You have no patience for empty catchphrases and diplomatic doublespeak. You are not reading this to hear mellow fairy tales that reassure you that these 'times of uncertainty' are someone else's responsibility. In fact, even 'times of uncertainty' sounds suspiciously like a catchphrase to you, a rallying cry, perhaps, for environmentalists or anti-war protesters who don't seem to be quite ready to define what it is they're talking about. You would like to read something, for once, that does not fall shy of naming the actual issue, the root causes and motives; something that suggests concrete courses of action for the problems it identifies.

I feel exactly the way you do.

This paper is my response to the current economic situation in the European Union, from the point of view of the Big Business. Businesspeople in Europe face daunting challenges in the uncertain economic scene today. I will be identifying some of these, examining their causes, and offering a solution that is not limited to the realm of economics. The very nature of these challenges, I will show, point to an underlying contradiction in the political and social aspects of the global agenda that urgently needs to be resolved and corrected.

Keeping up with the Joneses

During the first half of the 90's, productivity growth in the United States and Europe was not dramatically different. The U.S. experienced the usual spike in productivity associated with recovery from recession in 1992, and Europe experienced something similar as it emerged from the recession of '94. But since 1995, there has been a wide and growing gap between the productivity growth rates of the two. Europe is currently facing the longest bear market since World War II. The reasons for these sobering facts are, I believe, five-fold: the strength of labor unions, burden of government, competitive environment, entrepreneurship and access to capital.

Labor unions cause an inestimable and largely unnecessary weight on big businesses in Europe. By pushing minimum wage rates artificially high, hankering for unrealistic job security assurances in the volatile Information Technology oriented market, and generally holding industrialists by a vice-like grip, they seek to overturn the laws of economics in favor of unearned profits for themselves. Afraid to be shown up as incompetent or uneconomical in the light of the impending free labor movement in Europe, they have propagandized mercilessly against immigration. Market inefficiencies are nurtured as a result, forming the ball and chain of the very engines that drive these markets.

It is well known that the burden of government in Europe is greater than in the United States. Government spending in Europe typically amounts to half the GDP while in the U.S. it is rarely greater than one third. The quid pro quo of high government spending is high taxes. According to recent estimates, the average tax rate on labor in France is nearly 50% and includes, in addition to income tax, a myriad of "social charges". The average tax on labor in the U.S. is just over 20%. There is just as wide a disparity in the consumption taxes in the two regions, mainly because of Value Added Tax in Europe. High taxation is one of the main hurdles that firms in Europe have to contend with.

Along with this, they have also traditionally faced a less competitive business environment than their American counterparts. For many, this is due to government intervention in the markets, both internally and externally, in the form of regulation and nationalization or tariffs and other barriers to trade. Until quite recently, many key industries in Europe were directly owned by the state, and state aid to ailing firms was commonplace. Inefficiencies in the market were encouraged by such practices, and much needed restructuring was delayed.

The fourth key difference between Europe and the United States has to do with levels of entrepreneurship and the social and cultural attitudes towards entrepreneurs. If the business of America is business, no one has ever quite figured out what the business of Europe is. This difference reflects a variety of more fundamental factors that determine rates of entrepreneurship, the most obvious being regulatory obstacles. It is far easier to register a company and file a patent in the U.S. than it is in the EU. Bankruptcy laws in the EU seem to penalize failures excessively, being too preoccupied with protecting investor interests to pay attention to the toll this takes on entrepreneurship. Risk taking is also hindered by difficulties in raising capital and barriers to the provision of stock options. Even culturally, the businessman is not accorded the same status in Europe as in America.

Finance is the fuel that feeds the flame of innovation. Without capital to nurture them through, many ideas would simply die. Heavy reliance on bank funding poses a significant problem to startups in particular, as they don't usually have much in the way of collaterals to offer. Until just a few years ago, national capital markets were fragmented, and cross border investment carried significant exchange rate risks. Large and persistent government deficits absorbed a significant amount of such capital that was available, crowding out business enterprises.

Big bad bully?

The common thread one notices in these challenges faced is the issue of government controls and intervention. Be it supporting anti-immigration policies, taxation or protected markets, spurs for entrepreneurship or the availability of capital, it is the supposedly well-intentioned fiddling by the government that is contributing to the slow markets of the EU. The mantle of Socialism seems to be hard to shrug off for most member nations, even though officially, there are policies on paper to the opposite ideal. In the name of 'the workers' or 'the masses', we seem to find it acceptable to trample all over civil liberties and the basic freedoms that ought to be accorded to each individual. When individuals are not left in sole charge of their money and property, they are often forced to pay for the deficits accrued by others.

The philosophical crisis

From college campuses to debates in the parliament, it is highly unfashionable today to express support for capitalism in general, let alone (god forbid!) laissez faire. We have, instead, the government and the media spouting cute little euphemisms for nobody knows what, like 'capitalism for the People' and 'businessmen with a heart'. We are commanded to exhibit our 'concern' for 'the society' by paying the exorbitant taxes it takes to support the welfare systems in place in most European nations today. There is infinitely more concern for equality than fairness - equality, not in rights accorded or of opportunity, but in the distribution of resources and income. But whose income is this? Whose resources are these, if not the property owners'? And, to put it in the eloquent words of Ayn Rand, who is the distributor, and by what right?

We, as human beings, possess the unique capacity of effort and production beyond our basic necessities. We form societies that are so vast and complex as to be impossible to regulate, but governments stubbornly refuse to believe it. Ignoring the vast amount of literature and practical proof that exists in favor of separating the state and the economy, these burdens from the past century continue to confiscate the earnings of productive members of the society.

For the government is certainly not a productive entity. It exists solely to safeguard the rights of its citizens, in the strictest, most confining sense of the word. The ideal government would do absolutely no more than maintain a defense force, the police and a judiciary - to safeguard the citizens from threats external and internal, and to settle legitimate disputes.

All the rest that any government does, in the name of 'better allocation of resources', is the result of erroneous principles that have clung on through tradition: that the poor need to be taken care of, that roads and healthcare and education are 'essentials' that cannot be left to profiteering private service providers, that indigenous industries ought to be supported out of a desire for self-sufficiency.

It is a kind of slavery, where the producers of the nation hold their product out, willingly, for 'needy' hands to grab. What if someone decided that laundry was an 'essential' service? And food, and cars, and television sets? What if you were made to pay to wash someone else's clothes, or for the new TV set of a man who doesn't care to seek employment?

Radical as these views may sound, they are nothing but common sense. The fruits belong to those who earn them. Charity should always be voluntary, and forced charity is tantamount to slavery. Industrialists ought to be applauded and left free to work within the constraints of an unfettered market, not made to apologize for every Euro of profits they make. The entrepreneurs, employers and CEOs keep the economy going. That was never the government's job.

Start at the very beginning

There is an urgent need to reverse the leftist/protectionist/statist mindset of Europe today. This can only be achieved in an environment of freedom of intellectual debate in the fullest sense of the word. There can be no room for embarrassment among businesspeople for the profits that they make; they must recognize that the more they earn, the more they pump back as investments into the economy, driving it to ever greater heights. There can be no room for self censorship by people who hold sound, legitimate views of how they economy should work, as there currently is, by pro-capitalists. There can be no room for pseudo-intellectual speeches by the leaders in the government, sugarcoated diplomatic phrases trying to cover up for the lack of substance in them. There can be no room for empty slogans about 'supporting the liberalization of markets' - we need to follow through and see to it that there are concrete results for such words. Union leaders hankering for anti-immigration laws must be seen for what they are: people desperately trying to hold on to a power that is fast slipping away from them. Most of all, we cannot afford to tolerate any longer, the massive drain on available capital that is the welfare systems of nations.

It is not as unthinkable a change as it sounds. Take the example of Ireland. For much of its history, the Republic of Ireland pursued the same statist policies that were the norm in Europe. High taxes were paid for generous welfare benefits and foreign investment was discouraged. After a public spending binge in the 1970's and early 1980's, the country found itself in a crisis, with unemployment close to one fifth of the labor force and specter of emigration once again raising its ugly head. A fierce fiscal retrenchment followed, with the result that by the end of the 1990's Ireland looked less like the typical European country in terms of burden of government and more like the United States.

The payoff? Real GDP growth rates that earned the country the sobriquet of the Celtic Tiger, and a level of GDP per capita greater than the large island to its east that was once its colonial master.

The process of European integration that led to the creation of the European Union put into place processes that are fundamentally transforming the economic landscape of the continent. In particular, the Single Market Act in 1986 and the more recent launch of the Economic and Monetary Union in 1999 are creating a domestic market for European firms that will allow them to reap the scale economies and efficiencies that have hitherto been available only to U.S. firms. Tariff barriers have essentially been eliminated, and non tariff barriers are becoming a thing of the past, thanks to the single currency. The European Commission deserves credit for beginning the process of breaking down barriers to competition in the form of state subsidies to industry.

The thinking behind these policies is laudable. While a lot remains to be done, the potential of the EU cannot be underestimated. All it needs to do is follow through, in spirit and in policy, the large strides forward that have already been taken on paper. All that needs to be done is to fully liberate the engines of Europe's economy.