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Global Thinking for Today’s Problems

Ken Nesmith

Sometimes we can learn a lot about our own lives by examining the experiences of other cultures and peoples. Today, we Americans can look to Europe for insight about how to face the challenges our own society faces. The way social issues and events there are playing out might inform our approach to 21st century challenges.

To what phenomena do I refer? Not to automobile usage. SUV ownership is skyrocketing throughout Western Europe. Commentators say SUV drivers there want to flaunt wealth and power. In a society ostensibly more mindful of global needs, attuned to higher values than rapacious consumerism, the trend is mildly amusing. No lessons for America there. Nor can we learn about global policing and imperialism for the 21st century; France is currently tied down in the Cote d’Ivoire, mismanaging a miniature occupation in the face of an uprising that looks ever more like a civil war.

Some of the most interesting phenomena in Europe right now are economic. Western Europe faces aging populations and progressive entitlement programs that make the government pay for things like old age, health care, and not having a job. Since it’s expensive to pay for these things, governments in these nations levy high taxes on their businesses, the creators of the redistributed wealth. But the playing field has recently changed. The European Union recently expanded to include many poorer Eastern European countries, who have adopted flat tax structures that strongly encourage economic growth. Besides a navigable tax code, these countries feature younger, poorer populations who are willing to work for less money than Western European workers. The Western European nations knew this would be a problem when they were expanding the EU, so they made it illegal for the Easterners to work in Western European countries, at least for several years. This way, jobs could be broadly apportioned by nationality, and kept in French and German hands.

Allocating jobs by race isn’t working perfectly, though. Businesses operating in Western Europe have become ever less able to bear the extensive regulatory and tax burdens placed upon them by their progressive governments. They can’t compete in a global marketplace when they’re not allowed to hire and fire employees, when employees can’t work more than 35 hours a week -- a regulation which would effectively make MIT education illegal if interpreted literally -- and when the taxes associated with employment and profit are devastatingly high. So they’ve begun to move their operations to countries where they can hire more people for less money, and deal with fewer bureaucrats. The result is that Western Europe has been forced to begin dismantlement of its regulatory, welfare state. That dismantlement will continue for as long as Western Europe wishes to remain economically relevant in the world. As soon as dismantlement stops, it will be replaced by precipitous economic decline.

To maintain national economic vitality, France cut taxes on Vivendi Universal, a corporation headquartered in France. Since less of their revenue was being taken by the government, Vivendi was able to maintain operations in France, and even hire more workers. The lesson, forgotten constantly although it’s as apparent as day, is clear: businesses generate the wealth and jobs that enable populations to live and work. This restates the obvious: letting people work, trade, and better their lives enables people to work, trade, and better their lives. Respecting one another’s mutual freedom, rather than forcing one another to fund for various communal programs, is the only social obligation among citizens. The only thing the French government can do to help is get a bit further out of the way.

Recently passed German entitlement reforms, the deepest in half a century, are also causing an uproar. Cuts in lavish retirement benefits and health care benefits have disturbed a population accustomed to receiving them, but such measures are the only way to avoid sinking into incalculable debt, spending money they do not and will not have. The Hartz-4 reforms have taken the first step, by combining unemployment and welfare benefits. (The former stance, getting one check for not having a job and another for not having money, didn’t make much sense.) Ultimately, extensive regulations have simply made European households poorer. In the last two decades, household income rose about 80 percent in the U.S., but only half that in Europe, notes Ulrich Ramm, a German economist. The fact that Europeans work less reflects not just a preference for leisure, but the regulatory impossibility of gaining employment.

Governmental interference isn’t the only folly. In Germany, Volkswagen kept a factory in Western Germany after laborers there, the highest paid in the world, agreed to wage freezes. Had they not, production would have moved to Eastern Europe, where workers would like to perform the same jobs, but for less money. When unions demand an artificially high wage rate, they keep a greater number of workers unemployed. (Germany’s unemployment rate is about twice that of the United States.) In this case, demands for artificially high wages nearly drove their employer out of existence, something we’ve seen happen in the U.S. with perennially bankrupt airlines and resistant unions. Artificially high wage rates demand something for nothing; they ask that the world bend to labor’s wish for their services to be more valuable.

The European social welfare model that is the perpetual envy of the American left is crashing and burning. Competition from the growing nations of Eastern Europe is accelerating that change, despite resistant populations and political stopgaps designed to slow the transition. The marginal nature of the changes can be humorous: in France, Bosch, an auto parts manufacturer, demanded that workers accept another hour of work per week, raising the workload to a strenuous 36 hours, or else production would move to the Czech Republic.

In the U.S., although the regulatory burden is generally lower than in Europe, excessive government entitlements in health care and social security comprise a serious threat to national economic health. Resolving them is the most important policy challenge facing us -- it’s remarkable that in the recent presidential race, myopic (and futile) endorsements from The New York Times and The Economist made no mention whatsoever of these problems.

As we shape national economic policy, we would do well to learn from the experience of Europe. To compete with intense competition, white and blue collar alike, from India, China, and the rest of the world, we need to leave individuals free to work and trade as best they are able, without regulatory hindrance. Moving beyond a narrow view of the world and thinking globally, conscious of the interconnections that bind us all, we can build a just and sustainable future.