When the Central Europeans joined the EU they hoped they were entering a rich man’s club that was dynamic and prospering and that they would benefit from this. Superficially at least, enhanced exports to the EC countries and reasonably rapid growth in Central Europe since accession seemed to have confirmed this.
But how secure is the economic future of the EC? Recent years have seen lower growth and persistent double-digit unemployment in the core countries of France, Germany, Italy. Within the Euro zone only Germany generates a substantial surplus through its exports. The others nearly all run deficits because their goods are uncompetitive. Their wages and costs are rising at home but they are trapped in the Euro and cannot devalue to become competitive on price with simple manufactured items from China or South-East Asia. If the Central European countries joined the Euro or if their tax and other fiscal policies were decided by the EU, they would suffer the same fate. Their advantage at present lies in low costs when calculated in Euros and their favourable investment conditions. The great threat to the nations Central Europe will come with forced harmonization, such as being made to join the Euro on unfavourable terms or the insistence on having uniform business taxes throughout the EU, to prevent competition between tax regimes. Would the Central European economies prosper if deprived of the right to attract foreign investment by having conditions more favourable to investors than those in the richer EU countries and of the possibility of keeping export prices low through control of the exchange rate? The EU is backward looking, fearful of the future, overanxious about risk and change. Its obsolete agricultural policy together with sporadic protectionism against basic manufactured goods from Asia is backward looking; an attempt to preserve for ever forms of production that are already not viable. The way out is to shift to more sophisticated, science-based industries but here the EU actually gets in the way.
The Lisbon strategy announced in 2000 aimed to make the EU “the most dynamic and competitive knowledge-based economy in the world” by 2010, through an emphasis on innovation,research and development. By 2004 at the time of the Kok report it was clear that there was no chance whatsoever of this target being met and the situation is no better today. Do I still hear someone in the EU boasting ‘ we shall catch up and overtake the USA’?
Indeed Europe is becoming less competitive over time. The EU’s use at Lisbon of targets such as total R & D expenditure, number of science and technology graduates, degree of consolidation as opposed to fragmentation and duplication both to measure and to promote progress in innovation is not only inappropriate but distracts attention away from the real problem. The real problem is the waning of European Unternehmergeist, the entrepreneurspirit, in a cautious, timid, precautionary European Union. Innovation occurs through a spontaneous economic process of creative destruction not as a result of EU exhortations and plans. In truth the European Union fears to be dynamic and competitive because this would disturb harmony and harmonization.. Europe’s continued failure to halt the steady onset of the ‘ European disease ‘ is shown by the far greater number of patents registered in the United States than in the EU and the far greater proportion of research and development (as well as the absolute quantity) carried out by private corporations in that country. Only three European companies are to be found among the top 10 investors in R & D, a list dominated by American corporations. Corporate investment in research is growing far faster outside the EU than within.
Behind this wilful backwardness lies the absurd ‘precautionary principle’, the idea that a new product or method of production has to be proven to be safe and that no risks, even small ones, should be taken; a corollary of this is that approval of a product can be withheld even if there is not much scientific evidence to justify any ban. Under the REACH (Research, Evaluation and Authorization of Chemicals) programme, the precautionary principle is now to be applied retrospectively to widely used chemicals and indeed even to herbal medicines and vitamin supplements. The costs of applying these regulations will be large, of the order of 5 billion Euros, and the gains small and uncertain, given that the chemicals and supplements have been available for a long time and epidemiological research has never indicated any serious problems. More to our present purposes new chemicals and materials are an advanced knowledge based sector within the EU countries which enable Europe to compete with the Asian countries in the future in a way that reliance on basic textiles, clothing, simple manufactures can not and never again will. Already the time taken to bring a new chemical to market is far greater in the EU than in the USA. Introducing ever more ‘precautions’ will lengthen this gap. It will also lead the EU’s chemical industries to move their operations elsewhere, will discourage foreign investors and will lead to major disputes in the World Trade Organization. It is all part of a general EU distrust and fear of new technologies, a certain recipe for economic decline.
One clear example of a technophobic European resistance to innovate has been the EU’s long lasting irrational opposition to and obstruction of the planting of GM (Genetically Modified) crops or even to the use of genetically modified organisms in industrial processes. Now the EU and some of the constituent countries are reluctantly relaxing their rules but it is too late; the Americans have a commanding lead in the biotech business, in medecine and manufacturing as well as agriculture, just as they long have had and continue to have in information technology. What is more, other countries such as Australia, Canada and China are seizing the opportunities that Europe missed. Even Romania took a more progressive view than the EU. What is the EU now going to do about agricultural produce from Romania?
When the leaders of the EU congratulate themselves on an ‘ever-closer’ union and speak of Europe as an ‘empire’ or a new ‘pole’ in world affairs, it is like twenty or more failing companies who proudly merge into one large company, which then goes bankrupt anyway. As I have indicated the EU has very little democratic political legitimacy, because it neither behaves in ways that acknowledge that all power is lent to rulers by the people, nor accepts the people’s verdicts in referenda, nor enjoys the kinds of solidarities that nations can. National politicians prop it up mainly because it gives them the opportunity to prance on a bigger stage, to be received at the imperial court. Such legitimacy as the EU enjoys among the people is that of a technocracy but such a legitimation depends utterly on a continued display of competence manifested in prosperity and innovation. This has now been called into doubt.
What should the peoples of Central Europe conclude?
There are two main morals to the story for Central Europeans. The first is that the hopes of the Central European countries that joining the EU would mean an escape from the lack of democracy, the absence of free markets and the prevalence of corruption of the socialist era are not going to be fully realised. The European Commission is a castle of apparatchiks whose ideal is not democracy but a bureaucratic ‘harmony’ controlled by them in collusion with a few privileged political leaders from the individual nations. The EU’s commitment to the free market and competition is faltering and we may well see it collapse. Because there is no enthusiasm for democracy or for markets, the essence of an open society, there is also no real concern to do much about corruption and no drive to innovate. The EU mind is closing.
Second, the twenty-first century has turned out to be for the core countries of the EU a time of economic stagnation.
If the Central European countries were to integrate their economies or their policies more closely with those of ‘old’ Europe, they too might stagnate. The future looks ever worse because of the failure to seize the technologies of tomorrow with sufficient speed and because of the serious demographic problems in such large countries as Germany, Italy and Spain which have very low birth rates indeed. The Central European countries have hitched their wagons to an EU train that they thought was going to progress at a good speed. But it is slowing down and may well come to a stop. The EU has yet to learn that neither boastful words, nor pulling down the blinds to avoid seeing problems will get the train going again.
