Deepak Lal: A European challenge to the US?

The idea that the proposed United Europe can challenge the Americans seems misplaced

At the end of my last column, I had asked whether the incipient United States of Europe (USE) would be established, and if it will be successful in challenging the Anglo-American dominance of the world.

It is easier to answer the latter question. Its answer depends upon the relative economic and military strengths of the USE and USA in the future.

GDP growth, the measure of economic strength (and ipso facto of military strength), depends upon both population and thence labour force growth and growth in productivity. On both dimensions, the current prognosis for the European Union, apart from the UK, are dire. Most members of the EU including the new East European members are on UN projections likely to see a decline in their populations (from both natural increases and immigration). Only the UK as well as the US will have positive effects on their growth of GDP from their demographics.

The position of Europe is equally dire when we consider relative trends in productivity. In the US, productivity in the non-farm business sector rose at an annual rate of 1.6 per cent between 1970 and 1995. During 1995"�2002, it rose by 2.6 per cent per annum.

There seems to be no sign that this productivity surge is dying out (see Martin Feldstein: "Why is productivity growing faster?" NBER working paper no. 9530, February 2003). Thus, productivity growth averaged 3.1 per cent between the beginning of the current recession in the third quarter of 2000 and the third quarter of 2002, and is still on an upward trend.

By contrast, there has been no similar productivity surge in Europe. Its productivity rise since 1995 is less than that in earlier years. In large part this is because of the failure, in particular of Europe, to adopt the IT revolution, which in turn is partly due to the corporatist economic framework in which their businesses operate.

Thus, the big difference in the productivity increases between the US and Europe has been in the sectors that are substantial users of IT equipment and software.

As the Revolution in Military Affairs (RMA), taking place in the US (discussed in an earlier column), is based on advances in IT, the Europeans are also likely to fall well behind the frontier of military technology.

Unlike the US, where the rise in productivity has been accompanied by a substantial rise in employment (until the latest recession), in Europe employment has stagnated. Because of these differing trends in population growth and productivity, the European Commission's recent Economic Review predicts that the annual growth rate in Europe during the next 50 years will only be half that in the United States.

These differences in growth rates of GDP and population will obviously translate into differences not only in economic but also in military strength.

In my last column I had shown the current share of military expenditure in the GDP of the potential great powers, which showed that the military expenditure of the US in 2000 was greater than any of the other "great powers" by a massive margin.

In my forthcoming book In Praise of Empires (Macmillan) I examine how fast the GDP of the other "great powers" would have to grow, to achieve parity with the US in terms of military PPP $ at various dates.

I assumed that the US GDP (in terms of PPP) would continue to expand at the average rate of 3.3 per cent per annum it has done over the last 12 years, and as we have given reasons to believe, will continue to do so for the foreseeable future; and that the shares of military expenditure in GDP of each country remain unchanged from those for 2000"�, so that none of these countries (apart perhaps from Russia) has to choose between guns and butter.

It is apparent from the Table (which also gives the PPP growth rates of GDP over the 1973"�1998 period in these countries) that based on past and current performance and future prospects, the only potential competitors to US military power are the Chinese (by perhaps the middle of the century) and the Indians (by the end of the century). Given the US technological lead, these potential dates for military catch-up are likely to be even later.

Thus, it appears that, as one military analyst notes, the IT-based RMA "will continue to favor heavily American military predominance. It is not likely that China will, in any meaningful way, close the RMA gap with the USA" (P Dibb et al., "Asia's Insecurity," Survivor, Autumn, 1999).

So that, for at least this century, it is unlikely that US military power is likely to be challenged. The claims by various political scientists that Europe will soon be able to challenge US military and economic superiority are based more on hope than experience.

Of course, any peering into the future based on current trends is fraught with well known dangers. But the above divergences are now so great and the prognosis for the currently sclerotic economies of Europe remain so bleak, that it is unlikely these trends will be reversed in the near future.

Thus, the dream of the European elites that their proposed United States of Europe will be able to challenge the American imperium seems likely to be a pipe dream.

Moreover, though by no means certain, it is likely that the European constitution will not be ratified by one or more states, thus putting an end to the dream of creating a USE. In many ways Britain as the most Euro-sceptic of the various members of the EU is the key.

Tony Blair's U-turn in granting a referendum on the European constitution has aroused fury amongst the European elites, who would have preferred the treaty to be rammed through the UK Parliament like the earlier Maastricht treaty, without a referendum.

It has been reported that both Chancellor Gordon Brown, whose Euro-scepticism is evident with his continuing veto on Britain joining the Euro, as well as Foreign Secretary Jack Straw had persuaded Blair to grant a referendum.

Given the continuing massive public opposition to the constitution, as shown by public opinion polls, it is unlikely that Blair could win a referendum on the European constitution.

There are some who argue that the French and the Germans, who continue to drive the programme for a USE, would not be averse to the British turning down the constitution so that the American Trojan horse in Europe as they see it is marginalised. But would this be such a disaster for the British?

One of the British aims over the last 200 years has been to hold the balance of power in Europe. If the rest of Europe becomes a political unit dominated by the French and the Germans, it will be more difficult for the British to play this balancing role. But, does that matter? Given that the rest of Europe is at best a stagnant and at worse a declining power, it might be best for Britain to join the American imperium, as Tony Blair has implicitly done with his muscular support for George Bush.

If forced to choose, Britain might do better by sloughing off its ill-fitting European skin, by renegotiating its relations with Europe and leave the EU. It would then finally accept that it is part of the Anglo-American imperium, which has in effect been the dominant power in the world over the last two centuries.

This will not mean that it will have to give up being part of the larger economic space created by the Common Market, which many Britons thought they were joining in the 1970s.

As the examples of numerous countries both within and outside Europe, like Norway and Mexico, show, the renegotiation could lead to Britain being part of the Common Market but repatriating the powers over its domestic policies that it has silently surrendered to the EU.

Nowhere is this more important than in the sphere of the Common Law, a subject I take up in my next column. I would therefore expect that a USE will not come about and that within five years the British will be only loosely connected members of the present EU.