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Tuesday, 30 September 2014

EU for the economics Nobel - in 2018

Ethical economy: EU for the 2018 economics Nobel

It may be a little early, but I want to make a conditional nomination for the 2018 Nobel Prize for economics. If all goes well, the European Union, which has just won the 2012 Peace Prize, will by then have met the criteria for the economics award: a “work on economic sciences of eminent significance”. The EU writes in deeds rather than essays or equations, but the unconventional form only adds to the accomplishment. Here is a preliminary draft of the citation.

The European Union is awarded this prize for its advances in the theory of economic organisation in modern industrial economies. The EU has added to our knowledge of the relationships between the economic good and political goals, between bureaucracy and entrepreneurial initiative and between private and state ownership. It has also contributed to the study of managing economic change. The EU’s “European theory” is supported by the most persuasive evidence: a unified, prosperous and fairly just economy.

The European arrangement is sometimes called the Social Market Economy. That title captures two key tenets: that the economy should always be considered as part of the broader society, and that competitive markets should play a major role in modern economies. However, “Social Market” misses several important European ideas: that regulation and enterprise should be mutually reinforcing; that supranational and national governments can perform complementary economic tasks; that many economic activities, including health care and education, are best offered by enterprises which are neither under direct government control nor purely private and profit-seeking; and that meritocratic bureaucracies can make valuable contributions in all parts of the economy.

Several aspects of the European theory deserve special notice.

First, it does not assume that higher GDP is a worthy goal in itself. Indeed, when Robert Schuman first proposed the European Coal and Steel Community in 1950, the French foreign minister said that he hoped a “common economic system” would be “the leaven from which may grow a wider and deeper community”. Those were not idle words. The entity that was to become the EU adopted an explicit social agenda in 1960. This broad European outlook is unusual among economists; too often they forget that ever more stuff cannot make communities good or people happy.

Second, the European theory combines idealism and pragmatism. It is idealistic in its expectations of citizens - that they can and with some prompting will replace enmity with co-operation - and of governments - that they can and mostly will use their economic power to promote the common good. It is pragmatic in the assumption that new practices should be introduced gradually, that compromises are usually the best way to resolve conflicts, and that the economy is too complicated to be guided by simple rules. This pragmatism has served the EU well. While the path to every economic accomplishment, from the elimination of steel tariffs to the creation of a single currency, has been crooked and slow, the achievements have been numerous.

Third, the European theory led to the introduction of the euro, probably the most successful new currency in history. The move from national currencies backed by governments with quite different approaches to fiscal policy to a single currency was not easy; it required significant intellectual, political and economic changes. Success came only after two failed preliminary efforts and a multi-year struggle with the financial markets almost a decade after the currency was actually introduced. Ultimately, though, national governments and the European Central Bank were willing to adopt policies which they had once strongly rejected. Indeed, for all the drama it is clear in retrospect that progress was fairly steady from the time of the Werner Commission’s first suggestion of monetary union in 1979 to the final resolution of the euro crisis in 2015 [note: emendation may be needed on the date].

Finally, the success of the euro demonstrated one of the underlying tenets of the European theory, the dominance of political will over narrow economic logic. Economists had good reasons to believe that a single currency issued by many sovereign governments would always be unstable, but they assumed governments would always be self-interested. In fact, the euro zone governments were willing to make sacrifices for the sake of the weaker among them, and to accept the abdication of some fiscal sovereignty for the sake of the greater social good.

The Nobel Committee realises that the EU is quite different from previous prize winners, all of whom have analysed some part of economic life, often using simplistic assumptions about human motivations and behaviour. We are delighted to recognise an organisation which has gone beyond such incomplete and unrealistic analysis. Where critics of the EU see undesirable vacillations and ignoble compromises, the committee sees high principles gradually turned into effective policy. The committee believes that the EU sets the global standard for mastery of the multifaceted richness of economic activity.

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