October 4, 2007

October 4, 2007 | Commentary on Europe

Euro-syndrome

As the presidential election of 2008 draws closer, expect to hear increasingly about the blessings of the European welfare states from Democratic candidates. In both domestic policy and international affairs, Democrats are Europeans in disguise. They have a touching faith not only in the power and goodness of the state, but also in international institutions like the United Nations. Much as Democrats seek inspiration in the European way of life, however, the fact remains that Americans are generally far better off than Europeans.

Needless to say, Europeans will be highly resistant to the arguments, accustomed as they are to smugly lecturing Americans. Germans even have a term for the kind of nightmare existence they assume is widespread in the United States - "American conditions," a kind of Darwinian free-for-all, which surely no sane German politician would wish to inflict on his countrymen.

A new study by the Organization for Economic Cooperation and Development (OECD) in Europe, however, should come as an eye opener for Europeans and Democrats alike. According the OECD Economic Survey of the European Union, published on Sept. 20, the EU and other European countries are falling further and further behind the United States in standard of living as the U.S. economy continues to outgrow those of Europe. The study is the first survey ever done by the Paris-based organization of the EU as a whole, and it constitutes independent conformation from a source that is far from any kind of Washington politicking.

"Globalization brings great opportunities for vibrant economies but punishes less flexible ones," said OECD Secretary-General Angel Gurria. "There is a sizable gap in GDP per capita compared with the OECD's best performers, and the gap has widened over the past decade." Specifically, he was referring to the gap between the United States and Europe.

For instance, some of the wealthiest countries of Europe - like Germany, France Switzerland, Sweden or Denmark - now register only 75 percent of the standard of living of the United States, measured in purchasing power parity. The new EU countries of Eastern and Central Europe, understandably have much further to go, with only one-third of the living standard of the United States.

After World War II, Europe had a lot of catching up to do. In 1946, Western Europe had only 46 percent of the per capita GDP of the United States. This gap narrowed by 1980 to 81 percent under the influence of the tariff-free single market of the European Union. By 2005, the last year for which data are available, the figure had slipped back to 75 percent.

The study's authors are blunt about the reasons. For one thing, European levels of employment continue to lag behind those of the United States and Japan. More than one-third of Europe's working-age population (15- to 64-year-olds) - remains inactive. Europeans tend to enter the workforce later and retire earlier. In the United States, 72 percent are employed, and in Japan 70 percent. In the EU the figure is below 65 percent.

According to the EU's own growth and development strategy negotiated in Lisbon in 2000, the target is 70 percent, against which practically no headway has been made. Unemployment rates also remain high; in the EU today, 8 percent are unemployed as a share of the active population. In the United States, the figure is 4.2.

Interestingly, even as Europe currently boasts a consumer base of 500 million people and open borders between most of its 27 member states, the study blames a lack of labor mobility for some of this inertia. Language problems and a preference for native-born workers remain obstacles to the single labor market.

Another issue is European "economic nationalism," a favorite of the French, German and Spanish governments. Protectionism favoring national companies, particularly in the energy sector, is a problem. So is the continued drag of the European common agriculture policy, the CAP, which provides subsidies "above the OECD average and well above most free-trading nations," notes the OECD report.

The fact is that the American model, which could also be called the Anglo-Saxon model, with its free-market foundation, labor mobility and limited labor-market regulations, remains the most powerful generator of wealth and jobs for its citizens. In a global market place, it continues to position the United States as the world leader, and as we head into the election season, candidates must not lose sight of that fact.

Helle Dale is director of the Douglas and Sarah Allison Center for Foreign Policy Studies at the Heritage Foundation.

About the Author

Helle C. Dale Senior Fellow for Public Diplomacy
The Margaret Thatcher Center for Freedom

First appeared in the Washington Times