To liberalize or to perish: Europe's political and economic future
By G. Stolyarov II
As globalization dramatically reforms the world's political and economic landscape, the people of Europe stand at a vital crossroads. They possess the opportunity, and the capacity, to reap the benefits of a world that is continually becoming more open, dynamic, and economically interactive across borders and oceans. However, tremendous institutional obstacles from inefficient and intrusive government structures remain in their way. Politically and economically, big government threatens the endurance and very survival of the standard of living Europeans had earlier enjoyed. In order to progress, Europe must experience a dramatic relaxation of government political homogenization and economic regulation, thus enabling entrepreneurial individuals to freely tap into the benefits of the global marketplace.
Politically, the majority of Europe's governments remain thoroughly permeated with welfare-statism, the doctrine which presumes a responsibility on the part of government to direct and restrict the activities of these citizens, allegedly for those citizens' own good. The Welfare State, which has been growing in Western Europe since World War II, might now face prospects of even more coordinated expansion as Europe centralizes and consolidates its political infrastructure via such organizations as the European Union (EU) and European Commission (EC). Richard Pollock of the Cato Institute reveals the alarming consequences of this centralization of political power, describing a report issued in the summer of 2003 by the EC's Social Affairs Commissioner, Anna Diamantopoulou:
It is ironic that, in a Europe that had once given birth to the Enlightenment ideals of free speech, property rights, and toleration, today's bureaucrats seek to blatantly restrict private individuals and organizations from using the media tools at their private disposal as they see fit. While similar forms of censorship had, in prior eras, taken place in certain European countries and regions, most notably Nazi Germany, the Soviet Union, and the Soviet-dominated satellites of Eastern Europe, the political centralization of most of Europe under such organizations as the EC allows bureaucrats the unprecedented authority of imposing uniform directives throughout all of Europe, thus rendering their impact far more sweeping.
Diamantopoulou's secret directive was not an isolated incident, but rather part of a long-continuing development. According Philip H. Gordon of YaleGlobal Online, "State spending in the EU averages 48 percent of its Gross Domestic Product, compared with only around 36 percent in the United States; social expenditures average over 25 percent, compared with just 15 percent" (Gordon 3). In other words, the typical European government controls nearly half of the resources of its country, a fact which constitutes an immense power base for European politicians and a means by which they can carry out regulatory schemes of a vast caliber. More often than not, these schemes will restrict the individual's ability to freely prosper and innovate by employing a level of personal liberty and independence absolutely indispensable to a globalizing world.
New York Times analyst Thomas L. Friedman contends that the world has entered a period that he calls Globalization 3.0, where the dominant force behind economic change and progress is no longer countries globalizing or even major corporations globalizing, but rather individuals globalizing. Furthermore, the third stage of globalization will involve the necessity for individuals to compete not merely with others in the Western world, but, thanks to the innovations in Internet technology, with anybody who has computer access. For European individuals, if they are to remain competitive, survival in a globalizing world would imply a degree of versatility and innovation that the regulators of their government will not permit them. So complex and entangling the scope of European bureaucracy has become that it is not merely difficult and burdensome for individuals to follow its laws, but it is also virtually impossible for the layman to understand them. The European Union has accelerated the process of legal obfuscation. Marian L. Tupy and Patrick Basham of the Cato Institute write that
Rather than being clear, short, and comprehensible, the European Constitution is filled with murky terms such as "solidarity," "cultural diversity," "full employment," and the notorious "loyalty," which means that European Union politicians are empowered to coerce a member nation into following a policy that the government of that nation and its people disagree with. To illustrate the manner in which this concept might be used, Tupy and Basham cite the example of French President Jacques Chirac's threat to reject the EU membership of Bulgaria and Romania in 2003, on the grounds that the latter countries supported President Bush's foreign policy. While the vague concepts enumerated in the EU Constitution say nothing in particular, Tupy and Basham suggest that this effect might be deliberate, so as to render them "flexible" enough for European politicians to always be able to use them to expand their power as they see fit. If entire countries can be coerced through the use of this power, the sovereign individual stands no chance. The prosperity of individuals in a free country rests on the objectivity and comprehensibility of its laws, so that the individual might know definitively what is legal and what is not and might safely pursue his economic self-interests without fearing the accidental commission of the latter. In a globalizing economy, requiring ever increasing innovation and the pursuit of alternative and unprecedented business methodologies, the European entrepreneur will face the perpetual fear of living under a government that just might deem his new advertising technique as "stereotypical and offensive," or his new outsourcing program as in violation of the policy of "full employment," or his "excessive" collaboration with colleagues in India and China as "disloyal" to fellow European businesses. Instead of directing his attention toward acquiring new skills and markets, he will be forced to go on the defensive and ward off any potential of the government becoming displeased with him under one of a myriad of possible pretexts. In the meantime, the actual productive aspect of his business will languish.
Indeed, the degree of government economic intervention in Europe is all the more tragic and lamentable because Europe presently has an unprecedented opportunity to prosper economically due to globalization. During prior decades, European economies have been players on the global arena, and have thereby benefited despite gargantuan government intervention. IMF Managing Director Michel Camdessus cites the example of German export growth from 1990 to 1995, at a rate of 10 percent per year to Third World countries, to illustrate the benefits that new markets throughout the world offer to European business. At the same time, German exports to other industrial countries had increased by only three percent per year. Thus, globalization, if tapped fully, could offer more than a threefold economic advantage over trade limited to its "traditional" scope.
However, the rigid system of economic protection that European governments have constructed presents a formidable barrier to the emergence of such profitable interactions. In Germany, according to Camdessus, government minimum wage statutes artificially force the cost of labor to be 50 percent above the average cost in other G-7 countries, thereby making German labor an unprofitable investment and resulting in "the large erosion of competitiveness in the manufacturing sector" (Camdessus 4). Employment will also suffer due to minimum wage statutes, as businesses will simply hire fewer workers if the government requires them to pay more per employee. Germany's labor unions, with the firm support of government, have maintained a centralized bargaining structure which reduces flexibility in wage negotiations to a minimum, according to Camdessus, indicating that, unless the government dramatically curtails its minimum wage statutes and limits the power of labor unions to non-coercive activities, the problems plaguing Germany's labor pool will persist long into the future. This problem is not limited to Germany alone. As Richard W. Rahn of the Cato Institute reports, " Europe has suffered an average unemployment rate more than 50 percent higher than the U.S." (Rahn 1). It is not useless to correlate this statistic with the fact that, throughout Europe, minimum wage requirements are also consistently higher than in the United States.
In addition, European governments, especially in Germany, have long maintained an extensive "social safety net" for their citizens, which, in truth, serves to discourage productivity and drain economic resources. Camdessus reveals that an astounding 40 percent of a German worker's wages allocated toward a mandatory pension program, along with "steeply progressive" income tax rates, result in the largest tax wedge, or difference between gross income and take-home income, of all European countries. If most of the money an employee nominally earns will never reach him (or will only do so in the form of rationed handouts from the government), the employee's incentive for earning that money will be sharply reduced. Furthermore, the fact that, in European countries, individuals can access generous welfare payments for lengthy periods of time, gives them no incentive to return to the workplace, as they can live off of gratuitous state largesse. They are thus prevented by the institutionalized mechanisms of government redistributionism from participating in the global economy, at a time when such participation is more crucial than ever to assure an individual's success and prosperity. Only when European governments institute dramatic tax cuts and abolish social programs that encourage idleness and economic parasitism will European countries emerge as competent participants in the global economy.
Fortunately for the future of Europe, its political and economic scene is also replete with success stories which can be instructive in suggesting the proper course of action for Europe's survival in a globalizing marketplace. Immediately after World War II, Germany was a colossal economic ruin. It might have remained such had its Minister of Finance, Ludwig Erhard, a former student of the renowned Austrian free-market economist Ludwig von Mises, not instituted a policy of virtual laissez-faire, which, in the 1950s, resulted in the German "economic miracle" and was renowned for its near-complete abandonment of the unwieldy and complex bureaucratic infrastructures of the Imperial, Weimar, and Nazi eras. Similarly, according to Richard W. Rahn, "By the time Margaret Thatcher took over in 1979 as prime minister, the U.K. was known as ‘the sick man of Europe.' At that time, Britain had the most socialized economy in Europe and, as would be expected, the worst economic performance" (Rahn 1).
Thatcher's dramatic measures to privatize major industries, cut taxes, and curtail the scope of government regulations transformed Britain from one of Europe's worst economies to one of the best, to be outdone only by such rising economic giants as Ireland, which had instituted an even more dramatic flat tax rate and an even more radical departure from the paradigm of government regulation and approach toward the ideal of laissez-faire. Indeed, Rahn has noted that capital in Europe has, in past years, steadily flown from countries like France and Germany, where regulations remain overwhelming and burdensome, to countries like Luxembourg, Austria, and Ireland, where the degree of bureaucratic intervention in the economy is far milder. Furthermore, even the European Union, where it has removed economic barriers rather than set new ones, has enabled greater economic prosperity. According to Philip Gordon, "Today, while much progress remains to be made, the internal EU market is complete, most industry has been privatized, and many state subsidies and obstacles to cross-border mergers and acquisitions have been removed" (Gordon 3).
These economic success stories have enabled Europe to evade catastrophe for now, even in a pervasive climate of regulation, and they offer hope for future developments. There has been shown a direct relationship between the liberty a government allows the entrepreneurs living within its borders and the amount of economic prosperity that government's country experiences. To take this insight to its logical conclusion would imply that the best way to reap the advantages of globalization in bringing about economic prosperity would be to eliminate government economic regulations altogether. Europeans would do well to heed the insight of the founder of classical economics, Adam Smith, who had wisely noted that men following their economic self-interests will, through the invisible hand of the marketplace, bring about far greater benefits to those around them than would intentional do-gooders, especially government bureaucrats who try to force their own vision of "humanitarian utopia" on citizens. We should hope that the lesson is not lost on European politicians.
Furthermore, European governments ought to realize that globalization and political liberalization must go hand in hand. Thomas Friedman's mention of the fall of the Berlin Wall on November 9, 1989, as the first in a series of events triggering Globalization 3.0 is no coincidence. Above all, the wall's destruction was symbolic of the personal mobility, liberty, and autonomy that must be secured in order to partake successfully in globalization. No longer can it be permissible for governments in any particular locale to restrict individuals from developing skills and endeavors that might apply not only to that locale, but to the entire world. No longer is the mode of a government centrally controlling major aspects of an individual's life even marginally affordable economically.
As Mark Steyn, columnist for The Spectator, writes, "One of the curious trends of the modern world is that, even as the UN, EU and other transnational elites demand that our politics become ever more centralized and homogenized and one-size-fits-all, successful business operations are decentralizing: they're practicing corporate federalism" (Steyn 1). Virtually no product in a globalized marketplace is made in a single location or coordinated by a single centralized authority. Its parts are manufactured in various areas of the world, shipped elsewhere to be assembled, and shipped to yet another location to be sold, as comparative advantage and supply and demand dictate. The globalized economy has shown that it is impossible to centrally micromanage even the manufacture of a single product, and European politicians ought to, via this lesson, renounce their pretensions at centrally micromanaging society in general, an even more colossal endeavor. Globalization ought to teach the governments of Europe that the centralization and consolidation of power is the last thing that could possibly be desirable to them at this stage in history. Rather than centralizing, the government which seeks to be efficient will renounce authority over the economy to those private entrepreneurs that are most competent at managing it, and will renounce authority over personal lives to the individuals who are in the best position to live them.
Aside from repealing deleterious economic regulations, the European Union and national governments should renounce all ambitions to govern personal lives and practices as well, and should reform their legal codes to render them concise, straightforward, and comprehensible to the intelligent layman. If European politics is thus liberalized, Europe in general might follow in the footsteps of Ireland and Britain in realizing immense economic progress by tapping into the opportunities rendered available by globalization. As the renowned British thinker John Stuart Mill wrote, "The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant." Will European bureaucrats abandon the desire to regulate people into economic stagnation "for their own good"? Given the extensive presence of rigidly collectivist nationalist and socialist political movements in Europe, one might seriously doubt that their followers will eagerly rush to fulfill the aims of liberalization. If they do not, however, they must prepare for the inevitable economic and social decay that will result from a continuation of the status quo.
G. Stolyarov II is a science fiction novelist, independent philosophical essayist, poet, amateur mathematician, composer, contributor to The Autonomist, Le Quebecois Libre, and Objective Medicine. He is also Editor-in-Chief of The Rational Argumentator, a magazine championing the Western principles of reason, rights, and progress. Learn about Mr. Stolyarov's newest science fiction novel, Eden against the Colossus here.
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