Wake up and smell the green tea
Niall Ferguson
LA TIMES OP-ED
October 17, 2005
EUROPEAN UNION finance ministers went to China last week. Their trip may shatter the complacency that seems to pervade European capitals these days. "Wake up and smell the coffee" is what we like to say here in the U.S. when we encounter complacency. But it's the Chinese green tea that the Europeans need to wake up and smell.
A hundred years ago, any delegation of European leaders visiting China could have felt smug, with reason. Western European economies accounted for roughly a third of world output. After a century of stagnation, China produced less than a tenth. On top of that, the British, French, German and Russian empires all controlled chunks of Chinese territory. China's humiliation was complete when, in 1900, the European empires joined forces with the United States and Japan to suppress the anti-Western Boxer Rebellion.
That was then. Today, as a result of reforms dating to the late 1970s, China has the most dynamic economy in the world and quite possibly in all history. Europe, by contrast, is fast becoming the "sick man" of the developed world — a title held until recently by Japan.
Over the last decade, according to the International Monetary Fund's latest World Economic Outlook report, growth in the core economies of the EU that make up the Eurozone has been a sluggish 2% per year. Growth in China has been more than four times faster. In dollar terms, China's gross domestic product is already about one-fifth the size of the Eurozone. Project those growth rates forward and China could overtake the Eurozone within 30 years.
Europe's sluggish growth is only one of several reasons why China's leaders rank the EU significantly behind the United States in the global pecking order. Leave aside the two other big reasons, lack of military clout and lack of significant energy reserves, both of which make Russia seem more important to Beijing than Europe. And purely as a potential market for China's exports, Europe seems less promising than China's own Asian neighbors.
And yet European leaders just don't seem to grasp how dire their economic predicament is becoming. Quite the reverse. The out-going German chancellor, Gerhard Schroeder, regaled his Social Democrat fan club last week with a risible defense of the "strong state," apparently oblivious to the fact that most German corporations long ago gave up on the German state as a potential engine of economic reform.
The president of the European Central Bank, Jean-Claude Trichet, insists the euro has been a huge success story. But wait, what about those growth rates? The IMF forecasts the Eurozone economy will grow by 1.2% this year. Growth in Germany will be 0.9%. In Italy it will be zero. I doubt Alan Greenspan would regard these as the achievements of a successful monetary policy.
Of course, the British chancellor of the exchequer, Gordon Brown, claims to be immune from euro-complacency. As his fellow finance ministers departed for Beijing, Brown admonished them for their wicked ways, rather as I imagine his Presbyterian father once admonished his congregation. Preaching from the pulpit of the Financial Times, Brown called for "reforms in labour and capital markets [and] in trade and in macro-policy." Yet for all his fine words, Brown was exposed last week as being something less than a pillar of economic rectitude. The Organization for Economic Cooperation and Development has just published a survey revealing that Britain is no better prepared for the economic challenge posed by a resurgent China than any of its Continental neighbors.
In many ways, the best measure of an economy's performance and prospects is the productivity of its workforce — the efficiency with which they work or, if you prefer, the amount an individual worker can produce in a given hour. By this measure, Britain is in fact one of the worst economies in Europe. According to the OECD, productivity in the United States, Germany and even Italy is 20% higher than in Britain. In France, it is nearly 33% higher.
The roots of the problem are not hard to find. Thirty percent of Britons between the ages of 25 and 34 are classified by the OECD as "low-skilled," the second-worst rate in a sample of 16 developed countries. The countries at the top — with 5% or fewer "low-skilled" workers — are Japan and Korea.
This is where Europeans really have to worry. For what is happening in Asia is not merely that what they make is nearly as good as European products, it is that the Asian workforce is rapidly outpacing Europe's.
As a billion-plus Chinese pour their energies not only into working but into studying, even the most complacent Europeans will soon be smelling the green tea. And the first sound they'll hear when they wake up will be the sound of history's table turning. |
