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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

26 October 2005

Let Europe be, Mr. Chirac

“Europe cannot stand still while its competitors forge ahead,” Jacques Chirac, the French president, writes in today’s Financial Times; “France will … never let Europe become a mere free trade area. We want a political and social Europe rooted in solidarity.” But why? The fruits of free trade are obvious: eliminating tariffs improves economic efficiency and enriches the state and the individual; free trade is a journey taken together. But what is the purpose of a political and social Europe? Why do we need a unified Europe for political and social solidarity?

Mr. Chirac has a few answers: “Globalisation spells enormous economic and social challenges. A united Europe is the only means to address them.” This is nonsense. It is an abdication of responsibility: member states and their presidents cannot figure out the answer, it seems to whisper, so we should all cuddle together, as if the European Union is the sentry of knowledge that is kept secret in Berlin, Paris, and Rome. Why is bigger better in coping with globalization: what about Taiwan, Singapore, Hong Kong, and South Korea? Why is Ireland, a tiny country, growing more rapidly than the European continental behemoths?

Mr. Chirac knows, but he refuses to acknowledge: “when corporations, tailoring global strategies to short-term profit considerations, take decisions that affect employment throughout the Union, such as relocation, our strength lies in numbers.” To blame corporations for short-term calculus is laughable from France’s pre-eminent politician, or any politician for that matter. But even more, by shifting the blame to corporate boardrooms, Mr. Chirac evades another question: who relocates, and why? Profit maximizers wouldn’t leave France or Europe if it were against their interests. Think about why they leave Mr. Chirac and you might channel some of our anger elsewhere: to your own politics rather than their bottom line.

In this competitive world, standing together is the strategy, and research and development is the tactic. “[Europe] must increase innovation and research to support tomorrow’s jobs,” Mr. Chirac writes. This is nice. Innovation and research seem perfect antidotes: they make intuitive sense for people who are desperate because they have lost their jobs, and, more important, they generate political dividends today because their true effects will not be felt for years.

But, as any serious economist knows, growth comes from two factors: the one is a reallocation of resources to more productive uses, the other is productivity. The former takes the form of a flexible labor market, lenient bankruptcy laws, and an efficient capital market (banks and stock markets, for example), to name a few. The second comes from specialization: technology, standard operating procedures, and economies of scale. You cannot improve the equation by increasing only side—technology is important but it is no panacea. And given the hostility to markets that Mr. Chirac so proudly displays, it may be no antidote at all.

Mr. Chirac closes with these words: “that states wishing to act together in addition to the common policies should be allowed to form pioneering groups. Such groups must remain open to those wanting to join them. We did so with the euro, Schengen and defence initiatives. Likewise, eurozone members should deepen political, economic and social integration.”

The logical connection of this last sentence eludes me. But here is my sense: it is never easy for an aloof politician to tell his people what is best for them. It is even worse when that politician comes from a different country, speaks a different language, and represents a wider public that has never chosen him to speak on their behalf. It just so happens that on top of these two comes a third sin: Mr. Chirac is just plain wrong. And no vision and rhetoric can correct for that.

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