to retire at 55 like the current babyboomer generation. Some may have to work until 70, he says. But that may not be a bad thing.

"You'll get the opportunity to have more than one career," he says. "I wouldn't expect to be 65 and working full time, but ... to be able to give up the hard graft at 55 and do something completely different, something part-time, might be a blessing."

Hampton Court will provide a setting for a lot of these ideas to be thrashed out. "It's not going to be a pitched battle between two sides slugging it out in the gardens," says one British diplomat familiar with the summit agenda. "Each country has its own social model and likes it.

"But we have to ensure that [these] levels of social protection are affordable in the future. Can we go on providing that level of social protection if our economies don't grow faster?" he asks. "We are going to be saying [at the summit] that we've got a collective problem and we need a collective solution."

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