Saturday, 31 May 2014

European Union: the 2-in-1 Nobel Prize

We are in Europe in 1945. The second world war just ended. And the question in many peoples' minds is: since, let's say, the beginning of the renaissance in the XV century, how many 50-year periods of peace did we have in Europe? How many 25-year periods?

The answers are: zero. And zero.

How comes that the highly civilized Europe is constantly at war? How can we stop the recurrent suffering, destruction and losses?

The answer to the last question was a visionary strategy:

1. Create a strong economic interdependence between the European countries and give them free access to each others markets, i.e., free movement of goods & services and capital within Europe

2. Create the conditions for ordinary Europeans to get to know and regularly interact with each other, i.e., allow for free movement of people and labour within Europe

3. Allow membership to the "club" only to fully democratic countries and create supra-national decision making bodies on which all member-countries are represented and have veto rights on strategic decisions

The strategy was compelling because it was based on very sound logic:

a) By creating a large common European market the economic incentives for territorial expansion and disputes, which are at the origin of all wars - even when the official motives and "selling points" are others - were eliminated. Why start a war with a neighbouring country to expand your internal market and have access to additional resources if you have free access to that market and resources, under the same rules and conditions that apply in your original home market anyway? With a large common market, the national economic elites stopped having any kind of incentive to finance wars. Why would they be willing to finance a war with a neighbouring country when they have subsidiary companies, suppliers and clients in that country - on whom they depend on and with whom they have very close relationships - which are subject to the same rules and regulation as the ones applying in the home country? "Lebensraum"-type nonsense arguments stopped having any persuasive power to the economic elite. And without the backing of an important part of the economic elite, the chances of a country going to war are slim

b) By creating the conditions and incentives for ordinary Europeans from different nationalities to interact and get to know each other better, by travelling to, studying and working in different countries, effectively what was being created were the conditions for European citizens to realise, based on personal experience, that there is much more that unities than separates them. Once this is achieved, and cross-country personal friendships exist, the chances of a significant part of the general population supporting a war against a neighbouring country disappear

c) By imposing that all member countries of the "club" were democracies, a compliance of political decisions with the populations majority view was made more likely. By creating supra-national decision-making bodies, continuous interaction, debate and collaboration between national governments became mandatory. Interaction, debate and collaboration identify common interests, solve differences and create trust. Trust - the key to avoid wars: you will not go to war with someone you trust.

Not less important: by only allowing fully democratic countries into the "club", internal political stability in each member-country was massively enhanced. Military coups d'etat became an almost impossibility. For a coup d'etat to take place, its leaders must be able to deliver an improvement in living standards for significant parts of the population in the short-term - or at least a "realistic illusion" that an improvement can be delivered. Otherwise, the new regime will quickly collapse. Given that a coup d'etat would lead to a member country being expelled from the "club", and its economic / trading ties with its main economic partners cut-off, no short-term improvement or "illusion" of improvement could be delivered for a significant part of the population as a result of one. And the economic elites, highly integrated into the "club's" economic space, would be the first to suffer. No support from a significant part of the economic elite, no support from a significant part of the general population, means no coup d'etat.

Finally, a prosperous and peaceful "club" of sovereign states would act as an attracting force for countries living under dictatorships. And the hope of belonging to the "club" and enjoying its benefits provide an anchor of social stability in the transition phase to democracy.

The result of the visionary strategy as we all know was the construction of the European Union, kicked-off with the signature of the Treaty of Rome in 1957.

- How many wars did we have among European Union member states since 1945? Z-e-r-o.

- How many coups d'etat in European Union member states since 1945? Z-e-r-o.

- How can the peaceful transition in the former east European communist countries, now EU members, be explained - when there were so many from the former ruling communist elite set to lose their power and privileges - but for the expectation that the integration in the EU would open many new opportunities for everyone that more than offset the losses?

However you look at it, almost 70 years of peace among EU-member countries - something never experienced before - is indeed a spectacular achievement at all levels. And surely generated a massive economic "peace dividend". How much is it worth? To answer the question we just have to answer the following underlying questions: how much higher is today's EU's GDP (remember: GDP is an annual concept. Whatever the benefit, it occurs year after year after year) as a result of the EU

- having a much larger population vs. what it would have if recurrent wars had continued to happen?
- a healthier population?
- a better educated population?
- a longer working population?
- no destruction of infrastructure?
- more resources being channelled to education, R&D and leading to higher productivity?

Here a quick of the envelope calculation:

- Over 2% of European Union's member countries population was killed during the the first as well as second world war. Taking into account that the overwhelming majority of those killed was part of the labour force and assuming a labour force participation rate of 65%, this accounts for circa 3% of annual GDP

- Given that the vast majority of those who died were young adults and therefore the main source for future productivity enhancements and innovation, it is reasonable to add 50% to the 3%. This leaves us at 4.5% of GDP

- If we add those who suffered war injuries and became permanently (to a less or larger extend) handicapped, less productive and with a shorter working life, it is surely reasonable to double the 4.5% to 9%.

- If we add (i) the benefits of not having to regularly channel resources to rebuild destroyed infrastructure, care for the handicapped and have more of the available resources being channeled to education, R&D, productive investments, (ii) the benefits of a faster and more sustainable accumulation of human capital and (iii) the benefits of a long-term oriented mindset, stable institutional framework and investment projects that will only be pursued, and whose fruits can only be fully reaped, if regular recurrences of war are highly unlikely to occur, what will happen to the 9%? Will they double or triple?

In short: saying that the European Union's annual GDP is 20%-25% higher as a result of the "peace dividend" it created is a perfectly sound statement to make.

And finally: how much is a saved human life worth?

On the other side of the balance, how much does the EU generated "peace dividend" cost us? The answer is: the "monstrous" European Union budget accounts for 1% of European Union's annual GDP. Seriously. It's really just ONE percent! (By the way, the "infamous" Brussels- and Strasbourg-based EU bureaucrats' share of that is 6%, i.e., 0.06% of EU's GDP)

The conclusion of all this is therefore pretty straightforward: those who have criticised the Nobel committee for awarding the Peace Nobel Prize to the Europen Union in 2013 were right in doing so. The European Union should have been awarded two Nobel Prizes instead: Peace and Economics.

PS As an European Union citizen living in London, what can I say about masterpiece Nigel Farage (UKIP's leader)? As usual, my respect and admiration for British pragmatism and humour is endless: British people keep sending to the European parliament someone they never wanted to elect to their own national parliament. Well done - noisy troublemakers are always best dealt with by sending them away.

No comments:

Post a Comment