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The American Way Wins

Why American capitalism trumps Euro capitalism.

11:00 PM, Jan 20, 2003 • By IRWIN M. STELZER
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NOW IT CAN BE TOLD. More precisely, now it has been told in new studies of comparative economic performance. It seems that the U.S. economic model trumps the European model, and is set fair to continue to do so.

Since communism collapsed and the Japanese model of government-guided investment, exchange-rate manipulation, and the replacement of markets with ministers proved itself dysfunctional, the world has had on offer only two versions of how to create national wealth: the European Union and the United States.

The governments of the European Union by and large claim about 50 percent of their nations' output for the governments' ministers to do with as they please; the U.S. federal government takes about 30 percent. The high taxes needed by E.U. governments to support their welfare states have contributed to persistent double-digit unemployment in Germany, and to very low growth rates throughout most of what is called "Euroland." Add to the tax burden three further economic impediments to growth--labor markets so rigidly regulated that employers dare not hire for fear of being unable to fire; a Growth and Stability Pact that prohibits countries from running significant deficits when faced with recession; and a one-size-fits-all interest rate that is applied both to recession-afflicted Germany and inflation-afflicted Portugal.

There is worse. In addition to national governments that are inclined to regulate everything from the amount of foam allowed on a mug of beer sold by publicans (the UK), to the hours stores can stay open (in Germany it's never on Sunday and only part of the time on Saturday), Brussels' eurocrats have rules that regulate everything from the size of condoms to the permitted curvature of bananas.

So it comes as no surprise to any economist not included in the swath of those who hate America--"capitalism red in tooth and claw" and "the law of the jungle" are two of the epithets sometimes hurled at me in international conferences--that the E.U. economies are in trouble.

There is no better proof than last week's moan from Romano Prodi, president of the European Commission. It seems the European Union is falling ever-further behind the United States in the competitiveness race. Per capita productivity of the E.U.'s employed workforce fell from 86 percent of the U.S. level in 1999 to 83 percent last year. If you count the zero productivity of the massive numbers of Europe's unemployed, things are even worse for the European Union.

And unlikely to get better, says the new study by the European Commission. Resistance to labor-market reform remains a potent force, Europe continues to devote fewer resources to research than does the United States, and E.U. taxes remain high (at a time when the debate in American is not over whether, but by how much, to reduce the tax burden on workers, entrepreneurs, and investors).

None of this is by way of a self-satisfied gloat. Although the anti-Americanism and even more perfervid anti-Bushism to which my wife, Cita, and I are subjected when we are abroad makes such gloating terribly attractive. It seems that our president can't put a proper English sentence together; that he goes to sleep at a time that Europeans believe to be their cocktail hour; that he is--gosh--"religious," as in "the fanatical religious right." Not only that, but he doesn't see much point in relying for military support on countries that don't have any weapons or well-trained troops and he doesn't appreciate advice on Middle Eastern policy from countries with thinly veiled anti-Semitic tendencies.

But rise above all of this, and one can see that America has an interest in a prosperous Europe. We need it as a good trading partner, not given to protectionism to protect its clapped out industries. We need it to be wealthy enough for its member states to be able to afford credible military establishments. So, in the end, we need to continue to contribute to the debate on European policy, as Jeff Gedmin's Aspen Institute, my own Hudson Institute, and other think tanks are doing.

Most of all, we have a stake in persuading our principal ally, Britain, that it should retain such control as now remains over its foreign and economic policy by avoiding deeper engagement in the E.U. bureaucracy, and by refusing to surrender control over its monetary and fiscal policy by trading in the pound sterling for the euro. In short, we should fight in the universities, in the think tanks and in the journals, never faltering in our efforts to persuade our European friends that aspects of the U.S. model are worthy of their serious consideration.

Irwin M. Stelzer is director of regulatory studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.