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Club of Rome-The EU: Model For The World

Club of Rome-The EU: Model For The World



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Published by Machiavelli
Despite and because of the enormous challenges it faces, the European Union is still the inspiration for all countries and peoples seeking harmonious and effective governance in our new century. No doubt, Europeans will continue their patient
deliberations and painstaking efforts to align goals and policies as they manage their now 25 country-strong Union.
Despite and because of the enormous challenges it faces, the European Union is still the inspiration for all countries and peoples seeking harmonious and effective governance in our new century. No doubt, Europeans will continue their patient
deliberations and painstaking efforts to align goals and policies as they manage their now 25 country-strong Union.

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Published by: Machiavelli on Sep 02, 2008
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  © 2005 (Word Count 1,713)www.hazelhenderson.com Despite and because of the enormous challenges it faces, the European Union is stillthe inspiration for all countries and peoples seeking harmonious and effectivegovernance in our new century. No doubt, Europeans will continue their patientdeliberations and painstaking efforts to align goals and policies as they manage theirnow 25 country-strong Union.Doubtless, the Constitution will be modified, simplified and ratification will become amore choice-filled feedback process than the arbitrary Yes/No referenda in Franceand the Netherlands. Understandably, European voters could not express the fullrange of their concerns – from the effects of globalization, outsourcing andimmigration to cultural issues – that could have been better interpreted in a multiple-choice type ballot. Nevertheless, this noble EU experiment in multi-lateralgovernance is still a beacon and inspiration for other regions. I have discussed theEuropean Union’s experience with many professional audiences in Latin America.They often respond that the EU is an important model for several of their regionalalliances and their vision of a “
” currency based on the success of the
.Indeed, this successful launch of the euro has given the world the first viablealternative global reserve currency. The US
’s weakness since 2002 reflectsthe vulnerabilities of the USA: dependency on imported petroleum, the trade (currentaccount) deficit at 6% of GDP, its over-extended consumers and their zero savingsrate, a persistent gap between rich and poor and soaring budget deficits due to tax-cuts and the war in Iraq. The US, the world’s largest debtor, is also drawing in mostof the world’s capital – less for new investment than to subsidize wastefulconsumption patterns.Worried holders of US
, having taken large currency losses, now have found asafe haven in the
. Such currency diversification will continue, since it hedgesagainst the risk that the US Federal Reserve will keep trying to inflate its way out ofits debts with continued, historically low or even negative interest rates. Meanwhile,the European Union’s economic fundamentals remain much sounder than those ofthe USA. The EU is the world’s leading exporter of services and ranks almostequally with the USA as the world’s two top countries in total trade in goods. EUleads the world in aid to developing countries – dwarfing that of the USA. The EUimports from them more agricultural products than the USA, Canada, Australia, NewZealand and Japan combined. Added to all this is the EU’s trade surplus and healthysavings rate.So why do US financial media constantly extol the USA’s economy whiledownplaying the equally large and important global economic role and performanceof the EU? The surprising answer lies in differing statistical “cameras” pointing atdifferent sectors of the USA vis-à-vis the EU – comparing apples to oranges!
At the heart of current debates about measuring economic performance are differingmethods of measuring productivity. The usual approach measures labor-productivity:output per person. The idea behind the Industrial Revolution was labor-saving, whichmeant increasing each worker's output using machinery and fossil energy. This madesense when natural resources were plentiful. Augmenting human labor with evermore capital, energy and machinery was the flywheel of technological innovation thatpowered the Industrial Revolution since its inception in Britain over 300 years ago.Most economic models based on general equilibrium theories missed this dynamicevolutionary process because technology was treated as a given parameter. TheEconomist (Nov. 4, 2004 “Economic Focus”) now agrees that labor-productivity is notthe best way to measure economic efficiency, and joins in calling for multi-factorproductivity measures. The erosion of jobs due to technological productivity – this“automation factor” is finally being acknowledged.Today, beyond labor-productivity are concerns about capital productivity (after thebillions of dollars wasted in investments in dubious dot com companies);management productivity (as CEO compensation has soared); natural resourcesproductivity (unsustainable forest clear-cutting; wasteful mining and extractionmethods); and ecological productivity (maintaining biodiversity and ecosystemservices). Broader measures like those used in the EU, and multi-factor or total factorproductivity include capital as well as labor -- but still ignore ecological productivity.Comparable measures of productivity are needed to compare the fundamentals ofnational economic performance – particularly between the EU and the USA. The USfocus on measuring labor productivity in private sector corporations, leads todownsizing workforces and fewer new jobs in the short run. Such job losses are acontinued focus of politics in the USA. Outsourcing, globalization and immigration arecertainly factors, but increasingly the role of technology is being examined as well.Since the late 1990s, many economists and financial journals frequently editorializedthat technological productivity and globalization could continue to deliver low inflationand full employment with budget surpluses and lower interest rates as well. Today,we see the bad news about US-measured productivity gains: the flip side isunderstated unemployment, which may be as high as 10% when “discouraged” job-seekers are included.Yet what is rational and efficient at the company level may not translate into overallefficiency for society, which is the broader focus of EU statistics. Those thrown out ofwork and into taxpayer-supported unemployment benefits and social services havezero or negative productivity. Economic theory has always glossed over this problemby asserting that those formerly employed in less efficient industries would find workin more efficient or new start-up companies. Technological innovation wouldeventually re-employ redundant workers and the less efficient industries (e.g.,textiles) would move offshore to developing countries with plenty of cheap labor.This conventional economic view underlies WTO rules removing textile quotas in2005 and led to China’s now dominant position in this industry. Economics is notconcerned with the social costs in the EU or the USA. Economists claim thatentrepreneurs and venture capitalists will continue creating new technologies, andcompanies will keep investing in new factories. But this has not kept pace with the
US need for more jobs – which have come mostly from military and homelandsecurity spending.With globalized finance, even near-negative real interest rates and tax breaks for newinvestments cannot keep new facilities from going to China or India. Economists nowacknowledge that huge government investments must also be made in education,vocational training and re-training. They rarely acknowledge that the continuousdisplacement of employees translates into job insecurity, loss of health insurance,mortgage foreclosures and shrinking pensions.The US private sector's demand for "labor market flexibility" brings other uncountedsocial and environmental costs: disrupted communities, greater need for socialservices to ameliorate personal readjustment, drugs, crime and loss of stableneighborhoods. Environmental costs include boarded up storefronts, stripdevelopment, shuttered factories and more sprawl as new facilities avoid blightedareas and seek the lowest tax locations. Even many economists are nowacknowledging the new problem of jobless economic growth. This major anomaly inorthodox economic theory is a subject on which I have commented (see for example
Building a Win-Win World 
(1996) and
Politics of the Solar Age 
(1981, 1986).Today's EU-USA debate hinges on appropriate methods for measuring productivity.US productivity measurements still flatter the US vis-à-vis Europe, with its differentmetric. When these two methods are conformed, there is little difference between USand European productivity. While, the US economy is burdened by record tradedeficits, heavy consumer and corporate debt, and a real unemployment rate as highas 10%, The EU’s unemployment rate is also too high and its social safety nets areeroding amid sluggish GDP-growth.Yet, this will likely not diminish the
’s new role as an alternative global reservecurrency, as long as central banks continue to diversify their
reserves toinclude
. Cross-border
denominated transactions have climbed from27.7% to 31.2% of the world total. EU fundamentals are still solid and the Union iswell-governed by the 1993 Treaty of Maastricht – whether or not a Constitution isratified. This includes the
and the European Central Bank, while the originalGrowth and Stability Pact is sensibly modified.Lastly, some analysts point to the high US growth rate in the late 1990s as the effectof $10 per barrel oil. EU energy-efficiency is still twice that of the USA. Today, $60-70 dollar a barrel oil may continue – due to Katrina’s destruction, increasing demandfrom China and uncertainty in the Middle East. OPEC, reeling from their
pricelosses, continues straining to meet production quotas. OPEC may still react to theweak
by re-denominating its oil in
. This would cause a rise in the
 and a further drop in the
and increase the price of gasoline in the US to theaverage world price of $5-6 per gallon.In the new politics of productivity measures, we see many diametrically opposingviews of the same market data and official national statistics. Differing worldviewsand assumptions underly both the statistics and the mindsets of the analysts onwhose interpretations we rely. For example, Northwestern University economist

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