Commenters or Economists?

Take your pick carefully Professor Drezner.

These thoughts good easily lead to a good economic paper - comparing French productivity with California would be interesting.

I took a macroecon senior seminar with Edmund Phelps (2006 Nobel Econ) last fall, and he kept emphasizing the importance of adaptability in institutional structure vis-a-vis productivity. He attributes Corporatist Institutions as the main factor that has been detrimental to growth several European economies - germany, France and Italy (each uses a different name)

social market economy - Germany

social democracy - France

concertazione - Italy

This system reduces flexibility in the labour market, and overcompensates it with technology-induced growth.

However, i might be a bit bias in my personal views, since i still enjoy my permanent residence in Vienna, Austria.

Also, the process of enlargement will still take many years to fully integrate with new members. With Turkey knocking on the doors impatiently, i hope Europe will change its old guard for a more dynamic economy in the near future.

The Economist celebrates the EU's birthday with a special report. The report ends with a forcast of the next 50 years, which seems to be quite relevant to the post. It is also quite funny.

It begins with, "The EU is celebrating its 100th birthday with quite satisfaction. Predictions when it turned 50 that it was doomed to irrelevance in a world dominated by America, China, and India proved wide of the mark..."

First of all, I resent putting us into the same basket as Bulgaria. we are bad, not that bad!

Second of all, I don't buy the demographic argument. Demographics change.

I do buy though and I am seriously concerned about the institutional argument. On the one hand, it's very difficult, if not impossible, to build efficient institutions for 27 countries while respecting their independence, something very few are willing to curtail in some very crucial areas like foreign policy. On the other hand, the 27 countries don't know what they want from the EU. Do they want a political union or just an economic one?

The interesting part is that one of the ideas that propelled the Union was that "if you build it, it will come". In other words, if you build the institutions and establish a momentum towards an ever closer union, we will indeed move to something very close, like, let's say a federal union.

That strategy worked for 30 or 40 years, but it now seems to me it has reached an impasse. So, to me, it's really interesting what's going to happen, what solutions and resolutions are going to be offered in the years to come.

Gaurav,

it's really interesting what you say about Phelps views. While I suspect his views are the majority in economists' circles, in political science and her subfield of comparative political economy, there's a whole school that argues the exactly opposite point:

that corporatist institutions, more specifically, all encompassing labor unions are the main reason for a successful social democratic strategy that can preserve growth and accomplish the double whammy of keeping both inflation and unemployment low.

Under this view, countries like France are viewed as incoherent and not properly corporatist.

I would be really interested if you could point out any bibliography for what Phelps argues though.

The demographic argument is worthless. If you trust statistics, population is decreasing 0.5% per year. But counting de facto population, it is increasing more than 1% per year, as historic Hungary's young people is immigrating to Hungary. The same in Germany, everyone and his cousin are finding German grandfathers and moving to Germany. Spain's working population is 20 - 30% Latin American born. It is not so different from California. And demographic decline can be reversed, as shown in Israel and Sweden.

I'm perplexed by the assertion that "to most who live in Europe—or have visited lately—all this seems wrong, even absurd." According to the Financial Times in a story all of two days ago , 44% of EU citizens think that life has gotten worse since joining the EU, and only 25% think it has gotten better.

Whether they are overly pessimistic or perceptive is an interesting topic, but not one I know much about. But the assertion, made without any evidence whatsoever, that Europeans are excited about where their countries are doesn't seem to be supported by what they actually say.

As an American living in England, I frankly don't see the present or future as very rosy. The standard of living is lower here than the equivalent in the US. And this is amongst the highest in Europe.

I won't comment on the reasons I feel that European commentator mistake the state of affairs here. Rather, I prefer to raise up the issue of the "generous" social welfare programs and the unmentioned reason for its "success"-military spending. Since WW2, the US has militarily supported the Europeans freeing up spending for social welfare programs. This additional 2-3% of national budget for the last 40 years made the modern social welfare state possible.

American financial sacrifice for Europe goes not only unrecognized to this date, it gets dissed by sanctimonious "peace lovers" accusing the US of militarism. Europe could never achieve its success without the US subsidizing their collective national security.

Dear Nick,

Here you go.

Corporatism: Theory and Institutional Structure

Intellectual/cultural origins of corporatism:

Zeev Sternhell, “Epilogue,” The Birth of Fascist Ideology, Princeton, Princeton Univ. Press, 1994, 233-258.

Hannah Arendt, The Origins of Totalitarianism, New York: Harcourt, Inc., 1968, esp. pp. 222-266 and 305-340.

Robert Paxton, “What is Fascism?” Ch. 8, The Anatomy of Fascism, New York, Alfred Knopf, 2004, 206-220.

Jerry Z. Muller, Ch. 13, “Hayek,” the section Viennese Liberalism, the Jews and the Defense of Creative Minorities, 349-359. The Mind and the Market, New York, Knopf, 2002.

F. A. Hayek, “Who, Whom?” Ch. 8 in The Road to Serfdom, Chicago: Univ. of Chicago Press, 1944.

Francois Furnet, The Passing of an Illusion, Chicago, Univ. of Chicago Press, 1999. Ch. 6, “Communism and Fascism.”

Corporatist institutions and their differences from capitalist ones:

“The Structure of the Totalitarian State,” Ch. 3, 21-32, and “Guild Economy,” Ch. 4, 33-42, in Fascist Era Year XVII (28 Oct. 1938-27 Oct. 1939). Rome: Fascist Confederation of Industrialists, 1939.

“Corporativism,” Enciclopedia Storica, Milan: Feltrinelli; see also “Corporativism,” Enciclopedia del diritto, Milan: Editore Giuffre’. See also Marco E. L; Guidi, “Corporative Economics and the Italian Tradition of Economic Thought,” Storia del Pensiero Economico, No. 40, 2000/I. The section ‘Nature and Scope of Corporative Economics’ and the section ‘How many traditions of [Italian] political economy?’

See also Michel Albert, Ch. 6, Capitalism against Capitalism, trans., Paul Haviland, London: Whurr, 1993 and Peter Hall and David Soskice, Varieties of Capitalism, Oxford, Oxford University Press, 2001.

Corporatism: Indictments of its Effects on Liberty and Economic Performance

An historical question is, how badly, relatively speaking, did corporatism perform next to the more capitalist economies in the Interwar period? Paxton in What is Fascism? cites several works by historians, pp. 232-233. A very recent book is Adam Tooze, The Wages of Destruction: The Making and Breaking of the Nazi Economy (London: Allen Lane, 2006). Its thesis is that Germany’s collapse had less to do with its bungling during the war than with its lack of a good economic system from the start – from 1933 onward. Two recent papers are: Jonas D. M. Fisher and Andreas Hornstein, “The Role of Wages, Productivity and Fiscal Policy in Germany’s Great Depression, 1928-37,” Federal Reserve Bank of Chicago, Sept. 2001, WP-01-07; Jörg Baten and Andrea Wagner, “Autarchy, Market Disintegration and Health: The Mortality and Nutritional Crisis in Nazi Germany, 1933-37,” CESifo Working Paper 800, October 2002.

Hayek, Ch. XIII, “The Totalitarians in our Midst,” and Ch. XIV, “Material Conditions and Ideal Ends,” 181-219 in The Road to Serfdom, Chicago Univ. Press, 1944.

Milton Friedman, “Labor Unions and Economic Policy,” in David McCord Wright, ed. The Impact of the Union, New York, Harcourt Brace and World, 1961

Herbert Giersch, “Openness and Incentives” (Chapt. 9), Openness for Prosperity: Essays in World Economics, Cambridge, Mass. MIT Press, 1993.

K. Koedijk and J. J. M. Kremers, “Market opening, regulation and growth in Europe,” Res. Mem. 9607, OCFEB, Erasmus University, Rotterdam, March 1966, p. 1-7 only.

Mancur Olson, Ch. 4, “Rational Individuals and Irrational Societies,” and Ch. 5, “Governance and Economic Growth,” in Olson, Power and Prosperity, New York, Basic Books, 2000.

Michael Bruno and Jeffrey D. Sachs, The Economics of Worldwide Stagflation, Cambridge, Mass.: Harvard University Press, 1985.

Edmund S. Phelps, “Economic Underperformance in Continental Europe: A Prospering Economy Runs on the Dynamism from its Economic Institutions,” Lecture, Chatham House, London, March 2003.

(Professor Phelps Syllabus readings)

But, if you want a concise article instead, then look up

Dynamic Capitalism
By EDMUND S. PHELPS
October 10, 2006

in the Wall Street Journal.

But, if you want a concise article instead (excellent article - covers all the main points), then look up

Dynamic Capitalism
By EDMUND S. PHELPS
October 10, 2006

in the Wall Street Journal.

Ha ha ha ha!

Thanks for the laughter, professor Drezner. I haven't laughed this much since I read Moravcsik's silly book on European integration.

There are lies, damned lies and statistics, the saying goes, but at the end of the day the proof of the pudding is in the eating. As the England-based commenter rightly notes above, Europe is significantly less wealthy than the US. And that's even despite being subsidized on military spending by the US, as another commenter says.

What is more disturbing even than the economics is the politics. The EU is a profoundly undemocratic, unrepresentative and illiberal institution that is not supported by the member states' populations. Already more than half of legislation in EU countries comes from Brussels rather than from their own parliaments. This transfer of power from democratic to undemocratic and unaccountable institutions continues unabated. Rather than having learned from their defeats in the French and Dutch referenda, the EU's elites are now trying to push the same thing through without consulting the people and without calling it a constitution.

This, unfortunately, is the real story of the EU. And it's not remotely as funny as Moravcsik's.

Thank you Gaurav. That bibliography is very useful. Million thanks.

I am a Portuguese. I think the biggest European problem is ideological with a sort of neo-socialism in a big chunk of media, political class and youths, also with high tolerance to any "good" interventionism by government agencies in every aspect of life. My only hopes is that Eastern European countries with fresh memories from communism can resist some of this.
In short i think the incentives that European society are giving is strongly against self responsability.

I am a Portuguese. I think the biggest European problem is ideological with a sort of neo-socialism in a big chunk of media, political class and youths, also with high tolerance to any "good" interventionism by government agencies in every aspect of life. My only hopes is that Eastern European countries with fresh memories from communism can resist some of this.
In short i think the incentives that European society are giving is strongly against self responsability.

I am a Portuguese. I think the biggest European problem is ideological with a sort of neo-socialism in a big chunk of media, political class and youths, also with high tolerance to any "good" interventionism by government agencies in every aspect of life. My only hopes is that Eastern European countries with fresh memories from communism can resist some of this.
In short i think the incentives that European society are giving is strongly against self responsability.

"I would still wager that the diffusion of policy innovations would spread faster from American state to American state than between the different members of the EU."

This seems to take propensity to change as, in itself, a good thing. Real conservatives hold just the opposite view. It is an open question whether the conservative view is the right one, but your point seems to simply assume that it is not.

I would argue that the tendency for US states to adopt policy innovations from other US states is far from an undiluted good thing. The rage to privatize public income flows (toll roads and lotteries and the like) comes before there has been time to examine the results from a single instance. A bit more conservatism, in keeping with the habit you describe for European countries, might well be a virtue in some cases, though not in all.

A personal taste for change in government policy or for convergence in government policy does not constitute a valid critique of the Europe project.

Well if the bathwater is ever thrown, I just hope the baby doesn't go with it.

If the European political class ever figured out that America's economic success comes mainly from the open rules set down in the US Constitution for interstate commerce—and then correctly deduced that they didn't need an uber-state, only an uber-market and open borders— I think they could they could turn things around pretty quickly for themselves. I just wish they'd hurry up. Anything other than an economically vital and powerful Europe isn't in anyone's best interest.

yours/
peter.

Productivity in the US is higher than in France because of a very simple fact: there is 50% more people working in the US (relatively to the total potential workforce, that is people aged 15-64).

Let me explain: in the US, 75% of people between 15 and 64 are on the job market (with an unemployment rate of approx 5%). In France, it's about 55% (unemployment rate of 10%).
So in the US, there's a lot more jobs than there is in France. What are these jobs, and what do the people do in France if they don't work ?

1/ The jobs in the US are in part low paying jobs, part time, low productivity etc. I know that it would be an idiocy to say that 1/3 of the jobs in the US are waiters or pizza salesmen or cashier, but still that's a part of the "missing" jobs in France.
In France, all the low productivity jobs are eliminated due to simple economic regulations: minimum wage+taxes is about $2500 for the employer, of which the employee would get $1200 (900euros).

2/ If people are unemployed, well let's just say they're students, retired, on the leave (paternity leave, maternity leave), or disabled (handicapped)...
For example, half the people over 55 years dont have a job. And 25% of people under 30 dont have a job either.

what does it mean to the productivity ? Well, eliminate from the calculus all the least productive people and jobs, and you will make the mean productivity go up. How simple!
Write off 1/3 of the least productive jobs in the US, and redo the calculus. I'm pretty sure that mean productivity in the US would beat that of France.

I'd add that having a higher productivity is not a sign of good economic health. In France it means that we're leaving aside many productive people, that we have to maintain high taxes on working people to feed the others, that many people can't transmit their experience (think of the >55yr people), that a lot of youth dont have any confidence in the market (and therefore vote socialist or worse)...