EU, Euro or just Europe - what works for GDP per-capita growth?

With all the discussions going on around the Greek referendum, I got curious on how important membership of either the Eurozone or just the EU actually is. Most measures focus on simple GDP growth, but this disregards the actual wealth of people in the long run. Just taking GDP per-capita has also drawbacks (it doesn't take into account purchasing power or inequality). Anyway, I took GDP per-capita in US-Dollars. It's easy to find in the OECD database and reasonable enough as a proxy for people's general wealth. I went 20 years back and calculated the per-capita growth rates of the European countries available and the US. The chart below shows these 20-year growth rates and also the final level of GDP per-capita in 2014.  

For me, there were some surprising results. In my perception Switzerland was much more successful in the past 20 years without being in the EU (virtually no difference to its comparable neighbour Austria). The ones staying consciously outside of the EU (Norway, Iceland, Switzerland) don't seem to have done necessarily much better (Norway did of course, but that can be mainly explained by its oil-wealth). Similarly, Denmark, Sweden and the United Kingdom don't seem to be doing better than the rest who introduced the Euro from the beginning. Obviously, this is a very crude analysis and you need to look further into a lot of factors to come to a definite conclusion, but I think the chart is nevertheless interesting.

Source: OECD

Mobile young people create the European labour market of tomorrow

Here´s a reference to my opinion piece featured in The European Sting.

Will we ever learn?

Our lives are short and I haven´t lived long enough to experience any drastic changes of the world we live in. The perhaps first dramatic historic event that I consciously experienced was 9/11. I remember watching the planes crash into the Twin Towers on TV. Back then, it felt like a rather distant event. I hadn´t seen much of the world nor did I understand that much of it. I have always considered the reaction of the U.S. counterproductive. Answering violence with violence felt wrong for me even back then. It could only cause more hatred and violence. 

Today, I have a much better understanding of the world. I have been to many different countries and met and lived with many different nationalities. It made me a strong believer of cultural dialogue, inclusion and peace. True, in many parts of the world xenophobia, nationalism and the resultant violence are still omnipresent. In Europe we had learnt, I believed. We had created a world where things could be solved without wars, I believed. This belief and this world are rapidly falling apart. The European project itself is in a precarious state. Greed and the subsequent economic excesses have damaged our economies and disillusioned substantial parts of our societies. Xenophobia and generally blaming things on outside factors instead of taking responsibility are on the rise. I still believed all this can be mended and we can emerge stronger from this crisis. 

Events in the Ukraine have changed all this. Whatever the shortcomings of Western policies, whatever the truth among so many lies and so much propaganda, whoever is to blame, fact is that imperialism and war have returned to Europe. It seems that the policy of inclusion and integration of our neighbours and more particularly Russia have simply failed. What is called soft power is perceived as weak by those who prefer to rule by force. I fear there will be less of Steinmeier and more of Kissinger again. I still believe in inclusion, intercultural dialogue and peaceful resolution of conflicts. I equally fear I have few arguments to counter those who ask for a stronger military again and to counter force with force. In fact, I started comprehending why the U.S. believes a policy of strength is the only way to secure peace. Not in the whole world, but at least in the Western world. As much as I want to believe that the people have changed from 80 years ago when Germans started following a calamitous ideology and an insane leader, I have to admit that this seems to be an increasingly naïve belief. Manipulation and propaganda work very much the same way as they did then and the consequences are much the same: violence, war and suffering. 

While it is somehow distant for many Europeans, the threat is real for the Baltics and other neighbouring countries. Soon we might understand that we are all Ukrainians. For me fighting for freedom has always had something contradictory. It still has, but maybe this is soon going to be our reality again. I am afraid the world will never learn. I am not afraid to be proven wrong; I indeed hope I will be.

European (non)-identity

I have been working a lot on European identity as a means to create a more integrated and successful Europe. It has become quite fashionable in this European policy environment to state one’s European identity and how European one feels. I left Germany more than six years ago, lived in four European countries for at least a year and have no immediate plans to return. I feel I could justify saying I am European as well. Somehow I have always been a bit reluctant to do so. Leaving and going abroad had much to do with developing as a person and questioning my background and identity. Replacing my old identity with a new, some might say better, and more sophisticated, European identity doesn’t make much sense to me. My goal has always been to live with less identification – may it be with concepts or with material things.

I still have to give some (personal) credit to the concept of European identity. Mainly because European identity is not a very strong concept of identity. It is hardly well-defined. I am always surprised when Americans say “oh this is so European”. What do they actually mean? Few people would go as far as defending themselves because they are from Europe. Most people do defend their national identities – some with great vigour. This is why European identity has always been appealing to me: It is quite loose, almost like not having an identity. A loose and not well-defined identity will, however, not work for many people. Identity is always about separation from others and if it is not clear how the separation works, it doesn’t serve too well as an identity.

Politicians, especially the populist ones, know very well how to use different identities to their advantage. It is us against them. The argument would even go that our modern nation states are not feasible without national identities. This is why creating a European identity has received increased attention. It seems quite obvious that we cannot build a properly working federal Europe without a widely accepted and felt European identity. As the world and its people are today, I have to agree. A united Europe is better than a fragmented one. We have come a long way to create peace and mutual understanding between formerly bitter enemies. We have still some way to go to achieve a completely integrated and federal Europe. If we ever succeed getting there, it would be sad if it was a merely identity driven process. Take the United States; they have a stronger national identity than many single European member states. Merely replacing one strong national identity with another one will not make the world a better place. It will just create new separation and new enemies. Creating a united Europe that moves beyond identity would be the real achievement for humanity. Sadly, this remains quite a utopian idea today.

Minimum wages, negative income tax and unconditional basic income

Full time work needs to be sufficient to earn a living; this is the dogma of many labour unions when discussing minimum wages. The question is whether this is useful. In a completely free market demand and supply of labour determines wages. The demand for some types of labour causes its price to be very low. This does not necessarily need to be the result of exploitative behaviour of big business. Let´s look into a simple example. Many hairdressers earn comparatively low wages (not the top-notch stylists that cater to upper class, affluent individuals, but the more regular barber shop around the corner on the low end of the market). Some consumers are not willing to pay a lot for getting a professional haircut. It is after all quite easily possible to cut your hair yourself (or ask a non-professional family member or friend). In a free market, some hairdressers serving such individuals willing to pay rather little for a haircut, will thus earn very little, eventually less than what is needed to live a decent life. Now, setting a minimum wage comes into play. If the minimum wage is above the so called equilibrium price for supply and demand, this business is simply not going to happen. There will be less professional hairdressers and only those willing to pay the price dictated by the minimum wage will pay for the service of a professional hairdresser. This exemplifies just one channel through which minimum wages can destroy jobs. In many industries work can simply be done abroad if wages are not competitive.     

Developed economies produce enough to allow everyone that works to have enough money to get by. Completely free markets can create huge imbalances and some workers get paid disproportionately low wages. Most would agree that the state has to intervene and ensure a more equal and fair distribution of wealth. There are different ways to do this, setting minimum wages is only one of them. Another tool lawmakers use to re-distribute wealth is tax policy. Workers that earn very low income pay little or no income tax. In principle, it would be easy to also imagine negative income taxes. That means if you earn very little, less than needed to pay your bills, you don´t pay taxes, you get money reimbursed from the state. This is far less damaging for the economy and its competitiveness. Some say this is completely unethical and insist that full-time work has to yield enough for a living. I cannot see any difference between a minimum wage and negative income taxes from an ethical perspective. Both make sure wealth is distributed more equally. Economically, it is quite obvious that a negative income tax is better for the economy. I see it very hard to argue for the opposite.

In Switzerland, where referendums are common and influence national politics, they collected enough signatures to trigger a vote on an unconditional basic income of 2 500 Swiss francs for every citizen. It is actually a small step to go from a negative income tax to an unconditional basic income. A negative income tax requires some employment to get government support while basic income would be paid regardless. Surprisingly enough, the idea of unconditional basic income schemes has become widely popular and is also very ethical to almost everyone. The arguments against such a scheme are rather economic and mainly touch upon the fear that the incentive to work might be too low and nobody wants to work anymore. I am not sure if this connection is obvious to people discussing these issues. It is a typical example of how framing an idea makes all the difference. While both negative income tax and basic income go in identical directions, one idea is widely popular while the other one is considered even unethical.

Effectively, most developed economies have basic income through various support mechanisms. These mechanisms are often highly complex, time consuming for recipients and costly to administer. Both a negative income tax and basic income would greatly simplify things. And both would contribute to a fairer distribution of wealth. The new government in Germany is poised to introduce a minimum wage. It is hard to imagine that it will not destroy jobs, especially for the less qualified. Unfortunately, politicians do not always care about economics. The goal of a more equal distribution of wealth is beyond doubt a crucial one. Unfortunately, the chosen policy measure is only second-best. 

Mobility and EU 2020

In its Europe 2020 Communication the European Commission outlines a strategy for “smart, sustainable and inclusive growth”. Europe, in deep economic and in many respects existential crisis, urgently needs to work towards these goals, if social cohesion, peace and prosperity shall be maintained and widened. It is necessary that all actors of civil society contribute to achieving those in primarily economy focused objectives. It is also obvious that resources are limited and more so in recessionary times, those resources have to be employed as efficiently as possible.

European policy makers have been promoting intra-European mobility on basically all levels for the past decades. In 2012, the European Commission´s arguably most well-known and successful programme, the Erasmus mobility scheme promoting student mobility, marks its 25th birthday. Initially, fostering European citizenship and creating a feeling of European identity were the main motives for setting up the scheme. Those motives are still the main appeal of mobility programmes and lead to the overall positive attitude of policy makers and society at large. Most actors additionally acknowledge the long-term economic benefits of creating are more united and stronger Europe. However, student mobility helps to achieve some of the core goals of Europe 2020 in a much less illusive and more tangible way.

One of seven flagship initiatives outlined in Europe 2020 is Youth on the move. It´s main objective is

 “To enhance the performance of education systems and to facilitate the entry of young people to the labour market”.

In particular the initiative aims at “combining both excellence and equity, by promoting student mobility and trainees' mobility”. This acknowledges that student mobility contributes directly to enhancing the quality of education. The studies of the Erasmus Student Network are continuously showing the beneficial effects of studies or traineeships abroad (cf. ESNSurvey 2010). Many labour market relevant skills such as foreign languages, working in intercultural teams, communication and networking are improved during the period abroad (cf. ESNSurvey 2011 and Alfranseder, 2012). Mobility grants help address the equity issue although additional support is needed to enable everyone a mobility period independent of their social background.

The second flagship project mobility directly contributes to, is an agenda for new skills and jobs. Its key goal is

“To modernise labour markets and empower people by developing their skills throughout the lifecycle with a view to increase labour participation and better match labour supply and demand, including through labour mobility.”

As previously elaborated, mobility contributes to the development of crucial labour market skills. In addition, results show that people who have lived or studied abroad or have the intention to do so, tend to be more willing to move abroad for work (cf. ESNSurvey 2011). Also Zaiceva and Zimmermann (2008) report that having lived abroad before significantly increases the inclination to move in the future. Those findings suggest that promoting mobility from an early age can contribute to both enhancing student mobility and subsequent labour mobility.  

Mobility helps to directly address those two key goals of Europe 2020, but also helps to progress other flagship initiatives. Mobility can certainly contribute to the targeted Innovation Union via the exchange of ideas and personal development of individuals. Building a Resource efficient Europe might be less obviously connected to mobility. However, research shows that environmental behaviour varies greatly across countries and the abroad experience can familiarise individuals with more environmentally friendly practices which can initiate improvements back home (cf. ESNSurvey 2011). An industrial policy for the globalisation era will surely require more culturally aware and internationally experienced individuals to improve the business environment for SMEs.

The proposed 70% increase for education in the new financial framework of the European Union is going into the right direction. Investment in education in general and strong support for mobility in particular, is indispensable for achieving the goals outlined in Europe 2020. Not all states are pursuing the same policies at the national level owing to looming austerity. However, the national education policies are far more important and therefore spending in education should have absolute priority in national budgets. Supporting mobility should be an integral part of national and international education policies.

Sources:

Alfranseder, Emanuel, Julia Fellinger & Marge Tavaire, 2011. E-Value-ate Your Exchange: Research Report of the ESNSurvey 2010, Erasmus Student Network AISBL, Brussels.
Alfranseder, Emanuel, Jesús Escrivá, Julia Fellinger, Aimee Haley, Asror Nigmonov & Marge Taivere, 2012. Exchange, Employment and Added Value: Research Report of the ESNSurvey 2011, Erasmus Student Network AISBL, Brussels.

Zaiceva, Anzelika & Klaus. F. Zimmermann, 2008. Scale, diversity, and determinants of labour migration in Europe, Oxford Review of Economic Policy 24(3), 427-451.

ESNSurvey 2012 is online

Some weeks ago we launched the latest version of the ESNSurvey. This edition investigates the employability of mobile and non-mobile students and aims to show the beneficial effects of going abroad. We also want to explore the impact of student mobility on entrepreneurship and European citizenship and provide insight into students´ satisfaction with ESN and other student organisations. Please find the link to the questionnaire here:

http://esn.org/survey