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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."
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." 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." 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 has 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."
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.
A direct relationship has been shown between the
liberty a government allows the entrepreneurs living within
its borders and the amount of economic prosperity that
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."
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 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 surrender
authority over the economy to those private entrepreneurs
that are most competent at managing it, and will surrender
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.
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