The Fifth Freedom for Europe
If it were only that people have diversities of taste, that isreason enough for not attempting to shape them all after one model….The same model of life is a healthy excitement to one, keeping allhis faculties of action and enjoyment in their best order, while toanother it is a distracting burden, which suspends or crushes allinternal life.
J.S. Mill (1)
Europe at the end of the 20th century is very different from Europeright after World War II when the process of European integrationstarted. We seem to forget the facts that stood behind the policiesthat later led toward the Treaty of Rome in 1957 and the MaastrichtTreaty in 1993.
We find ourselves not only in the post-European period (2) but also inthe period following the stable political arrangements of the Cold War- in the period of the end of history(3), in the period, when not eventhe winner of the Cold War is powerful enough to play the role of theworld’s hegemony and the guardian of the world order, in the periodwhen the pendulum goes back to the new and interdependent system (neuesund interdependentes System) and the new unclearness (neueUnübersichtichkeit).(4) A traditional political struggle seems to bereplaced by a struggle on the economic field. Geo-politics(Geo-politik) has been slowly replaced by geo-economy(Geo-ökonomie).(5) The power of multinational capital flows limits theoperational room for and the efficiency of government policies. Thetraditional measures used by government for decades are no longeruseful.
Wir befinden uns auf dem Wege zur Ökonomisierung der Weltpolitik. (6)
And exactly this approach – economizing of the world politics – offersus a way how to use economic tools when evaluating the real motives ofcertain far-reaching political decisions. Economic imperialism – theuse and application of originally economic analytical tools for theexplanation and understanding of social reality to the explanation ofhow society works and what are the true incentives behind politicaldecision-making. One of economic school ,Public Choice Theory, in factlinks both worlds – politics and economics. Political science as wellas economic science can be grasped by using the same methodologicalapproaches.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. (7)
This statement is definitely true when talking about the fatal conceitof modern economists. The same can be applied to politicians. The ideaof a united Europe always attracted the attention of idealists andconstructivists. As Hayek’s tutor and the great Austrian economistLudwig von Mises pointed out in 1927:
The champions of Pan-Europe and of the United States of Europe donot plan on establishing a new kind of state different in its policiesfrom the imperialistic and militaristic states that have existed up tonow, but on a reconstruction of the old imperialistic and militaristicidea of the state. (8)
Once we accept the theory of economizing world politics, then itbecomes more evident what the parallels are between economics andpolitics. In the business world we can often see an interestingdevelopment. The managers, who devoted a substantial part of theirlives to a company tend to cap their lives with something remarkableand unforgettable. It happens very often at the expense of stricteconomic considerations. In all their excitement these managers oftenundertake a giant mergers or fusion in order to leave their imprints inhistory especially when a new millennium approaches. The overwhelmingmajority of European politicians have linked their political lives tothe idea of united Europe. It raises the logical question, whether itis still the future of Europe which plays the decisive role in theirdecision-making.
Nowadays people are labeled „good“ and „bad“ Europeans according totheir view on „Maastricht Europe“. It reminds me of a similar labelingof people as „good“ and „bad“ communists after 1968 in Czechoslovakiaor „good“ and „bad“ Americans during McCarthy’s years in the U.S. wheneven an official institution – House Committee on Unamerican Activities- was established in order to „officially properly distinguish“ thepeople. The tragedy of today’s Europe lays in the fact that the onlypolitical opponents of European unification, federalization, andharmonization are left- and right-wing extremist parties. Everyone whoopposes the official European vision is accused of being one of theseextremists. European Union becomes a national strategy and the onlyallegedly viable alternative for EUROPE.
United Europe – A Barrier to Communism
Die Hauptmotive der europäischen Einigungsbewegung: war ursprünglichdie Selbstbehauptung der freien europäischen Völker gegen densowjetrussischen Imperialismus… (9)
There is plenty of evidence to believe that the primary objective ofthe European unification was the desire for peace after the slaughterand misery of World War II. There were no straightforward economicconsiderations as it may seem now. The Marshall Plan was an attempt toteach the European nations that trade and high living standards aremutually beneficial options for all. The economic and politicalarrangement in the years after the war had only one broad objective,which can be summarized by the statement of Lord Ismay, NATO SecretaryGeneral, who talked about the major European political objective inthis way:
To keep the Americans in, to keep the Soviets out, and to keep the Germans down“. (10)
Germany was then not in a position to oppose the French and Italianproposals. There were no transaction costs motives behind thatconsideration, it was all about peace in Europe and the danger ofcommunism. The behavior of European politicians has not changed sincethen.
New Europe?
But what about now? After annus mirabilis 1989, there is a new chanceto unify all of Europe on the grounds of free will, free trade, andfreedom in general – not fears, not war.
West-European states focus as in the period prior to 1989 on theprogress of the process of West-European integration. They sacrificethe chance for the integration of the whole Europe to this goal rootedin the Cold War. (11)
Do we truly need Europe in a Maastricht fashion based on massiveredistribution and common European policies? Do we need acquiscommunautaire?
Europe is now fading because it is not now for anything. The griefand chaos and deception necessarily involved in any exercise inunification is not now justified by any great resulting benefits. (12)
We hear too often about the necessity to create a New Europe in orderto become bigger, more powerful in the world community, and less open,which means more resistant to outside economic shocks, to introduce theEURO in order to outcompete or reach the quality of the dollar andlower transaction costs. However, Europe is not about bigness nor evenabout resistance or transaction costs. It is more about people anddiversities of their tastes.
We see a great deal of tensions in European states. A referendum -where 51% of votes is for and 49% against the Maastricht Europe -cannot be understood as a decisive result which is to determine thefuture of Europe.
European nationalism is in itself no greater a guarantee of peacethan any other political movement, cause or ideology. Nor is it aguarantee against any future war of secession or civil war… (13)
The opposite is true. Centralization supports animosities amongdifferent national groups. It fosters a belief, that „they“ live at„our“ expense – which actually is exactly one of the principles of EUfiscal policy that has to accompany the „miraculous“ creation of thecommon European currency.
All the evidence suggest, that war moves from the internationalscene to the inside of nations, where it can get the form of ethnic orracial violence, civil war, or riots. (14)
No correlationcan be traced between the bigness of a state and its well-being (15).What counts, however, is economic freedom. Theoretically welljustified, it can be as well found an empirical proof of thatwell-known fact, for those who are not satisfied with the a priorideductive justification. (16) We are witnessing a development called a„global paradox“. Hand in hand with the development of free trade ingoods, services and information the nation states (and states ingeneral) are losing the reason for their existence. The development ofthe international division of labor makes it possible for even smallcommunes to keep their independence. The costs of politicalindependence have decreased, since the big states are no longernecessary. (17)
There seems only one cause behind all forms of social misery:bigness. Oversimplified as this may seem, we shall find the idea moreeasily acceptable if we consider that bigness, or oversize, is reallymuch more than just a social problem. It appears to be the one and onlyproblem permeating all creation. Wherever something is wrong, somethingis too big. (18)
The medievalists claim that the ideal nation state existed only for100-150 years. The breakdown of state and globalization go hand in hand.
The world may return to its normal state of affairs of mutuallyinterconnected and ovelapping manyfold interest groups and identities.(19)
United Europe – A Creeping Socialism
We are merely at the beginning of the long path toward more governmentcontrol and paternalism. Currently there is not much money goingthrough the European budget, however it can be clearly seen in whichdirection Europe has been moving. We can only acknowledge the insightof the British Minister of State at the Foreign Office from 1955, whenhe remarked:
How could the French with 300 years of protectionism behind them andthe highest tariff walls in Western Europe, ever agree to a freemarket, especially one which would throw France open to Germancompetition?
The answer is, that they would not agree. For practical reasons theyhave created the European superstructures which are designed to protectEurope from competition from outside, and by harmonization from insidecompetition. There are a number of political decisions pointing at theemerging interventionism at the European level.
We can find a directive regulating inter-personal communication,
Verbal communications between a speaker or emitter and one or morehearers is to take the form of short texts, phrases, groups of wordsand/or individual words, (20)
regulating safety equipment, food, condoms, vitamins, toys,
Faced with the disparity of the relevant laws in the Member States,the EC found it necessary to take action. After several years ofsurveys and discussion it therefore adopted a specific Directive….This is a step forward for the European consumer. (21)
The European Social Charter and numerous outputs from the Commissionkeep saying such strange things about people’s right to a high livingstandard, clean environment, jobs, culture, etc.
Culture is a human right, one which many people are unable toexercise. It is therefore the duty of all governments …to create thesocial and economic conditions necessary for this right to be enjoyed.(22)
This approach leads to the kind of 1991 Directive Broadcasting withoutFrontiers which provides for „a percentage of programming time to bereserved for programs of Community origins“ – probably to protect pureEuropean culture from sordid American commercial „culture“. It looks asif we opened a European Pandora’s Box – it seems never to stop. It goesfurther and further. The recent strive for tax harmonization is soabsurd that one hesitates to take it seriously. The Commissioncontemplates a proposal to regulate (=harmonize) world-wide tax rates.Heavily taxed capital within EU borders tends to leave EU altogetherwhich will further add to EU economic problems. That bringsEuro-regulators to a megalomaniac plan to start negotiations with OECDcountries to regulate globally. (24)
These attempts are not exceptions which can be adjusted in the courseof time. They are a coherent part of the „European vision“ – TheEuropean Ideal which imposes a threat to Europe as a free society.
A Free Society – An Endangered Species?
A longitudinal performance comparison of nations reveals that thefree society is the exception. Its emergence is a brilliant and mostimprobable event. It is a fragile and endangered species, which cameinto being mainly through happy historical coincidence. It is anundeserved luck. (25)
Thanks to the emergence of the free society in some parts of Europe,Europeans have had the chance to experience an enormous increase inliving standards pertaining to all areas of human lives. The wealthgenerated in one place was thanks to the functioning of markets spreadin all directions. Why did this happen? What was behind the EuropeanMiracle?
A major factor was an institutional setting that enabled the emergenceof capitalism. A market mechanism coordinated individual actions whichmade room for the emergence of an intricate web of mutual relationshipscalled the „extended order of cooperation.“(26) Europe faced a greatdeal of competition on all levels.
The secret of success was the diversity required for evolutionarycompetition. It led to the taming of the State, to respect for privaterights, which in turn led to growth and wealth. Europe’s great luck wasthat a centralized power did not emerge. (27)
The collectivist ideologies tempt us to forget what brought Europe toprosperity and never before experienced well-being. Modern welfarestates have appropriated the redistributive and paternalistic role,which can only bring social misery and political dependency. Humanchoices have become limited, individuals are exposed at the mercy ofthe omnipotent state.
Unfortunately it appears that the lesson that private rights andevolutionary competition were the secret of success has been unlearntby the advocates of ex ante harmonization of Europe. (28)
This is exactly what economics, namely public choice theory can teachpoliticians. People in the state apparatus and bureaucrats do not haveany incentive to be led by public interest, which mainstreamneoclassical economics uses to justify government interference with themarket to correct market failures.They must be led in their „public“ decision-making by the same motivesas when deciding privately. Let me restate it one more time: Europe is not about noble visions, it is about the power to regulate, about political influence.When approximately 50% of nations’ incomes is redistributed throughpublic budgets, it cannot be another way. Just have a look at how longit took in the U.S. to multiply manyfolds the power of the federalgovernment. How long did it take after the introduction of the federalincome tax (which was first declared unconstitutional) to surpass 90%?Europe especially when emphasizing its social dimension and culturaluniqueness has all the ingredients to move much faster. Europe does notseem to contemplate whether it is „right“ to harmonize, Europeconcludes that harmonization brings lower transaction costs. Europe istoo technocratic and she does not want to admit that.
The first results have already come. Some people are getting used tothe omnipotent state, some are leaving their countries to avoidsuffering under omnipresent state power. 50% of German new collegegraduates dream of working for the state, only 9% run a businesscompared to 20% 20 years ago. (29) Another source claims, that 50 000of France’s top graduates leave the country for the U.S. every year fedup with regressive labor policies, prohibitive taxation and theever-growing welfare state. (30)
We should have the courage to state that political cartels workingfor ex ante harmonization pose a serious threat to freedom and growth,and that slogans like, e.g. „social dimension“, „social cohesion“,freedom positively defined (i.e. confused with power) are passwords toredistributive coercion. A free society in Europe can be realized onlyby decentralizing and privatizing decisions as much as possible, byrealizing evolutionary competition at all levels“ (31)
Competing Jurisdictions – The Way Out?
In this part of my paper I would like to elaborate a little bit on theproposal of Swiss academics Bruno Frey and Reiner Eichenberger of theUniversity of Zurich discussing the concept of Functional OverlappingCompeting Jurisdictions (FOCJ), which brings a new perspective on theEuropean unification process. (32)
In these days – as we have already mentioned – the idea of Europe hasbeen highly politicized and everyone who does question the idea ofMaastricht Europe is labeled an allegedly anti-European element and isput to the group of nationalistic and/or chauvinistic supporters ofJean-Marie Le Pen, Jörg Heider, or Miroslav Grebeníček and MiroslavSládek in our country.
European integration is built on the idea of four freedoms of movement- free movement of labor, capital, goods and services. Despite theEuropean declarations of the importance of not only focusing on theeconomic sphere, these four freedoms pertain only to the economicfield. On the other hand all the other fields of life have beenharmonized, unified and standardized (see above). This is true also forthe whole reign of politics. There is not to be any profound freedom tochoose in the political market. Political competition is enabled onlyon territorial bases – among states. If someone is not satisfied withthe political conditions in his country, the only remaining option isan exit – leaving his country. However once we refuse the idea ofAll-Purpose Jurisdictions represented by current governments and startto think in the context of competitive, functionally organizedjurisdictions the picture is quite different – the fifth freedomemerges. This change does not mean any substantial institutional changein the first instance. It only means, that when a citizen of Salzburgis not satisfied with the Austrian pension system, he can opt out and„subscribe to“ the German one, which is enjoyed by people living 10 kmaway from his family house on the other side of the border. Themajority of services provided by the state does not need to be providedon the continual territory. There is no reason to oppose the idea, thata state-owned university (and educational) system in Holland be spilledover to some places in Germany for German students to compete with theGerman educational system. (Let aside for this moment the question,whether the state should interfere with these systems at all). Acompetitive environment is supposed to improve the quality of theservices provided and their prices as well. For those who cannotimagine their lives without their powerful state watching them they arenot forced to change their positions at all. For those, who like theirstate except for one aspect, the option exists to opt out in thisparticular field and to join another FOCJ represented by one ministryof his neighbor state. This option can prevent current problems withthe nationalist movement in Ulster, Corse or other places, because itenables these people to form a local FOCJ in some areas and remain tiedto other government functions of their current government.
The idea of FOCJ has many economic advantages as well.Built-competition in this system creates a powerful force to efficientbehavior. If the FOCJ is not effective enough, it can lose its„customers“ and the sources of its income (tax revenues). FOCJ can alsobenefit from their specialization, which is in sharp contrast tocurrent political arrangements where politicians have to be capable ofspeaking about all range of specific issues and propose solutions. Thiscan liberate politicians from being „second-hand dealers in ideas“, asHayek pointed out. (32) No lobbying is sustainable in the long-run,especially when we introduce to the system the possibility ofestablishing new „private“ FOCJs (e.g. FOCJ of different size andefficiency) which could outcompete the old „governmental“ ones. Thisfederalism, built from below and shaped by the preferences of people,(voters, customers) represents the system truly grounded in the wishesof the people. No irreversible „decisive“ voting (51:49) for EuropeanUnion can take place. If the harmonization of all spheres of humanlives is so effective and desirable, people will recognize it and willdecide for harmonization. Those who will not join the movement, willsuffer losses from non-harmonization and will consequently join thosewho harmonized. If this is not true, the other group will sufferlosses. However no omniscient economic czar can decide now, which wayto go. All this would be possible to happen without leaving thecountries where people live – without „voting by foot“. (34)
EU Future – Amorphous European Masses?
The United Europe cannot be introduced, especially not derived fromconstructivist ideology and false economic justification advocated bysocialist politicians. We cannot quantify precisely at this moment thepros and cons of European unification grounded in harmonization andredistribution. The objective of this paper is only to draw attentionto the motives which have brought European politicians to the supportof the unification process. We claim that these motives were differentafter World War II than they are now, and that they are different fromthose which are repeatedly declared, such as perseverance of regionaldiversities, competition, etc. Public choice theory shows that there isno such thing as public interest allegedly followed by politicians.Already now, at the beginning of intensive unification andharmonization, it is clear how powerful the European vested interestsare. We can see that decision-making at the European level is notdifferent from political decision-making at the national level. All theproblems of modern welfare states have become only bigger, all thepressure groups are only more powerful, the ambitious politicians haveonly another tool to tell people what they are allowed to eat, todrink, to wear , to watch, how long it is possible to work, whom theyare allowed to hire, which songs cannot be sung, which products areprohibited to buy, etc.
The end of the Cold War offers a new chance to give power back to thepeople to decide how to live their lives. One interesting option is toallow competition among current European governments (disintegrated bypurpose). The idea of FOCJ is especially improved by the possibility to„privatize“ certain government activities and outcompete someinefficient governmentally provided services. Even when allowing for asystem closed to new-comers and enjoying only „competition“ amongEuropean governments, we get a system which has a tool for correctingerrors and exerting pressure on effective functioning, which is not tobe the case of a strongly harmonized system that can be expected toemerge from the current development of post-Maastricht Europe. The European miracle is based on competition not harmonization.
It is all too easy to despair as we look around and see the world’sgovernments and opinion organs in the hands of power-seekingcollectivists. But there is a mighty force in our favor. Free markets,not only in the long run but often in the short run, will triumph overgovernment power. …[It will] once again triumph over unworkable andmalevolent plans of statesmen and international Keynesians. (35)
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(20) Council Directive 92/58/EEC
(21) Commission of the EC: Toys: Less Innocent than Children, p. 13
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(23) quoted in Evans, Timothy and Lewis, Russel: Europe at Risk,Bureaucratic Betrayal of the European Ideal, Adam Smith Institute, 1993
(24) for more details see Šíma, Josef: Evropská unie chce zabránitkonkurenci v oblasti daňové politiky, Lidové noviny, January 28, 1998
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(26) Hayek, F. A.: Fatal Conceit, The University of Chicago Press, 1988
(27) Radnitzky, Gerald: European Integration: Evolutionary CompetitionAgainst Constructivist Design, The Mont Pelerin Society – GeneralMeeting 1990, p. 4
(28) Radnitzky, Gerald: European Integration: Evolutionary CompetitionAgainst Constructivist Design, The Mont Pelerin Society – GeneralMeeting 1990, p. 5
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(30) Borowiec, Andrew: France’s „Silicon Valley Generation“ Flees to U.S., Washington Times, March 18, 1998
(31) Radnitzky, Gerald: European Integration: Evolutionary CompetitionAgainst Constructivist Design, The Mont Pelerin Society – GeneralMeeting 1990, p. 20
(32) Frey, Bruno a Eichenberger, Reiner: FOCJ: Creating A SingleEuropean Market For Governments, Forth Hayek Symposium – The Making ofEurope: Construction or Evolution?, Brussels, 1996
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(35) Rothbard, Murray: Making Economic Sense, Ludwig von Mises Institute, 1995
