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16.06.2004, 15:51

The Trouble With the EU / mises.org

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http://www.mises.org/fullstory.asp?control=1536
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The Trouble With the EU
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by Jude Blanchette

[Posted June 16, 2004]

<img alt src="http://www.mises.org/images3/eu.gif" align="right" border="0" width="183" height="211">With
the enlargement of the EU from 15 to 25 countries earlier last month,
"…the artificial division of <ST1:PLACE>
Europe</ST1:PLACE>
is finally and conclusively at an end" declared the Irish Prime Minister
Bertie Ahern. He added,"The enlarged EU is also ready to play its part
in bringing about a more secure, just and equitable world."

According to the EU itself, the
organization

<blockquote dir="ltr" style="MARGIN-RIGHT: 0px">
"is a family of democratic
European countries, committed to working together for peace and prosperity.
It is not a State intended to replace existing states, but it is more than
any other international organization. The EU is, in fact, unique. Its Member
States have set up common institutions to which they delegate some of their
sovereignty so that decisions on specific matters of joint interest can be
made democratically at European level. This pooling of sovereignty is also
called 'European integration.'" 

[/i]
So goes the rhetoric of the
European Union, an organization created in 1951 to keep <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
and <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
from going to war again.

Unfortunately, the reality of this
supra-state is far from its putative promise. Based upon the premise that
peace and prosperity are somehow based upon increased size and regulatory
conformity, what is left of economically viable <ST1:PLACE>
Europe</ST1:PLACE>
is threatened by the social and regulatory policies required by the Eurocrats
upon entrance to the EU.  <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
, one of the EU's founding principles, currently exemplifies the
interventionist policies that bedevil the existing EU members and threaten to
compromise the economies of the new participants. In fact, <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
was the originator of what EU officials call the"European social model,"
a model of government control that has wrecked the German economy, and with
the increasing size of the EU, threatens the whole of the continent.             

The German Miracle?

<ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
occupies a special place in economic lore. Over fifty years ago, the
Vice-Chancellor and Minister for Economic Affairs of the <ST1:PLACE>
<ST1:PLACENAME>
German</ST1:PLACENAME>
<ST1:PLACENAME>
Federal</ST1:PLACENAME>
<ST1:PLACETYPE>
Republic</ST1:PLACETYPE>
</ST1:PLACE>
, Ludwig Erhard, unleashed the creative impulses of the war-torn country by
repealing some of the more onerous economic regulations on prices and wages in
addition to the stabilization of the currency, thus creating the German"economic
miracle." Heavily influenced by the German economist Wilhelm Röpke and
the ORDO liberals, Erhard's policies are considered a model for the
reconstruction of formally communist or war-torn (they amount to the same
thing) economies.

As with many commonly held notions,
there is more myth than reality to this oft-told legend. Along with the
benefits of a moderately free economy that the Erhard policies brought, they
institutionalized the soziale Marktwirtscharft (socially committed free
economy)—that is,"a covenanted as opposed to either a completely
unfettered economy on the one hand or a steered or planned economy on the
other," in Erhard's words. Not only has this third-way policy brought
about the slow demise of the German economy over the past 60 years, the EU has
now adopted the flawed German notion of"balance" between the
unfettered market and full-blown socialism.  

The Teutonic legend, however, does
not end in the early years after WWII. The rise of soft-socialism in <ST1:PLACE>
Europe</ST1:PLACE>
, and particularly in <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
, <ST1:COUNTRY-REGION>
<ST1:PLACE>
England</ST1:PLACE>
</ST1:COUNTRY-REGION>
, and <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
, has been attributed to the cooption of these governments by politicians on
the left. <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
, in particular, has been said to have abandoned the Road laid out by Erhard
and the German liberals.  Unions forced inflexible labor regulations upon
the economy, while cradle-to-the-grave social policies were enacted by a web
of competing special interests. The concomitant rise in unemployment and
economic stagnation that followed this ostensible turn to the left can be
corrected, argue many, only by a return to the Erhard Days. As <ST1:PERSONNAME>
Richard</ST1:PERSONNAME>
Ebeling writes,"The general consensus among many of the German liberals
on why [a return to socialism and interventionism] was occurring was that
government policy had been captured by those ideologically further to the left;
and economic policy increasingly was coming under the influence, if not
control, of various special interest groups who wished to use the state's
redistributive and regulatory powers for their own benefit."

It is clear, however, that this
trend toward socialism is inherent in the words and policies of many of the
German liberals. Erhard, for example, warned that <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
was"running a grave risk of becoming bogged down in a morass of
ultra-individualism." And perhaps more incredibly,"Has not a
people, which means, in effect, a state, obligations to fulfill which require
the individual to make sacrifices?" Erhard repeats the same argument used
by all protectionists, viz., that because there is not world-wide
pure free-trade, government intervention at home is necessary. As he concludes,
"The night-watchman State belongs to the past." The
policies that have come to typify the German economy of today (tight labor
regulations, expansive welfare state, progressive taxation and, of course, a
stagnant economy) can all be traced back to the"miracle" of
post-WWII.

The influence of the Erhard
Doctrine, or at least its mentality, can be seen throughout the theoretical
underpinnings of the EU. According to European employment and social policy:
a policy for people:"Thanks to what has become known as the
'European social model,' people in the EU are not left to the mercy of market
forces. On the contrary, they have access to one of the strongest social
safety nets in the world. This is because the European Union firmly believes
that while strong competition is necessary to improve growth, strong
solidarity between citizens is equally vital to create a stable society and
widely shared prosperity." Erhard could not have said it better.

Another central plank of the
Erhard Doctrine called for the management of trade to ensure"free
competition." Accordingly,"The State must not only take a hand in
the running of the market in so far as it is needed to uphold the mechanism of
competition, or to supervise those markets where complete competition is
impossible." Compare this statement with that of the EU's leading
anti-trust regulator, Mario Monti:"The competition policy implemented by
the [European Commission responsible for competition policy] and by the Member
States' authorities and law courts aims to preserve and develop a state of
effective competition in the common market by impacting on the structure of
markets and the conduct of market players. Requiring firms to compete with
each other fosters innovation, reduces production costs, increases economic
efficiency and, consequently, enhances the competitiveness of the European
economy…."

The twin goal of the EU, peace and
prosperity, are certainly attainable for the European continent. They will not
be reached, however, through the EU. The social market economy of <ST1:COUNTRY-REGION>
<ST1:PLACE>
Germany</ST1:PLACE>
</ST1:COUNTRY-REGION>
and its adoption by the EU should serve as a warning to all those counties who
rush head-first into the depths of the <ST1:PLACE>
<ST1:PLACENAME>
World</ST1:PLACENAME>
<ST1:PLACETYPE>
State</ST1:PLACETYPE>
</ST1:PLACE>
. As Mises wrote some 54 years ago,

<blockquote dir="ltr" style="MARGIN-RIGHT: 0px">
"The conflict between [the
principle of capitalism and socialism is] irreconcilable and does not allow
of any compromise. Control is indivisible. Either the consumers' demand as
manifested on the market decides for what purposes and how the factors of
production should be employed or the government takes care of these matters.
There is nothing that could mitigate the opposition between these two
contradictory principles. They preclude each other." 
            

[/i]
___________________________

Jude Blanchette is a research
fellow at the  Foundation
for Economic Education in Irvington-On-Hudson,
NY. He can be reached at  jblanchette1@hotmail.com.
See other
articles by him. Comment on this article
on the Mises
Economics Blog.