Tuesday, July 06, 2010

What made Europe great?

What made Europe great?

Open Europe hosted a debate in Brussels last week, looking at the future of the EU in the wake of the eurozone crisis. “Superstate or disintegration?” was the deliberately polemic question to be answered.
The ever-eloquent Dan Hannan, a UK Conservative MEP, warned against further harmonisation by pointing to Europe’s history. It was the competition, he argued, arising from various independent European powers co-existing that made Europe take off post-1500.

Giles Merritt, the amiable secretary-general of eurofederalist Friends of Europe, said it was just the opposite; Europe only gained its influence through the Treaty of Westphalia, which involved European powers coming together, collectively hammering out a common rule book for how relations between (from then on) sovereign states should work.

This is no doubt one of those long-standing debates, but the evidence from economic history is difficult to ignore. As David Landes sets out in his seminal work The Wealth and Poverty of Nations:
Fragmentation gave rise to competition and competition favored good care of good subjects.. . . European rulers and enterprising lords who sought to grow revenues . . . had to attract participants by the grants of franchises, freedoms and privileges—in short, by making deals. They had to persuade them to come.
The Treaty of Westphalia locked in this order, ensuring that sovereign states could continue to compete – also leaving them free to copy the advances of those that had enjoyed greater economic and social success.

In contrast, China – with its once scientific and naval superiority – chose the path of a single, unified empire; a heavily centralised regime whose autocratic rulers faced little pressure to change their ways. Ambition was not rewarded and there were few escape routes for those with a desire for economic or scientific progress. The consequences are well known: China’s economic revolution was delayed by some 500 years.
The Economist breaks it down in its Millennium issue:
China’s rulers could ban some advance, and their ban was obeyed. Europe’s regimes might try such things. Some did: Florence issued an edict in 1299 forbidding bankers to use Arabic numerals; in 1397 Cologne ordered its tailors not to use machines; after the invention of the ribbon loom in 1579, the city council of Danzig is said to have ordered the inventor to be drowned. But their efforts were in vain, indeed self-damaging: a rule that hurt the economy hurt the state that made it, as against others economically more enlightened. In Europe, rivalry among governments wore away at the interests opposed to economic growth.
(Other works emphasising the importance of “institutional competition” along the lines of Landes’ thinking, include, for example, “How the West grew rich” by Nathan Rosenberg, “Law and Revolution: The Formation of the Western Legal Tradition” by Harold J. Berman; and on the importance of institutions, Douglas C. North’s “The Rise of the Western World: A New Economic History“)

But there’s also another aspect of the Peace of Westphalia that is too often overlooked. The nation-state – the idea of territorial integrity and sovereignty – paved the way for the concept of popular sovereignty in Europe. The state became the unit around which democracy – the pre-condition for which is a demos – could be organised.

Europe’s history is of course much more complicated than this – geography is key, for example, religion is a major factor and the rise of the nation-state was coupled with wars and, at times, nasty expressions of nationalism.

Still, EU leaders would do well to glance backwards for a few minutes before deciding what do to next. The eurozone crisis is once again begging fundamental questions about Europe’s past and future.

First, if the EU continues on its path towards more and more harmonisation – on regulation, law and fiscal policies – it undercuts one of Europe’s greatest recipes for success.

Secondly, continuing to erode the link between the nation-state and democracy could prove hugely problematic. As has been stated over and over again: democracy without a demos is bound to fail.  No amount of money from the EU to various cultural projects and citizenship campaigns will be able to artificially inject a demos into the European Project. And again, this must not be considered a bad thing – Europe’s diversity harbours tremendous strength.

Alas, with a €500 + €110 billion EU bailout package on the table, and more money potentially from the IMF, the EU’s infamous democratic deficit has taken a quantum leap in the wrong direction. Taxpayers in one country are now liable for the mistakes of a government in a different country – but without the opportunity to throw the ‘rascals’ (who they are underwriting) out of office. This broken link breeds contempt amongst people. Push it too far and EU leaders could see the rise of the very forces that they’re professing to fight.
 Thirdly, do not take away the “right to exit” – free movement is what the EU does best (preferably through mutual recognition rather than harmonisation) and is in many ways the modern facilitator of the political and economic competition that produces the best result for Europe as a whole. But too much harmonisation offsets the benefits of free movement – the natural exit route will not be another European country, but probably to the US or the emerging economies to the East.

(The sharp-eyed will spot a potential contradiction between points 2 and 3, which needs to be taken seriously as well).

 At Open Europe’s debate, Dan Hannan quoted German economist Wilhelm Röpke, who once said:
to try to organise Europe centrally and to wield it into a block is nothing less than a betrayal of Europe and Europe’s patrimony, betrayal made all the worse by being carried out in Europe’s name.
Spot on.