by John Hawkins | March 28, 2006 1:17 am
The Brussels Journal has a very interesting and detailed look at the failures of the European social welfare mode:
Why is Europe performing so poorly? Europe’s deficient performance is incompatible with its huge potential as the world’s largest single consumer market. Its slow growth contradicts its unequalled industrial productivity and infrastructure, its outstanding education level and labour ethics, its favourable climate, “fair business” morality, and not in the least its tremendous potential provided by the opening of the iron curtain. Obviously Europe’s fairy-tale is not materializing. Nor are the inflated expectations prognosticated by Europe’s political elite at the launch of the Common Currency and the Lisbon Agenda.
The reality of Europe’s ailing economy contrasts sharply with its economic potential and with the massive resources employed to cure its ailing growth. The whole arsenal of Keynesian remedies has now been tried and has failed one by one. Massive deficit spending throughout the eighties and nineties has left Europe with a public debt unequalled in history. The size of Europe’s monumental public debt is only surpassed by the hidden liabilities accumulated in Europe’s shortsighted pay-as-you-go public pension schemes.
The fact remains that what’s happening in Europe right now could very well happen here – in fact, it will unless we start working towards changing our current course. Europe made a very conscious decision to try to create a state based off of certain utopian principles – that economic goods such as health care and housing were “rights” and that the best way to promote a healthy society was to have a more “fair” tax system. Years of massive social welfare spending, confiscatory taxation, and Keynesian economics have failed to produce economic growth or significant prosperity. In fact, with Europe’s unemployment rates in the double digits and their total labor underutilization even double that, it’s quite clear that trying to emulate a European model is trying to emulate failure.
At the same time, one European country does provide a model for how to grow an economy in the 21st Century. Ireland went from being 22nd in the OECD prosperity index to being fourth. The Irish economy has grown at an annualized rate of 5.6% for the past 20 years. Granted, that sort of growth isn’t sustainable over the long term, but in a generation Ireland went from being under conditions that resembled the Third World to being one of the most dynamic countries in the EU.
What did Ireland do? They were the first in Europe to truly embrace globalization. Irish leaders realized that high protective tariffs were stunting economic growth and preventing foreign investment. The Irish government engaged in a policy of free trade, slashed taxes across the board, and worked to attract foreign investment. Ireland also has the benefit of having a large diaspora in the United States – one quarter of US FDI to Europe is invested in Ireland.
Ireland has the exact opposite set of problems as the rest of Europe – Ireland’s population is rising rather than falling, and immigration is still strong. The economic boom has meant that prices on everything from real estate to pints of Guinness have increased dramatically. The Irish economic boom has left government coffers flush with cash – which encourages the kind of spending that isn’t sustainable as the Irish economy completes its transition. Yet for all those problems, it’s far better to have to deal with a rising population and high growth than the opposite.
Ireland’s flat tax structure and pro-growth policies have done better at providing an increased quality of life than the European social model has – and because of Ireland’s economic growth they’re better able to build infrastructure and invest in education, continuing that trend of growth. Policymakers on both sides of the Atlantic need to understand that the quasi-socialist welfare state model doesn’t work. If you want solid economic growth and a better life for your citizens, you must embrace free trade, low taxes, and foreign investment. Ireland’s victory and Europe’s decline are living proof of what it takes to destroy and economy and what it takes to develop one. The question is which model this country will embrace over the next few years and which future we have in store for ourselves.
This content was used with the permission of Jay Reding.
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