The European-American Dream

javier solanaToday, three European countries are among the world’s seven largest economies. Ten years from now, only two will remain. By 2030, only Germany will still be on the list, and by 2050, none will remain. Indeed, by then, the United States will be the only representative of the West in the top seven.

What this means is that the European states are too small to compete separately in the world of the twenty-first century. It’s as simple as that. By 2030, according to the World Bank, there will be two billion more people, mainly Asians, in the middle class. The pressure on the planet’s resources, commodities, water, and food will be huge, making a global rebalancing practically inevitable. And in a world marked by interdependence and constant change, Europe will find that unity is strength.

Indeed, unless Europeans work toward integration, they may find themselves surpassed by emerging countries in terms of technological development, job creation, production costs, talent, and creativity.

The European Union is still the place where economic and social institutions assure a better quality of life. In this sense, the demand for a European voice in the world is clear – Brazil’s former president, Luiz Inácio Lula da Silva, spoke of the EU as a “singular international heritage” – because it guarantees the values that represent humanity at its best.

Those values are embodied partly in Europe’s well-developed welfare states, which are an important component of Europeans’ collective identity and a principal point of pride. True, in terms of economic equality, there is only a two-to-one difference in per capita GDP between the richest US state and the poorest (excluding the District of Columbia), while in the EU the ratio is 6.5 to one. But, in terms of conditions within US states and EU countries, things are very different.

The average Gini coefficient (where zero is absolute equality and one is absolute inequality) in Europe is 0.30, compared to 0.45 in the US. China’s coefficient is 0.47. American society is very unequal (and China’s is slightly more so). In Europe, the opposite is true. Its societies are much more egalitarian, while convergence among them is still a long way off (this is, indeed, the great task that Europe faces).

From this perspective, it is not difficult to comprehend Europe’s international appeal. Consider the following thought experiment (a variation on the “veil of ignorance” conjured by the philosopher John Rawls in his effort to design a just society): Taking into account the level and quality of social protection, public education, and health care in the EU and the US, and without knowing beforehand what your social position would be in either society, where would you prefer to be born?

But, if Europe wants to maintain its prosperity-sharing institutions, it must generate economic growth in order to pay for them. That means raising productivity and strengthening competitiveness – and, equally important, asserting Europe’s place in the world.

Europeans have a new reason for hope as they seek to achieve these goals: a transatlantic free-trade agreement. Not long ago, in the 1980’s, Europe was dismissed (by conservative Americans in particular) with the term “eurosclerosis.” The decade following the oil crisis of 1979 was marked by a spike in unemployment, fiscal paralysis, and, indeed, frozen accession negotiations for Spain and Portugal. European economies were stagnating, while the US and Japan were growing.

At the time, Europe’s common market was not yet a single market. Then, a historic convergence of national interests and ideological positions (from François Mitterrand’s Socialists to Margaret Thatcher’s Conservatives to Helmut Kohl’s Christian Democrats) occurred. With great foresight, Europe’s leaders concluded that it was their economies’ lack of integration that was keeping Europe from growing as strongly as the US and Japan.

The solution was to create a much larger market: a single market. This effort culminated in the Single European Act of 1986, which laid the foundation for the virtuous circle of strong growth and lower unemployment in the 1990’s.

Today, the Transatlantic Trade and Investment Partnership (TTIP) is finally on the table, promising to boost growth in the EU and the US alike. In 2012, US exports to the EU totaled roughly €206 billion ($272 billion), while EU exports to the US amounted to nearly €300 billion. Thirty million jobs in Europe (about 10% of the total work force) depend on foreign trade. The quantities are huge, which suggests that the TTIP could have an effect comparable to that of the single market for Europe.

But realizing the TTIP’s potential requires completion of the European integration project. That process is long and slow, but it is the only way to maintain Europe’s relevance as an international actor, with something to say and to offer. Indeed, it has been this process – now in its seventh decade – that has enabled Europeans to enjoy the highest standard of living in the world.

© Project Syndicate

  • Thoma

    So China is going to take the place of the west? China is being built by the Western European Bankers so I doubt they will take the place of the bankers who are building them for a select purpose, correct? The per capita income of china is around $5000 or $6000 and the wealth is concentrated at the top so even this low per capita number is lower in reality for most Chinese. The Common Chinese worker works very very long hours and is abused by multinational corporations who use many of them for slave labor. The Environment in China is a disaster with the Air, Water and Land pollution at unsustainable levels which will take huge sums of money to clean up eventually. The Chinese culture is aging and China is overpopulated with 1.3 billion people so in a finite world this is not a strength but weakness. India has many of the same problems except worse. Should I mention corruption in both countries which make many things unworkable? Europe has almost 50 states, correct? Each state has strengths and weakness but as a unit Europe is still by far the strongest entity in the world responsible for 48% of all Foreign Direct Investments owning many trillions of dollars of assets around the world. 3 trillion in service and merchandise exports along with a 400 or 500 billion current account surplus excluding England(est for 2013) which will dwarf China. The world’s most modern infrastructure and highest skilled/educated populous is in Europe along with a renewable energy/sustainable development revolution ongoing in Europe which will be the foundation for the next century. I’m not going into everything but the left/right arguments are old.

  • L. Maarssen

    For Europe to still be the place where economic and social institutions assure a better quality of life, as you say, requires strengthening and preserving the values embodied in Europe’s well-developed welfare states, not to demolish them, either intentionally or as a second-order consequence.
    In my opinion the creation of the economic growth needed to achieve this, demands a change of orientation of the policies adopted so far by the Eurozone countries: less emphasis on a short-term obsession with austerity, leading to fragmentation, recession and undesired extremism, and more attention towards adopting a longer time horizon to solve the debt problem and focusing on both internal and export-led growth. This needs a more imaginative approach with less emphasis on mercantilistic and ordo -and. neo-liberal notions. (Blithely trying to compete on a one-for-one basis with countries with weak social systems, leads to the “importation of poverty” through an erosion of the welfare state and the internal deflation that is needed to compete.)
    But we do not hear any encouraging sounds to this end from European officialdom or the meetings of European government leaders. Undaunted by clear indications of disappointing results, all you hear are either overt or tacit endorsements of the official austerity policies – witness Mrs. Merkels harangues to continue austerity unabated and Mr. Rehn’s silly remark that economists’ well-founded criticisms stand in the way of people acquiring the confidence needed to turn austerity into a succes.