Wednesday, March 28, 2007

Europe is working less and less

Again, back to what doesn't work. Europe coasted while the United States defended it from the Soviet threat. Now they aren't quite coasting, but they are slacking. Some claim that Europeans work less than Americans and Asians because they appreciate the finer things of life more. But economists Alberto Alesina of Harvard and Francesco Giavazzi, visiting at MIT, do the research and find that they work less because regulations make it hard to work. (Note their European names.)
European idleness is the predictable result of stultifying labor market regulations, high taxation, and the excessive power of Europe's labor unions. In France, Germany, and Italy especially, shortened work hours are now coupled with diminished productivity and lack of technological innovation. In 1970, the authors note, Italy's gross domestic product per capita was 68% of America's; by 1990, it had reached 80%. Today it is back down to 64%. At current rates of relative decline, Italian GDP per capita will in 25 years time be one third that of America.
Yes, lower productivity. And while Europe is slowing others are gaining.
China and India each have populations orders of magnitude greater than France, Britain, and Germany combined, and their citizens are willing to work more than 35 hours a week. It is inevitable that their leaders should ask why France and Britain have permanent seats at the U.N. Security Council when they do not.
And it is hard to ignore the laws of economics:
European governments, Messrs. Alesina and Giavazzi advise, should welcome the natural death of inefficient corporations and their replacement by more vigorous newcomers. Instead, they bathe struggling firms in subsidies. During the 1980s, when American corporations were reeling from the shock of massive restructuring, European ones were protected from competition, insulated from the discipline of the market. Case in point: For 50 years, the Italian government subsidized Fiat's research and development. The Italian car company used the money to enter protected industries such as insurance and energy. Meanwhile, Japanese and Korean manufacturers were learning how to make better cars. By the time Fiat's managers noticed, bankruptcy was at hand.
Alessina and Giavazzi have a new book "The Future of Europe: Reform or Decline."

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