During September this year, much of Europe descended into
mild chaos. Millions of
Spaniards and French
went on strike (following, of course, their return from six
weeks vacation) against austerity measures introduced by their
governments. Across the continent, there are deepening concerns
about possible
sovereign-debt defaults,
stubbornly-high
unemployment, Ireland’s
renewed
banking woes, and the resurgence of
right-wing
populist parties (often peddling left-wing
economic ideas). Indeed, the palpable sense of crisis left many
wondering if some European economies have entered a period of
chronic decline — one which might eventually reduce Europe to
being a bit-player on the world stage.
Obviously we should avoid over-simplification. In
Germany and
Sweden, for instance, unemployment is
declining while economic growth and exports are rising. Not
coincidentally, both countries have implemented significant
economic reforms over the past ten years. To the audible
disappointment of the world’s left-wingers, Sweden is no longer
Social Democracy’s poster-child.
Nor can Europe’s present woes be explained in mono-causal
terms. Like America, property-bubbles and over-leveraged financial
industries played a role in some countries’ meltdowns. But not
every European nation presently enduring economic hardship
experienced banking crises on the scale experienced by Ireland and
Britain.
It will be decades before economists and historians
completely diagnose what’s happened to Europe’s economies since
2008. Many, however, will likely conclude that many European
countries’ economic culture helped them lurch into seemingly
unending crisis.
“Culture” is one of those heavily over-used words. But in
sociological and historical terms, “culture” is a way of
describing, among other things, the approach to life, the values
emphasized, attitudes toward work, the understanding of law, and
ultimately the view of science, the arts and religion prevailing in
a given society. Over time, these form a type of inheritance that
can remain relatively stable in particular historical settings over
several generations.
Again, we shouldn’t over-generalize. But we can speak of a
West European-style economic culture that differs (at least for the
moment) from what might be called “Anglo-American” ways.
Few, for example, would question that the dominant value
presently informing Western Europe’s economic cultures is
security. Poll after poll illustrates that if West
Europeans are asked to choose between more security or more
liberty, they overwhelmingly opt for security. That’s
understandable, given 20th-century Europe’s history of political
and economic instability.
Unfortunately the policies directed toward preventing
reoccurrences of 1930s-like mass unemployment and the economic
turmoil that fed the extremes of left and right have contributed to
notoriously rigid labor markets throughout Europe, not to mention
fiscally unsustainable welfare states. These have in turn helped
facilitate many European nations’ high unemployment levels, and
created deep anxiety among those unable to find full-time
work.
Another defining feature of a society’s economic culture
is its dominant mode of economic advancement. Broadly speaking,
this occurs in two ways in modern economies. The first is through
free enterprise and competition within a stable framework of laws,
customs, and morality. The second is through closeness to
government power.
Much of Europe has opted for the second approach. This
manifests itself in what might be called hard or soft corruption.
“Hard” corruption can be found, for example, in contemporary Greece
— a country where it’s very difficult to get anything done without
payoffs to one or more of Greece’s army of civil
servants.
In a way, however, “soft” corruption is more insidious,
because it avoids the overt unseemliness of accepting bribes. Soft
corruption essentially involves cozy relationships between European
interest-groups — such as businesses unwilling to compete, or
public-sector unions intent on securing permanent employment for
their members — and political parties from across the ideological
spectrum. The interest-groups provide the cash and votes that help
elect politicians. The politicians reciprocate by legislating to
protect their supporters.
The fatal flaw of this arrangement is that neither hard
nor soft corruption creates wealth. Instead, they shift the
incentives away from creating wealth through entrepreneurship and
competition. More and more people are thus drawn into playing a
dysfunctional game in which the objective is to manipulate state
power in order to redistribute wealth towards oneself.
Sooner or later, those genuinely interested in creating
wealth in such cultures either give up or simply migrate to more
entrepreneurial-friendly settings. Those left playing the
redistribution game subsequently find themselves fighting over less
and less. Sooner or later, something has to give. Greece has
reached that point. Much of Europe is struggling to avoid following
it into the abyss.
The irony is that the barriers to change in Europe are
not economic. They’re political. And most European
politicians understand this all too well. As Luxembourg’s prime
minister, Jean-Claude Juncker said in 2007: “We all know what to
do, but we don’t know how to get reelected once we have done
it.”
Fortunately, no one is a prisoner of their culture,
economic or otherwise. European governments could make substantial
progress if they chose to accompany austerity measures
with pro-growth, pro-entrepreneurship, and anti-crony capitalist
policies.
Yes, the price for some might well be electoral defeat.
But so be it. If the whole point of politics is to promote the
common good rather than one’s self-advancement, then any European
political leader with any integrity shouldn’t hesitate to think —
and do — the unthinkable.
