The State of Europe
Lessons for America from France, Britain, and Germany.
The three most consequential countries in Europe face three distinct problems. In France, liberal elites and populists alike have abandoned the notion of national sovereignty, and failed to see how its last foundation, energy independence, continues to erode. The United Kingdom, even though Brexit gave it the tools needed to escape it, falls deeper and deeper into stagnation, a gerontocracy with declining living standards. Germany, meanwhile, is managed by policymakers captured by special interest groups, a market more than a country. The United States can learn from them.
Historian of ideas Marcel Gauchet has argued that France cannot find a place for itself as a nation in a globalized world. Parisian elites aim to address this problem by dissolving French sovereignty in the E.U.'s "strategic autonomy." This desire further manifests itself in a liberal French readiness to submit to German will.
However, national sovereignty has also ceased to be a central tenet for the French right and populists. Something I would call the "Houellebecqization" of the right has occurred: Concern for French identity and fear of Islam have supplanted the pursuit of national independence. Marine Le Pen's party, through years of accommodation to the mainstream, has abandoned all sovereignist demands: first the idea of leaving the E.U., then the exit from the eurozone.
The only thing left that differentiates Le Pen from the mainstream is the tone with which she expresses identity concerns. It is true that Rassemblement National has achieved its best electoral results ever. However, it has never come close to the support garnered by "no" in the 2005 referendum on the Treaty establishing a Constitution for Europe. That was the peak of populism in France. Soon after, the fight for sovereignty was abandoned.
Another foundation of sovereignty hangs in balance today: energy independence. After the first oil shock of the 1970s, President Georges Pompidou, faithful to Charles de Gaulle's vision of building a France of "independence and abundance," adopted the Messmer Plan—named after the French then-prime minister—to build fifty-eight nuclear reactors. The public believed that this was an impossible feat, beyond the "technical capabilities of French industry." They were wrong: In 1974, nuclear energy accounted for only 9 percent of the country's electricity production, but by 1985, nuclear already covered 65 percent of France's energy needs.
From a state of energy independence, by last year France had brought itself to the point where it had to buy energy from Germany. France's energy crisis is not the result of the war in Ukraine, but rather an outcome of the dismantling of the nuclear sector.
French nuclear power has fallen victim to political horse-trading. The devastating blow dealt to the industry came from Francois Hollande's coalition agreement, which promised the Greens a reduction in the share of nuclear power in the energy mix from 75 percent to 50 percent. These days, Macron announces he will revive the sector, though it was he who signed the decree to close the Fessenheim plant in 2020. His prime minister, Elisabeth Borne, was the author of the energy transition law that implemented promises made by Hollande to the Greens.
The consequences of these disastrous decisions are being felt throughout the country. The reactors that should have shielded France from the effects of the energy crisis are neglected and in poor technical condition. With no new projects for nearly three decades, competence has faded, and a declining sector has stopped attracting talent. A lack of faith in their own country’s capability, according to investigative journalist Marc Endeweld's book L'Emprise, led some Frenchmen to believe that the last chance for the industry was to give technology to the Chinese and persuade them to build power plants in France.
Macron recently announced the "end of abundance." Let us hope it won’t also mean the end of French independence.
The United Kingdom
Perhaps no European country validates the need to "develop the developed world" more than U.K. does. The Resolution Foundation's "Stagnation Nation" report paints a damning picture. Its authors calculate that real wages in the U.K. grew 33 percent per decade between 1970 and 2007, only to stop growing at all at the beginning of the past decade. Inequality is on the rise: The poorest households are 22 percent poorer than their counterparts in France. Eight million young workers have not experienced an economy with rising wages in their lifetime.
The U.K. is a country where people have ceased to believe in the future. In 2008, only 12 percent of Britons thought the young would have a worse quality of life than the previous generation; today, 48 percent of the public thinks so. The housing supply is limited, its prices ever higher, as the report's authors acknowledge: "those born in the early 1980s were almost half as likely to own a home as those born in the early 1950s at age 30."
Signs of crisis are apparent in many sectors, but perhaps nowhere as glaring as in health care. The U.K. spends less on health care than its peer nations, and between 2010 and 2013 spending on health infrastructure fell by half. When it comes to the infamous statistic of so-called preventable deaths, England stands apart: heart attack victims have to wait an average of an hour and a half for an ambulance, instead of the targeted 18 minutes. Meanwhile, the U.K. is a gerontocracy, a country whose childcare is one of the most expensive in the world, and where one in four pensioners is a millionaire.
This system has been perpetuated by the last twelve years of Tory rule, a party that "has no vision for the country, no agenda beyond targeting the young to pay for the old." While it released the country from the corset of European institutions, Brexit has not fulfilled the promise of revolutionizing the socio-economic model. Conservatives dreamed of a "Singapore-on-Thames." Tories wanted to turn the entire country into one big financial hub, oblivious to the fact that financial engineering cannot compensate indefinitely for the loss of manufacturing capacity.
The Tory vision has little in common with the real Singapore. Singapore owes its rise from the third to the first world to clever industrial policies, not to the financial sector. The city-state was praised by Milton Friedman, but it was also hailed as an ideal by J.K. Galbraith. Singapore not only provided incentives and subsidies to expand national industries, but also shaped the supply and quality of labor, nurtured technical talent, developed infrastructure and built housing for its population. As Linda Y.C. Lim has pointed out, "while Singapore is a success story of capitalist development, this is not the same as a success story of free market development.” It displayed energy in all the areas the “Westminster elite” has abdicated.
The Lion City’s ruling elites, unlike the Conservative Party, "acknowledged the downside of the immigration-driven growth model," writes Tian He in The Political Economy of Developmental States in East Asia, and "began to push for a shift to a productivity-driven growth model." More recently, the city-state has managed to reverse its manufacturing decline. In 2013, manufacturing's share of the economy fell to 18 percent, to reach 22 percent again in 2021. Newly created jobs in manufacturing present opportunities for high-skilled workers, and value added per worker doubled between 2014 and 2021. Automation has provided productivity and wage growth, while attracting new foreign investment. Meanwhile, the U.K.'s robot density rate—the number of robots in use per 10,000 workers—hovers around 101, lower than the global average (126) and worse than Slovenia.
Economist Adam Tooze is sounding the alarm, contending that the U.K. has embarked on a path of deconvergence, and if this persists, it will fall out of the club of advanced economies. He argues, citing research by Nick Crafts and Terence Mills, that the current slowdown can only be compared to the period before the Industrial Revolution.
In The Grand Chessboard, Zbigniew Brzezinski claimed that German policy is defined by the formula "redemption + security = Europe + America." For some time now, this formula has been reflecting the false certitude of European and American elites rather than the real state of affairs.
The European Coal and Steel Community, the embryo of the future E.U., was created to "address the potential problems emerging from the re-creation of German industrial power." German elites themselves have always been divided over the nature of European integration. The faction that saw in it an opportunity for reconciliation and construction of supranational structures eventually gave way to neomercantilists, who viewed it solely through the prism of German economic interests. Their goal was not to forge a united Europe, but to impose solutions that would maximize the country’s export led growth.
This strategy succeeded insofar as the E.U., which was supposed to tame German economic power, was subordinated to it. This became clear after the 2010 eurozone crisis, when Germany imposed an unsustainable austerity on the continent, while persistently developing its "hyper export" model, reoriented towards China after the 2008 recession. Germany, as economist Clyde Prestowitz has said, will do "whatever is necessary to assure continuing trade surpluses."
The price for this is being paid by ordinary Germans. Rising productivity since the 1990s has not been reflected in wage hikes. Consumption is being restrained, as are benefits and social security payments since the Hartz IV reforms. Deregulation of the labor market keeps unemployment low, but at the cost of proliferation of poorly paid fake-work jobs. The goal seems clear: maintain the competitiveness of German exports at all cost.
In his book Die Deutschland-Illusion, economist Marcel Fratzscher shows that while the German model accumulates huge trade surpluses, this does not translate into improved conditions for average Germans. Chinese workers are getting jobs, German investors are getting rich, while the country suffers from the highest inequality in the eurozone. The problem, he claims, is not that the rich keep getting richer, but that the poorest 40 percent of the population has virtually no savings. This 40 percent, moreover, cannot count on social mobility, which has come to a standstill.
Germany's home ownership rate is the lowest in the entire E.U., below 50 percent. Fratzscher predicts in Verteilungskampf that Germany will face a “struggle for redistribution” to alleviate inequality, like the increasing gap between the country's North and South, which could become more profound than the analogous one in Italy. Any tax reforms, however, would have to face “the resistance of powerful lobby groups including family-owned businesses (the German Mittelstand).”
Germany's export-led growth model relies heavily on China. Or at least that is the case for Germany's largest companies. Of the ten largest, nine derive at least 10 percent of their revenues from the PRC—compared to only two of the largest U.S. companies. While the trend of diversifying away from Chinese supply chains is becoming increasingly pronounced, German firms in contrast invested twice as much in the Middle Kingdom last year as they did in 2021.
Chinese companies are the fiercest rivals for German "hidden champions," medium-sized but important players in their niches. There is a manifest risk that they will be pushed out of the market, just like German solar panels manufacturers. Tom Hancock at the Financial Times reports that "If China is adding new, import-intensive sectors at a rapid rate, this could keep the import ratio high for a number of years; but," Dan Wang and Arthur Kroeber warned, "it could then fall quickly once Chinese firms master the component techniques."
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Short-sighted profit-seeking has ousted strategic consideration of Germany's interests. Olaf Scholz was the first Western leader to visit China after the CCP Congress, at which Xi reaffirmed his power. Analyst Wolfgang Münchau has stated bluntly that Germany is the only Western country where foreign policy is decided by the industrial lobby. As one German industrialist revealed, the German government's conduct is not driven by any reasoning: "they are being driven by what China and a handful of German CEOs want."
Three important lessons for the United States emerge from the state of Europe. Germany proves that interest groups can have a pernicious influence on a country's foreign and economic policy, favoring their own profit over the strategic interest of the nation. The U.K. shows that new gains in room to maneuver mean nothing without an elite espousing a coherent vision of growth to take advantage of them. Finally, France demonstrates that energy self-reliance is the basis of sovereignty, and that nuclear power is the best way to achieve it.