Tuesday, March 13, 2007

Europe's economy is 30 years behind the US

Amongst many factors education is a key reason why.

by StFerdIII

A just released EU Observer report states the obvious: ‘If income (GDP per capita) would grow in the US at 2 percent per year and in the EU at 3 percent per year, meaning a 1 percent higher growth of the EU, the EU would catch up with the US around 2045.’ Europe is a full generation behind and poorer than the Americans. Imagine the furor in the States if CNN reported that Americans lived in 2007 on 1977 living standards versus their European rivals. There would be a revolution.

Europe has many problems. A six layered over-taxed, over-governed post-modern concept is sure to fail. That much is obvious. Structural weaknesses are apparent that will ensure Europe remains far poorer than North America. High marginal tax rates and 50% of GDP taken by government is the manifestation of deeper malaises. Poor university education; restrictions on labor and capital; corruption; and a cultural ethos that is anti-American, anti-work, anti-civilisational and anti-modern are the core problem areas that need reform. But this will never happen.

Take education as one example. Europeans don’t understand that a higher degree is an investment that must be paid back through higher wages. Such a simple premise escapes them.

University or college is a longer term project of personal growth and income accumulation. If the education market is distorted the investment becomes either worthless or of low quality. Nothing good in life is for free. The average graduation age for a 4 year degree in Europe is 28. In North America it is 22. North Americans typically start working part-time as teenagers – no such impulsion to work exists in Europe.

By the time the average European graduates he/she has about 8 years less working experience than the average Canadian or American. Who is more valuable to the workforce and to society? The haughty, Marxist-Schopenhauer scholar from Europe with arrogance dripping from raised nostrils, or the grimy kid from Canada who started working part-time at age 16 and obtained a trade skill by age 22? Any employer will take the kid with life experience and a hard skill set.

OECD studies show that money spent on obtaining university degrees pays back through the form of higher wages over time. In fact [and depending on the degree] the increase in earning power from a good degree [something worthwhile] is about 1 million dollars after inflation over the life time of the individual. Consider the dynamics of that investment. If I paid $15.000 per year for 6 years in total, my $90.000 investment is repaid 10 times over my life. That is a pretty good deal.

But this is not reality in Europe. State’s subsidize universities and university life. Most tuition is free or cheap. Student’s therefore don’t care. Why leave the mommy-state’s post secondary institutional setup where I get food, train, living and vacation allowances, can study a few hours a week and party-on for 7 or 8 years? There is no compulsion under socialist education for a ‘student’ to grow up and move on into the real world. European students are the most coddled and poorly trained in the industrialized world.

Europe’s poor educational and university system directly translates into lower productivity, lower wages and uncompetitive economies.

Education – and the right kind it should be emphasized – is vital to a country’s well being.

One of the main problems I have with Mexican illegal immigration into the US for example, is that 80% or more of illegals have less than a high school education. Society does not win by allowing uneducated low skilled workers access to richer world markets. In fact US illegal immigration costs the US taxpayer [see Borgias from Harvard for eg.] about $50 billion per year in real money and lowers productivity and wage growth and puts poorer blacks and whites out of work.

With an educated workforce a country has a better chance of moving up the ‘value-added’ chain of business and industry. Primary and secondary industries fall prey to price pressures and commoditization. Moving out of labor and factory intensive industries to informational, service and knowledge based business models requires an educated workforce. It also demands a quality university and college.

Here is where the US ranks supreme. Of the 20 top ranked universities worldwide, 17 are in the United States and only two are in Europe, according to a recent Shanghai study. What’s more, nearly 40% of all foreign students in the world go to the US to study–a sign that the US remains the No.1 choice for global consumers of education. In the global marketplace for skills enhancement the US is number one, and Europe a distant memory.

A key reason for this difference is of course the European addiction to state ownership. Most EU schools are state funded, state-run, heavily subsidized and extremely bad. As well they don’t focus on business, technology, trades or economically and socially important programs like many North American schools do. Unlike the North Americans, the Europeans do not have a broad educational complex covering university, college, trade school or technical school programs.

The impact on income and living standards in Europe is obvious. On the macro level a solid education in a worthwhile subject enhances productivity and economic output by 3-10%. The fact that productivity is non-existent in Europe and 3% or better per annum in the US says a lot about the underlying educational malaise afflicting the Continent.

In more than one way the Europeans need to grow up. Marxist-statism; Marxist-cultural vapidity; anti-Americanism, low living standards, a non-existent military and a 30 year economic gap with the US are manifestations of systemic issues. Education is one important area of reform that Europeans will need to address.

Instead of allowing their leaders rhetorical latitude in declaring at Lisbon incoherent nonsense of making Europe the world’s leading economy, maybe Europeans should confront reality and get busy with the dirty and ugly job of systemic reform. Then again empty platitudes and delusions are so much easier. Expect the 30 year economic gap between Europe and the US to widen – only to be matched by European hyperbole on their supposed superiority.