The Decline And Fall Of Europe
TOOLBOXPrintE-mailReprints Tuesday, February 14, 2006
Cartoons and riots made the headlines in Europe last week, but a far less fiery event, the publication of an academic study, may shed greater light on the future of the continent. The Organization for Economic Cooperation and Development (OECD), headquartered in Paris, released a report, "Going for Growth," that details economic prospects in the industrial world. It is 160 pages long and written in bland, cautious, scholarly prose. But the conclusion is clear: Europe is in deep trouble. These days we all talk about the rise of Asia and the challenge to America, but it may well turn out that the most consequential trend of the next decade will be the economic decline of Europe.
It's often noted that the European Union has a combined gross domestic product that is approximately the same as that of the United States. But the E.U. has 170 million more people. Its per capita GDP is 25 percent lower than that of the United States, and, most important, that gap has been widening for 15 years. If present trends continue, the chief economist at the OECD argues, in 20 years the average U.S. citizen will be twice as rich as the average Frenchman or German. (Britain is an exception on most of these measures, lying somewhere between Continental Europe and the United States.)
People have argued that Europeans simply value leisure more and, as a result, are poorer but have a better quality of life. That's fine if you're taking a 10 percent pay cut and choosing to have longer lunches and vacations. But if you're only half as well off as the United States, that will translate into poorer health care and education, diminished access to all kinds of goods and services, and a lower quality of life. Two Swedish researchers, Fredrik Bergstrom and Robert Gidehag, note in a monograph published last year that "40 percent of Swedish households would rank as low-income households in the U.S." In many European countries, the percentage would be even greater.
In March 2000, E.U. heads of state agreed to make the European Union "the most competitive and dynamic knowledge-driven economy by 2010." Today this looks like a joke. The OECD report goes through the status of reforms country by country, and all the major continental economies get a B-minus. Whenever some politician makes tiny, halting efforts at reform, strikes and protests paralyze the country. In recent months reformers such as Nicolas Sarkozy in France, Jose Manuel Barroso in Brussels and Angela Merkel in Germany have been backtracking on their proposals and instead mouthing pious rhetoric about the need to "manage" globalization. E.U. Trade Commissioner Peter Mandelson's efforts to liberalize trade have been consistently undercut. As a result of the European Union's unwillingness to reduce its massive farm subsidies, the Doha trade expansion round is dead.
Talk to top-level scientists and educators about the future of scientific research and they will rarely even mention Europe. There are areas in which it is world class, but they are fewer than they once were. In the biomedical sciences, for example, Europe is not on the map, and it might well be surpassed by much poorer Asian countries. The chief executive of a large pharmaceutical company told me that in 10 years, the three most important countries for his industry will be the United States, China and India.
And I haven't even gotten to the demographics. In 25 years the number of working-age Europeans will decline by 7 percent, while those older than 65 will increase by 50 percent. One solution: Let older people work. But Europe's employment rate for people older than 60 is low: 7 percent in France and 12 percent in Germany (compared with 27 percent in the United States). Modest efforts to allow people to retire later have been met with the usual avalanche of protests. And while economists and the European Commission keep proposing that Europe take in more immigrants to expand its labor force, it won't. The cartoon controversy has powerfully highlighted the difficulties Europe is having with its immigrants.
What does all this add up to? Less European influence in the world. Europe's position in such institutions as the World Bank and the International Monetary Fund relates to its share of world GDP. Its dwindling defense spending weakens its ability to be a military partner of the United States, or to project military power abroad even for peacekeeping purposes. Its cramped, increasingly protectionist outlook will further sap its vitality.
The decline of Europe means a world with a greater diffusion of power and a lessened ability to create international norms and rules of the road. It also means that America's superpower status will linger. Think of the dollar. For years people have argued that it is due for a massive drop as countries around the world diversify their savings. But as people looked at the alternatives, they decided that the chief rivals, the euro and the yen, represented economies that were structurally weak. So they have reluctantly stuck with the dollar. It's a similar dynamic in other arenas. You can't beat something with nothing.
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