Europe continues to live off "old capital" Posted by: McQ
on Friday, June 09, 2006
Steven Pearlstein writes an interesting analysis of Europe. In it he talks primarily about a pernicious cultural problem of relatively recent vintage which many might see as either an economic or political problem.
The harsh truth about Western Europe is that it has been living off old capital for years. Yes, it has a skilled workforce, great infrastructure, world-class research, profitable and growing multinationals, and access to capital. But somehow Europe has been unable to put the pieces together to create a globally competitive economy.
The percentage of workers with college educations, it turns out, is well below that in other industrialized countries, with too few of those in engineering and other high-tech fields. The infrastructure remains largely in the hands of public employee unions that, in an economic sense, extract nearly all of its value for themselves.
While Europe is a world leader in generating patents on a per-capita basis, it hasn't been able to transform those insights quickly into hot products and hot companies. Its multinationals have grown largely by investing elsewhere and importing more and more from low-cost suppliers.
And, Britain aside, it still hasn't developed robust capital markets that can provide seed money for new ventures and demand top performance from public companies.
Moreover, much of its service sector, where most new jobs are likely to be created, remain inefficient because of regulations meant to protect existing firms from "disruptive competition."
Why is this? Why does a region which has all of those world-class assets continue to see a decline in it's fortunes? Why fewer college educated workers? Why fewer innovative products? Why do it's home grown multinational companies seek investment opportunities elsewhere?
How did this happen? Pearlstein points to part of the problem, and its roots are definitely evident in the dominant culture to be found in Europe:
The one factor that perhaps underlies all others, says Joshua Bower-Saul, a Paris-based business consultant who grew up in Bethesda, is the nearly complete lack of an entrepreneurial spirit or risk-taking culture in Europe. From primary schools through universities, European children are taught that capitalism is exploitation and that government is the source of economic progress, he says. Kids never open lemonade stands or raise money with car washes. Unsuccessful entrepreneurs are socially ostracized because their failures cost neighbors their jobs, while successful ones are rarely admitted to the corporate and political elite.
Interestingly I used to travel extensively in Canada and I heard the very same thing from people I worked with on a regular basis up there. Not necessarily that capitalism was exploitation or that government was the source of economic progress, but that the one thing they admired about Americans was their willingness to take entrepreneurial risk. Obviously Canada isn't without it's risk takers, but to a man, my Candian friends seemed to find a marked difference between their country and the US.
I would imagine that the difference may be even more marked in Europe. And I can't help but believe that is the direct and possibly unalterable acceptance of the welfare state by Europeans as the ultimate 'good' (in government, politics and economics) is the reason for that difference.
For the citizens of Europe they have to ask, why go to college if you're willing to accept (in fact embrace) the minimum subsistance rate offered by the state? What incentive is there for those willing to live at the minimum, especially when, in relative terms, the minimum is pretty generous, to do anything else? If someone is willing to pay them not to work, or to do minimal work for a pretty good reward, why do more?
What Pearlstein is pointing out is his belief that Europe is toddling along on grandpa's inheritance while acting like unskilled and uncaring third generation spend-thrifts who have no idea or incentive to create wealth anymore. And he is essentially wondering whether, in fact, these spendthrifts aren't already well into the capital portion of their inheritance, spending that which generated their interest income as fast as they spent the interest.
Of course the main reason they're able to continue to spend at the rate they do is because of that world-class research capability, the great infrastructure they enjoy and multinationals who still call Europe home. They've supported the lifestyle of Europe for decades. But in reality, all they've been able to do is slow the inevitable slide into insolubility from the speed of a rocket-sled to that of a horse-drawn sled. However down hill it still heads and unless something changes, especially culturally, the end would seem inevitable in the not too distant future.
Given Pearlstein's point, the fix would seem obvious. But if you know Europe, the fix would also, at this point, seem impossible. The recent French riots over jobs illustrates the point quite well. And the grip of employee's unions of most of the infrastructure promise any attempt to change the status quo will be met with large and probably violent protest. They haven't hesitated in the past to shut countries down when threatened, and since their protests have always succeeded in stalling any changes, they have no incentive to change their ways.
But as with those who refuse to see dark days in the future for such programs as Social Security, Medicare or Medicaid, the same sort of mentality seems to enjoy the majority in Europe. As Pearlstein concludes:
This is a cultural problem more than strictly an economic or political one. But until it changes, I suspect, Europe will continue to choose the "good life" over creating the new wealth necessary to sustain it.
On a relatively smaller scale, that's precisely what we're doing in the US as well. All I can hope for is when Europe crashes, and it will, we'll actually learn something from their demise and instead of repeating it, actually do something to prevent that from happening here.
The question is are we willing to make the sacrifice of giving up the supposed "good life" before that happens?
You can see strong evidence for this thesis if you just walk around many European cities. They have a pretty big public sector operation to keep things clean, so litter, etc. are not a problem. But, though things are clean, there’s also a shopworn feel to most of the buildings and facilities. There’s no vitality - it’s rare to see remodeling, or buildings torn down to build something brand new.
Stockholm was the worst example in my experience. (Oslo was much more dynamic.) Most of London and Amsterdam seem shopworn too.
By contrast, Sydney, Australia is as dynamic a city as I’ve ever seen. There’s lots of construction and remodeling. They are investing in their future, probably because they have the confidence it will be a good one.
Re: Sweden...I was heard a Swede say that the word that MOST Swedes associated with Sweden was Security. And he didn’t mean as in armed guards, but in safety and regularity.
To spark a thread of 100+ postings I will say that one advantage of the Illegal immigration that we have is that the folks flowing over our borders are the sort of folks that would make Mexico a more dynamic place, risk-takers. I am by no means an "Open Borders" kind of guy, but I think that the US has the demographic/social advantage that you had to make an EFFORT to get here, consequently most Americans are willing to work or risk a little more.
Couple this with the hordes of unassimilated Muslims just aching to turn their new homes into the hellholes that they escaped from, and you get one spectacular death spiral. C’est la vie. You get the government you deserve. They keep voting the socialist worshippers of multiculturalism in, so I say let ’em burn. Pass the popcorn. The few sane Europeans remaining can still get out before it’s too late.
Having lived in Germany for the past 7 years, I can tell you that there’s also a Carter-style malaise at work. There’s zero energy in the private sector, and no confidence either.
That’s compounded by the Bundestag slicing ever more money from the bottom, with entitlement reforms and the like, and actually *raising taxes* at the same time. They destroyed the upper-classes long ago, so the only pool of revenue left is the beleaguered lower-middle class.
This year will also mark the return of tuition fees at the universities. Yanking benefits and raising taxes from a population with a 12.5% unemployment rate is a good way to cause riots, no matter where you are.
I don’t think you have to psychoanalyze Europeans to come up with an answer to this question. They have fewer places in college-level programs per 100,000 population than we do. Their educational systems are mechanisms for rationing these places. Regardless of the factors mentioned in the comments above they’ve got a production bottleneck.
Check with the guys at ComingAnarchy.com on European educational systems—they’ve posted several times on the subject.
Couple this with the hordes of unassimilated Muslims just aching to turn their new homes into the hellholes that they escaped from, and you get one spectacular death spiral. C’est la vie. You get the government you deserve. They keep voting the socialist worshippers of multiculturalism in, so I say let ’em burn. Pass the popcorn. The few sane Europeans remaining can still get out before it’s too late
*SIGH* but guess who is going to have to clean the mess up once things over there get out of control?
*SIGH* but guess who is going to have to clean the mess up once things over there get out of control?
Us, I guess, since we’ve saved their a$$es three times in the last century. I’d like to think that, if WWII is any guide, they would still suffer the most because the battles are fought on their territory.
Unfortunately, WWII may be a guide, all right, but in a much more negative way. Hitler could have been stopped at various points before total war, and the Europeans simply lacked the clearsightedness and guts to do it. Given the similar proclivities of our modern Democratic Party, I’m resigned to the fact that we’ll have to lose an American city to a nuclear weapon before a future conflict is taken seriously.
So no popcorn passing here. I’m cheering for them to make some sort of comeback, even though I confess I’d feel a certain amount of schadenfreude if they went down. I’d really rather they didn’t. The Islamic "Republic" of France definitely does not have a good ring to it, especially given that the French have nukes.
"Living off Old Capital"! Pearlstein is onto something.
I think Europe is choked by Old-Money and Old-style Nepotism. We are looking at the modern cusp of Europe’s Old-Aristocracy manned by the same Old-Family clans.
The latest generation has been weaned on billion-dollar trust-funds, uncompetitive admission to governmental ecoles, and guaranteed, 6-figure salaries at this or that "do-nothing" government Canton or UN-sponsored research department. In this rich, "high-fat" milieu, the participants all choose to abide by a clubby, "Non-compete Clause."
Why this "circling of the wagons?" Europe’s elites know full-well that the Anglospheric, capitalistic meritocracy will usurp their inefficient, clanal patronages. So they cling to the Statist construct, like a rat to flotsam, because their nations’ media-driven politics offer the last theater where their archeic patronages can continue to assert significant influence.
The next time the Bertelsmann-family broad-sheet, Der Spiegel, whines about "Globalization" or "American Cowboy Capitalism," you all know why.