I must confess --- I enjoy listening to NPR. On Weekend Edition (Saturday April 15th), long-time commentator Daniel Schorr made a great observation about Europe. When asked about the protests in France (in contrast to the recent demonstrations in the US), he said simply --- the old social contract in Europe with its elaborate health and pension benefits is incompatible with a vibrant economy. Now Daniel Schorr may (or may not) lament this, but he recognized the fundamental point and also why Britain is escpaing the fate of the rest of the old Europe. The European Union, he commented, promised so much with the common currency and policy harmonization. But the social contract upon which the welfare states of post WWII Europe was built are countering whatever positive impact the European Union might have had on economic growth.
A former colleague of mine at NYU, Jordi Galli, used to have a picture on his door demonstrating that the stagnation in Europe (with double-digit unemployment) was no mystery at all. The graph depicted the relationship between real wages and real productivity, and the wages in Europe were much higher than the productivity of the workers. One of Dr. Sennholz's most practical lessons to his young students back at Grove City College was --- always make sure that your marginal productivity is greater than your wage rate. Public policies which result in raising wages, but lowering productivity are a recipe for economic disaster and unfortunately for the people of too many European nations this has been the post WWII policy equilibrium.
One of the most sobering talks I have ever heard from a politician was by Maart Laar (former Estonian prime minister) and his message was simple --- the future of Europe will be determined by whether Europe followed the lead of New Europe as reprsented in the dynamic and free market policies of countries like Estonia, or the old Europe as represented by the protectionist and statist policies of countries like France. France seems to be winning the day.