Mayday for Capitalism

Amid a gloomy economy, Europe could see a summer of rage.

From today's Wall Street Journal Europe.

May Day in Berlin has been marred by "anticapitalist" violence for more than two decades now. Given the current financial crisis, tomorrow's protests could set a sad new record.

"We explicitly want social unrest and will do everything to make sure it happens," is how the organizers of the "Revolutionary May 1 Demonstration" put it to the Spiegel Online. More than 20 protests are planned in Germany's capital under such mottos as "Capitalism Is Crisis and War -- For the Social Revolution" and "Burn, Capitalism, Burn." This is not just a figure of speech -- more than 70 cars, mainly up-market models, have already been torched in Berlin since January.

The fear that rising unemployment may spark social unrest is not confined to Germany. All of Europe could see a summer of rage. There already have been wildcat strikes against foreign workers in Britain, riots in Greece and more than 150,000 workers demonstrating in Ireland. In Iceland, Latvia and Hungary, street protests helped bring down governments.

Millions have marched in France. There is a "revolutionary risk," former center-right Prime Minister Dominique de Villepin warned this month. Tomorrow's May Day will see the third nationwide protests in as many months against President Nicolas Sarkozy's handling of the economic crisis. Over the past few weeks, French workers facing layoffs have pioneered a new negotiating tactic called "bossnappings," in which managers are taken captive to extract better compensation packages.

Political extremists tend to thrive in economic misery, a troubling prospect as general elections are scheduled this year in Germany, Norway, Bulgaria and Lithuania. The NPD, a German nationalist party, is organizing its own May Day protest tomorrow under the motto of "Fight and Work For Ever." Left-wing radicals are outraged, arguing on the Web site "antifa.de" that "May 1 belongs to us, not the NPD!"

It may shock these self-declared antifascists to learn that it was Hitler who introduced the first of May as a public holiday in Germany. What started as a movement to advance workers' rights was quickly usurped by both the Nazis and the Soviet Union. A return of fascism or communism in Europe as a result of the financial crisis is unlikely. But it would be unfortunate enough if the fear of social unrest were to lead to wrong-headed policies that will only prolong this crisis.

People are understandably scared by the rapid economic collapse. But the failed policies of the past of expanding the welfare system, raising taxes and more government intervention won't create jobs.

To calm the fury, it would help to start an honest debate about the real roots of the crisis. Unfortunately, the popular myth of a failure of free markets is easier told than the more complex truth: a failure to let free markets properly work. Few in Europe are aware of the role of the U.S. Federal Reserve Bank in spawning the global credit mania or the central role the government-sponsored enterprises Fannie Mae and Freddie Mac played in the U.S. subprime mortgage debacle.

Nor is there much talk in Europe about its own policy blunders. Take Germany. According to a list compiled by the country's financial service regulator and leaked to the press this week, German banks are sitting on illiquid and toxic assets of €816 billion. Almost half of this waste is held by the state-owned Landesbanken. This has yet to spark a debate in Germany about the wisdom of government-run businesses.

In this current crisis it is easy to forget that even before the global credit squeeze Europe faced structural problems -- overstretched pay-as-you-go pension systems, low productivity, high youth and immigrant unemployment, to name only a few. The crisis has made the free-market polices that could solve these problems -- such as cutting labor costs and market deregulation -- more urgent and less popular at the same time.

At tomorrow's May Day events we can expect the usual anticapitalist rhetoric to fan the flames of discontent. Making a strong case for reforms, though, would be truly in workers' interests.