Bread and circuses: Why Europe failed

NICK CATER

30 August 2015

The extract from Oliver Hartwich’s confronting essay on European decline published this weekend barely mentions Australia, yet the sub-text is clear. If we can’t stop the relentless expansion of government, Europe’s malaise offers a glimpse of Australia’s future.

Why Europe Failed is published this week by Connor Court and extracted in The Weekend Australian. In Europe, says Hartwich, we are staring at ‘the dying embers of a past world behemoth.’

‘Whereas in l980, the current 28 EU member states accounted for almost a third of the global economy, their share today is only 23 per cent,’ he says. The crisis cannot simply be attributed to the monetary union; nor is confined to Greece.

‘Europe’s problems are more fundamental. Its elitist structure of governance has locked its political institutions into paralysis. Its economic model of a mixed market economy is unable to keep pace with more dynamic world regions. Its demographic changes will test the limits of its expanding welfare state.’

It gets worse. In Hartwich’s view:

‘It would be optimistic to say Europe is at the crossroads… that would suggest it has a choice between reform and decline…

‘It increasingly looks as if there is no such choice and Europe’s inevitable future is one of decaying power, wealth and influence.’

At the core of Europe’s anguish is the burgeoning size of government.

‘Government spending as a percentage of gross domestic product increased dramatically across Europe all through the 20th century… Tax burdens in Europe still range from 47 per cent in Greece to 29.4 per cent in the UK. By comparison, the figures for Australia and New Zealand are 23.2 per cent and 15.5 per cent, respectively.’

Why was government spending allowed to get out of hand? Hartwich suggests that, among other things, that the European welfare state is a means of buying the public’s silence and acquiescence when things start to go wrong.

‘American economist Robert Higgs describes a ratchet effect in his book Crisis and Leviathan. In times of real or imagined national emergencies, mainly wars and recessions, government takes over previously private rights and activities. When the crisis passes, government retreats, but never to the same level as before.

‘This ratchet effect could indeed explain why European governments increased in size during the two world wars. However, it is less well suited to explain the additional (and substantial) government growth since 1945.’

Hartwich’s analysis shows up much of the advice to last week’s National Reform Summit as plain dangerous. The Grattan Institute, for example, argued that since Australian taxes were low by world standards we can afford to increase them. The Menzies Research Centre, on the other hand, found evidence of the ‘ratchet effect’ at work here in a position paper for the National Reform Summit.

‘Government spending on a consolidated federal, state and local basis is now 2.5 per cent higher as a share of GDP than in 2008, around the same increase as for the Euro Area average, and not much below the 38 per per cent peak reached in 2009.’

If the government can’t exercise tight fiscal discipline, the ’emergency’ spending level of the Rudd/Swan in 2008/9 will become the new normal.

Hartwich, who heads the Wellington-based New Zealand Initiative, deserves to be listened to. His RG Menzies Essay Quiet Achievers: The New Zealand Path to Reform, published last year by the Menzies Research Centre and Connor Court, was widely acclaimed on both sides of the Tasman. He pulls no punches in his conclusions about the political and economic causes of Europe’s crisis:

‘The rise of the European welfare state, the reduction of economic dynamism and the increasingly questionable legitimacy of the European project go hand in hand.

‘Bread and circuses – or panem et circenses in the Latin original – were the means of bribing the masses in ancient Rome. Modern Europe is witnessing a similar phenomenon. To their subservient citizens, the European elites provide free or heavily subsidised education, healthcare, TV and radio programs, roads, income support and pensions, public transport, libraries, opera houses, and theatres.

‘Unfortunately, it is often over-looked that government can bribe the people only with their own money. In the words of the great French economist Frederic Bastiat: “Government is the great fiction through which everybody endeavours to live at the expense of everybody else”.’

In the light of Australia’s reform fatigue highlighted in Quiet Achievers, Hartwich’s Why Europe Failed offers more than just academic interest.