Famous Five show way to escape old dilemmas

Enterprise Issues

ANYBODY AS familiar as I am with Famous Five and Secret Seven adventure stories (not out of personal interest, you understand, but because my eight-year-old devours them) will know that the key to escaping from the villains or finding the treasure lies in thinking about the situation in a new and unexpected way. You are locked in a tall tower. The waves are crashing on the rocks outside the window, so there is no escape that way. The solution: stick a piece of paper under the door and from the inside push the key until it drops on to the paper. Hey presto, it can then be pulled into the room, and you are free to tiptoe down the stairs past your captors and into the secret passage and freedom.

The notorious Third Way - an unfortunate name that could have been chosen by Enid Blyton - is something like the solutions that emerge from these stories. Critics often ask what it is exactly, and are dissatisfied with the imprecision of the answers they get. It is a lot easier to say what the Third Way is not because it is an attempt to get away from thinking about problems in old ways.

Take the example of the jobs market. We think of this as an either-or choice. Either the deregulated American model, massively successful at creating jobs in the 1990s but with many more working poor and greater inequality. Or the over-regulated European model, which delivers greater equality and social cohesion but also double digit unemployment rates. An excellent survey of the contrasts between the US and Continental labour markets is contained in a new book, Will Europe Work?, by David Smith, the economics editor of The Sunday Times (Social Market Foundation pounds 8.99). Like many analysts in Britain, he concludes that in the trade-off between more jobs and greater equality, jobs are better.

But his conclusion is the pessimistic one that in the core economies of the Continent, there is no sign that politicians, unions or voters accept the need for flexible labour markets. "The most worrying thing, after a long period in which European politicians at least paid lip service to the need for labour market reform, is that there are governments in power in Europe now which have never really bought the story about the need for greater labour market flexibility. ... Their belief, more or less, is that Europe's unemployment problem is a result of lack of demand."

Hence the spectacular clash over interest rates between Oskar Lafontaine, the former German finance minister, and the European Central Bank. And hence, Mr Smith argues, irresistible political pressures for higher government spending which will threaten the stability pact underpinning the single currency.

Certainly, it is true that the conventional Anglo-Saxon view of the merits of deregulation has made little headway on the Continent. France's 35- hour week has proved an immense political success, and employers have learned to live with it. Indeed, this month sees the publication in English of a French bestseller and winner of the Prix Medici, The Economic Horror by Viviane Forrester (Polity Press pounds 9.99), which not only attacks market economics but also urges abandonment of the idea of reducing unemployment. We should not, she urges, centre our societies on the idea of employment - but she does not address how societies will then create wealth or distribute it.

Small wonder that there is now some alarm in Britain at the Government's introduction of a series of measures which could be seen as spreading the Continental disease on this side of the Channel. Business organisations have become very concerned about the impact of the working time directive, the minimum wage and the fairness at work measures. They are also being asked to administer the complex Working Families Tax Credit and associated credits.

It is a symbol of the new burdens that the highly-paid professionals working at some of the investment banks in Canary Wharf now have to clock in and clock out and keep timesheets - all to make sure they are not being exploited for more than 48 hours a week. This is truly red tape gone mad. In the Battle for Britain between Anglo-Saxon flexibility and Continental solidarity, are the Europeans winning to our eventual economic detriment?

Not necessarily. For one thing, red tape is not the only or even most important reason the Continental economies have such a dismal record of job creation. The real disincentive is the cost of creating jobs thanks to high labour taxes and social charges. Until the governments face up to how to pay for generous pensions and an ageing population without increasing taxes on a shrinking proportion of workers, Europe will not create new jobs. But the UK does not share this problem.

For another thing - and to get back to Enid Blyton - it could be possible to introduce some reregulation of the jobs market without winding red tape around employers' legs. Sadly, it is not happening. Even hiring one person is a bureaucratic nightmare. But suppose the Government made more use of new technologies. It is possible for an employer to call up a secure website that would allow her to provide a one-stop government agency with the information it needed to calculate what to take out of or add to each employee's gross pay. The agency could then send a printout of the calculations needed to reach each person's net pay.

For the reason red tape matters is that employers have always acted as agents of the government in collecting taxes and implementing other policies. This was fine for big employers in a simpler age, but it is not fine now. The solution is for the government to do more of the work itself, and technology makes that possible. The Government has tentatively started along this path - although not soon enough to suit employers. But at least the No 10 boffins are, like Julian in the Famous Five, thinking about nifty Third Way escapes from old dilemmas.

d.coyle@independent.co.uk