I find myself in a bit of a conundrum. Having just gotten back from a trip to
Europe, my seventh in about a dozen years, I continue to be amazed by the visible
and tangible evidence that Europe is kicking our butts in a number of economic
areas. Sure, I’m aware of the
things we like to focus on when we poopoo Europe’s economic performance: structural unemployment, highly
socialized economies, bloated governments, frightening demography, etc. Nevertheless, their stuff is just
better than our stuff. Just about
everything that is manmade is of a higher quality, better maintained, and more
functional in Europe than in the US.
And yet, I have always thought that big-government Europe could never
compete with the US with its emphasis on individual liberty and limited
government. How can these bloated
bureaucracies be kicking our butts when it comes to making and maintaining high
quality stuff? Apparently I
need to rethink my premises.
First, some observations from my most recent trip. The eye popping differences began with
the flights. As it happened, we
flew Lufthansa over and United back.
No surprise: Lufthansa won hands down. The Lufthansa Airbus A340-600 was new, staff was courteous
(and gorgeous), food good, even in coach the silverware was metal, and alcohol,
including good wine, was available without additional charge. The United return was an aging Boeing
767 in bad need of an overhaul (as was the staff), alcohol was extra, and halfway
through the flight the bathroom was out of toilet paper and remained so the
rest of the flight.
We flew into Munich where the escalators all worked, the
luggage carousels purred, and the rental cars were all BMWs, Mercedes, Audis,
and VWs in excellent condition.
When we landed back in Newark, somewhat depressed by the return flight
experience, the first escalator we encountered was, appropriately, not
working.
Of course, tourists usually see the best of what a locale
has to offer. But the same can be
said of where I live in the US. I
spend nearly all my time in areas that cater to tourists and are analogous to
the areas I’ve visited in Europe.
( I know, pinch me!) That
said, I am blown away by the level of construction and the quality of the
properties in Europe. You cannot
even compare high-end construction in the US with the same level in
Europe. What we call the finest
door or window in the US wouldn’t even qualify for a shed in prosperous parts
of Europe. The same can be said
for just about every detail in high-end construction. Europeans build for the long run. In the US, most of what we build is disposable and reflects
that.
Infrastructure in Europe also wins hands-down over the
US. Trains throughout Europe are
superior, even in the indebted countries like Italy and Spain. They run on schedule, go fast, and can
take you (and your bike and dog) just about anywhere. Roads, funiculars, cog railways, and even hiking trails have
been built and are maintained to an amazing degree in the most inhospitable of
places. Autobahns are plenty
smooth at even 100mph. You can
hike for hours up just about any mountain in the Alps, and chance upon ancient
Inns that are only accessible by foot (or now helicopter), and get a beer, a
delicious meal, a hot cappuccino, and often a room.
On the technology front, again a mismatch. I’m proud that much technology
originated in the US, but Europe has adopted it as well as anywhere. Smart phones, computers, and broadband
internet are ubiquitous. Some
things however haven’t made it the other way across the pond. Anyone who’s stayed in a European hotel
knows that the key card must be inserted before the power goes on. How many coal fired plants could we do
without if we adopted this simple idea?
European waitstaff enter orders digitally and remotely, accept credit
cards remotely, and hence can serve more tables more efficiently than we can
with our centralized and more manual systems. I believe this is a consequence of the European custom where
the waitstaff works for the restaurant and is paid a salary, versus the US
custom where the waitstaff largely works for the diner via tips (a system I
prefer as a diner, btw). Seems to
me better efficiency would benefit restaurants and diners, but this technology
has not been adopted in the US.
Back when I first visited Europe in 1974, the rap on the old
world was that you couldn’t find decent toilet paper and the commode would
likely be a hole in the floor. No
more. On this trip I encountered a
public bathroom halfway up a mountain, in Italy no less, that practically wiped
your bum for you. Electronic
toilets, electric doors, faucets that both washed and dried your hands, and
door handles that changed color to indicate occupancy. It was a level of technology and
excellent design in a public restroom I’ve never seen anywhere in the US.
So, how is Europe able to have bigger government, more
redistribution, more regulation, hence less economic freedom, and at the same
time produce tangible things that are superior to ours? The answer is that they do not
necessarily have less economic freedom.
Despite the best intentions of our founders, in many ways Europeans
today are the economically freer people!
Wherever you go in Europe you see things you would never see
in the US. Swimming pools have
diving boards, hotels have trampolines, and in the Alps, parapenters (hang
gliders) and squirrel suit flyers are everywhere. Sometimes people die or are injured doing these things, but
Europeans are free to take these risks, and businesses are free to offer these
experiences. A tort system that
supports litigious actions effectively limits our freedom in the US without
specific laws banning behavior. I
once tried to rent a mountain bike in NJ but was told insurance rates due to
litigation made that impossible.
The result is a loss of freedom and economic freedom. Heritage does not account for the
effects of our tort system and our lawsuit culture on economic freedom.
Also, remember how we were supposed to be the country
specifically designed to have limited government and unprecedented
liberty? Remember how that was the
thing that made us “exceptional”?
Well, according to my calculations, six European countries have more
limited government than we do, and some of them are prosperity
powerhouses: Switzerland,
Slovakia, Estonia, Poland, Ireland, and Norway (which is tied with the
US). Moreover, three more
are within the margin of error:
Luxembourg, Czech Republic, and the industrial powerhouse of Europe,
Germany.
(*This is a larger list than the one Heritage arrives
at. See note at the end for a full
explanation of the method I use versus the one Heritage uses.)
Sure, not everything in Europe is awesome. There are slums in Europe just as there
are in the US. Having fast trains,
nice buildings, great cars, and amazing infrastructure doesn’t create a
classless society. To do that you have
to go full Socialist, or full Communist, and then you end up with none of the
above, except of course the slums and a few grand palaces.
Here’s the upshot:
Europe is highly decentralized, being made-up of sovereign
nations, often with semi-autonomous regions within those nations. The US is now highly centralized with
states that have fewer rights than ever in our history. Decentralized systems are inherently
more resilient. Europe is a place
where you can find limited government, reasonable regulation, democracy, human
rights, personal accountability, prosperity, freedom, rule-of-law, etc. all in
one place, though certainly not everywhere. The US is a place where you cannot find all those things to
that degree in a single place thanks to centralization. Advantage Europe.
Europe now does its redistribution in the right place thanks
to the Euro - away from the political entity that prints most currency (The
ECB). The US redistributes at the
federal level where it also prints it’s currency setting up a fatal conflict of
interests. National debt per capita is currently $30,504 in the Euro countries. It is $55,228 in the US. Advantage Europe.
Europe is a place where citizens can drive as fast as they
please, but they are accountable.
The US is a place where the federal government dictates driving
speeds. Europe is a place where
public swimming pools have diving boards, hotels have trampolines, and citizens
are accountable to use them responsibly.
The US is a place where its
citizens are denied many freedoms due to a litigious tort system and centralized federal power. Advantage Europe.
The US has the highest corporate tax rate in the industrialized world along with a tax system that seeks to tax foreign earnings as well as domestic. European countries only tax earnings in their own country, hence many US companies are doing"inversions" where they merge with smaller European companies and move their headquarters there. Advantage Europe.
Europe produces better stuff, and in many ways, a better
standard of living. They just
do. Much of this is cultural, but
the result is undeniable. Advantage Europe.
I used to maintain that the US was a place with unmatched
adherence to the rule of law, a constitution that protected our rights, limited
government, economic freedom, and a future second to none. Now I admire Europe. (With a caveat for
demography, although ours isn’t looking too good either!)
(Update - Certainly one reason Europe produces better stuff is due to history; Europe, and especially Germany, have a highly evolved Guild System in place, which has been churning out the world's best tradesmen and craftsmen since before Columbus sailed to the New World! But that does not diminish the role of economic freedom in determining the quality of goods in a nation. All one need do is look at the examples of East and West Germany, or North and South Korea where similar cultures resulted in radically different outcomes due to freedom, both political and economic.
Also, whenever discussing economic history, particularly when comparing the US and Europe, the role of WWII must be acknowledged. A major reason for US economic power in the post WWII world was due to the fact that we emerged the largest intact industrialized nation by far. Europe and Japan were smoldering ruins, and China was still in loincloths. Those days are long gone, yet we are still enjoying the fruits of that post WWII world with our dollar being the world's reserve currency. Imagine how our $18 trillion debt will look if the dollar loses that status?)
*Note on government spending: My ranking of government spending differs from Heritage’s in
two ways: I compare government
spending (all federal, state, and local) to just the private sector portion of GDP
for all countries. Heritage uses
both the public and private part of GDP in the denominator, which is problematic especially in
measuring the US, which has been on a money printing, borrowing, and stimulus
binge. To correct for this, I
consider only the private portion of GDP (GDP less Government Spending) for all countries. The Heritage formula is, Total Government Spending divided by GDP, and mine is Total Government Spending divided by (GDP less Government Spending).
Also, Quantitative Easing is not specifically accounted for
in Heritage’s government spending numbers. I do include it because it is government spending.
