Europe still a world-class economic competitor despite lower population

I had an uncle who - wisely under a pseudonym - wrote a book entitled Can America Last? The pessimism implied by its title proved unfounded. In the three-quarters of a century since then the United States has done very well, thank you.

Nowadays we sometimes hear a similar note of pessimism expressed about Europe. The European economy has been described as sclerotic and uncompetitive, and bound to lose ground in relation to the rest of the world. We are supposed to be on the way out.

In population terms, our continent is certainly losing ground. The number of people living in Europe has been growing only slowly, and in some countries the birth rate is now well below replacement level. In Africa and Asia, by contrast, numbers are still growing rapidly. The population balance between Europe and the rest of the world is certainly deteriorating - but then, even when it dominated the world for several centuries, it was a relatively small player in population terms. That was never where its strength lay.

But is Europe also falling behind in economic terms? Not really. True, since 1973 its economic growth has been much slower than during the quite extraordinary quarter-of-a-century that preceded the first oil crisis of that year. But that is also the case with much of the rest of the world.

Indeed, if one leaves east Asia aside, there are relatively few countries with significantly higher growth rates during the past decade than western and southern Europe - just two states in South America and four in Africa, according to the 1996 World Bank Atlas.

But, of course, one can't leave east Asia on one side. For that part of the world includes several large countries with huge populations and very high growth rates - Korea with almost 8 per cent a year during the past 10 or 12 years, and China and Indonesia with an annual 6 to 7 per cent. Together these countries contain one-quarter of the world's population. Moreover, some of their small neighbours - Singapore, Malaysia, Thailand and Hong Kong - have, until recently at least, been equally good performers. These are the "Asian tigers".

For comparative purposes the Irish growth rate during the past decade has averaged at 5.75 per cent, but since 1993 has been 7.5 per cent - well up with the best in east Asia - hence our "Celtic Tiger" description.

Now, growth rates provide good prima-facie indications of competitiveness - so there are good grounds for considering Europe to be still competitive with most of the world outside east Asia. With that region, however, we clearly have a problem - or perhaps two slightly different problems.

In some of these countries workers' earnings are a small fraction of ours, and even though productivity is lower in those low-wage countries, it is difficult, even perhaps impossible, for Europe to compete with them in certain labour-intensive sectors, e.g. clothing other than fashion goods.

In other cases, wages are closer to ours, but productivity is very high - up to or beyond the European level, reflecting a high average level of intelligence and a good education system, as well as, perhaps, a more disciplined approach to work. Such countries could pose long-term threats to Europe's prosperity, although some economists believe that their success has been short-term in character - arising from their ability in recent times to add to the volume of their capital and labour inputs, rather than to success in increasing by higher productivity the return generated from these inputs.

At the same time, the sheer scale of China as a potential world power must be a matter of concern for Europeans and Americans alike. Despite the very low incomes of the great bulk of its people, total Chinese consumption already exceeds the combined figures of France and Germany. And with a growth rate which looks like settling at over twice the European figure, and a population 2 1/2 times that of our continent, China will, before long, be a very powerful element of the global system. On one calculation its output could exceed that of both Europe and the United States within two generations - a very short time indeed in the perspective of world history.

However, for the time being the United States and Europe remain the two principal centres of global economic activity. The United States is, of course, a super-power and Europe is not. Even a Europe as closely integrated as the United States would not match the power of that remarkable country.

But because Europe's economy is much more open than that of the United States and because our continent has always had a much greater involvement with the world outside - originally through colonisation, but latterly through trade and investment - in many economic respects our continent carries more weight in the world than the United States. This reality will, I believe, become more evident when the single European currency is established, gradually challenging the pre-eminence of the dollar in world trade and finance.

Thus in most parts of the world Europe's share of trade is several times greater than that of the United States. This is the case in Eastern Europe, in the countries of the former Soviet Union, Africa, the Middle East and the Indian sub-continent. And European exports exceed those of the United States by a clear margin in China; and are at least equal to those of the United States in the tiger economies of the south-eastern corner of Asia.

In fact, America's exports exceed those of Europe only in Latin America (where Europe's share of trade is, nevertheless, one-third of the total), and in the four east Asian countries, where America secured a dominant political role in the immediate postwar period, viz. Japan, South Korea, Taiwan and the Philippines.

And, in at least two of these, Japan and South Korea, Europe's share of trade has been overhauling that of the United States steadily - doubling in fact within the past 20 years.

Moreover, despite a widespread impression to the contrary, Europe's global direct investments overseas exceed those of the United States by almost half and have been rising much more rapidly.

Other criteria by which to judge Europe's economic performance include its trade balance - positive - and the level of company profitability - at a 30-year high.

But there are negative sides also to Europe's performance, which may leave it vulnerable in future. Four in particular are worth mentioning.

First, in contrast to the United States, Europe is not innovating. There are very few new European products. At a recent meeting of the Institute of European Affairs, a speaker from the European Commission could identify only one major new European product in recent times - the GSM mobile phone.

Second, also in the economic area, Europeans seem to be much more averse to risk-taking and innovation than Americans, and tend to be less flexible - characteristics all of which put our continent at a long-run disadvantage vis-a-vis them.

Third, European military weakness cannot be over-stressed. The inability of the Europeans in Bosnia several years ago to send 1,000 troops a distance of 100 miles by air without US logistic back-up (which was refused) in order to save the lives of people in a zone that Europe had declared to be safe was a disgraceful and humiliating episode. And, just at this moment, because of this European military weakness, the precarious peace of Bosnia seems to depend almost totally upon the United States reversing its earlier decision to withdraw its forces - a reversal that is being powerfully challenged in Congress,

We cannot take much pride in a Europe that lacks the will and capacity to undertake without outside help the humanitarian task of preserving the peace within its own boundaries. Unhappily, in Ireland our "hang-up" about neutrality has effectively silenced our politicians on this profoundly moral issue.

Europe's fourth handicap is the current short-sighted and selfish attitude of the member-states of the European Union, which recently led to the failure of the Amsterdam Treaty to embrace the changes in the Union's institutional structure that are absolutely necessary in order to enable it to accommodate without total sclerosis the dozen or so countries which are queuing up to join.

These are themes to which I shall return in this column.