Adam Oleksiuk
University of Warmia and Mazury
THE EU AND THE US: DIFFERENCES AND SIMILARITIES IN
IDEOLOGICAL FOUNDATIONS OF POLITICAL ECONOMY
Abstract
In paper author compares and contrast the European
Union and its constituent countries with the United States. One of the key
structural differences between the two entities (the EU and the USA) is that
the EU is not officially and fully a federation. So, it may seem unfair to
compare the two entities in a sense, as one is a federation that is over two hundred
years old and the other is a more recent entity that is not a fully developed
federation. Despite these differences,
there are some comparisons that can be made in regard to the differences and
similarities regarding economic structures and the prevailing economic
philosophies of elites and populations in the EU and USA and their constituent
states. Here author investigates the economic differences and similarities
between the two units (the USA and the EU). First, author delve into the
similarities of the two entities in terms of economic outcomes and structural
similarities in the economies. Then, author looks into the differences between
the two entities, first based upon the style and structures of economic
governance and management and then upon the prevailing economic ideology
underpinning their different visions of economic governance. Finally, author
conclude with some comments upon how the prevailing ideology of political
economy seems to play a role in the forms of economic management used and the
trajectory and success of each particular approach to the management of a
political economy.
Key
words: European Union, United States, similarities, differences, market
mechanism, Human Development Index, economic structures, Military Expenditures,
welfare system
JEL Classification: F00, F2, F5, F6 1. Strong Similarities Despite the cultural and political
similarities between the two groupings (the USA and the EU) there are also
noteworthy economic similarities. First, both the USA and EU illustrate high
levels of human development, although there is a great deal of geographical
variation within the USA and EU. In addition, both the USA and EU have a major
economic feature which means that much of agriculture is effectively off the
market mechanism. So, although the populations of the USA and EU are generally
richer than the rest of the world’s population, they also have a feature in
that agriculture operates within a highly distorted agricultural market.The USA
and EU have many similarities relative to much of the rest of the world [15].
Indeed, as members of the West, they both express similar Western value systems
that include references to the legacy of Greek and Roman thought, the
separation between secular and spiritual hierarchies, rule of law, and a stress
on importance of the individual, among other things [8, pp. 69-70]. So, there
is reason to believe that there would be economic similarities based upon
common civilizational understandings. Apart from that, one of the major things
that make the EU and USA similar to each other in an economic sense is the high
standard of living achieved and some other economic similarities that make them
quite different from many countries in the rest of the world. To
begin with, the USA and EU have populations that generally experience a higher
level of human development than most of the rest of the world, although there
is variation within the units in terms of the level of development achieved.
The high level of development can be measured and contrasted with the vast
majority of the rest of the world’s population in many ways. Virtually every
aggregate descriptor of the EU and USA will put the populations in these
countries/entities at the top of the list of developed populations [2, pp. 42-72]. One popular way that is used to measure
the level of development of a country is the UN’s Human Development Index
(HDI). The HDI is an index developed to measure the level of development for
all the countries of the world. The top ten countries in terms of human
development, according to this particular measure are not entirely EU countries
and the USA, the USA and the major economic powerhouse of the EU (Germany), as
well as two of its EU neighbors, make the top ten list. So three of the ten
most developed countries in the world, according to this measure, are EU member
states and one is the USA. Although all of the variation in terms of economic
development within the USA is lost, as the data are reported by country, a
great deal can be shown from the data. What is additionally interesting about
these data is that three of these countries in the top ten list are linked
closely with the EU and USA via free trade areas.
Many other indicators of economic development would
show much of the same, as would many political indicators. For example, a
ranking of the most democratic countries in the world which is done by the
Economist Intelligence Unit typically features many of the same states in the
top. Variations in the EU and US are not shown by the data as there is
significant variation in the constituent political entities with Bulgaria
(HDI=.777) as the poorest of the EU member states and Mississippi the poorest
state in the USA.
Highly subsidized agriculture is a standard in all
developed countries. What this means, to a great extent, is that much of the
food and foodstuffs that are produced are effectively shielded from market
forces. While much the same can be said about many developed countries (Norway,
Australia, New Zealand, and others), the EU and USA remain major supporters of
subsidized agriculture. There are many reasons to subsidize agriculture
(whether out of ideology, the need to preserve a certain type of agriculture,
or the desire to have some level of agricultural self-sufficiency) but the
effective outcome is that agriculture remains largely off the market mechanism,
especially for such critical sub-sectors of agriculture as grains (wheat and
maize), dairy, and meat. For the EU, this is a critical problem and issue, as
about 40-45% of the EU budget is designated for the Common Agricultural Policy.
It is such a problem for the EU that the problem of what to do with lakes of
wine and mountains of butter is problematic, as Kennedy [10, p. 32-34] pointed
out. It remains a major problem, especially for the EU [7, p. 78] but other
developed countries have many of the same issues.
3.
Startling Differences Despite the fact that there are these very general
economic similarities between the USA and EU, there are also major differences.
Here, we discuss the very real differences, some of which are more obvious than
others. We begin by looking into the basic aspects of economic structures in
the EU and USA, illustrating that public ownership and control are far more
commonplace in the EU than in the USA. Then, we look into military spending,
showing that the USA is in a league of its own. We then look into economic
inequality in the USA and the differences in the welfare state types. Finally,
we investigate the underlying differences in the prevailing understanding of
how a political economy should function. To
begin with, Europeans generally face economic structures that were developed in
ways to make sure that the state plays a leading role in the economy and
society. For example, while in the USA the company running the railroads is
Amtrak, a private entity, the trains carrying passengers in EU countries are
typically owned by the state. Part of the paradox that is not missed by many is
that Amtrak and many other privately-owned things in the USA run on subsidies
from the government. However, the prevailing philosophy of the government and
society works in ways to ensure that these types of habitual economic losers on
the free market (including car manufacturers and some other businesses) work in
ways that ensure that the government will continuously support them despite
losses. This is sometimes pejoratively referred to as “lemon socialism,” where
losses are socialized and profits are privatized. For Europeans, such thinking would be generally
unacceptable, as many of the industries that are habitual losers have the
government as an owner. Instead, in the EU public ownership of many enterprises
is a given, even if there is a movement towards privatization of many services,
meaning that riders on state-owned railroads in the EU may face some
advertising in the trains and will have privatized businesses functioning in
the train stations. The movement toward privatization in recent decades was most
notable in the UK and met with a great deal of public resistance. But then, the
state in the UK, relative to the USA, had a great deal that it could privatize,
as public ownership was so widespread. To illustrate that economic structures
in the USA and the EU differ so much, it should be noted that the military in
the USA is relatively privatized. There has been a long history of privatizing
governmental services in the USA since the 1990s, with one of the interesting
trends being the privatization of the military. In the course of fighting wars
in Afghanistan and Iraq, the USA’s military became increasingly privatized [20,
pp. 45-52). While this has caused a great deal of confusion and legal
complications/difficulties in some instances, the privatization seems to be
something that the political establishment does not want to backtrack on. Some
EU member states have outsourced some of their military services and such but
it is unlikely that any measure would indicate such a privatized military as
the US’s. For example, for US forces in Afghanistan in 2010, there were 94,413
contractors and 91,600 troops [4, pp. 32-48]. It is unlikely that many EU
militaries would have such extensive privatization that private human resources
would outnumber government forces on the ground in a warzone. Privatization of
prisons in the USA is also quite advanced, with about 19% of the federal
prisoners being held in private prisons [3]. One
thing that surprises many in the USA and the rest of the world is that the Federal
Reserve Bank is a private thing. It was brought into being in the early part of
the 20th century. While the Federal Reserve Bank (“the Fed”) is sometime
described as just as “federal” and “Federal Express,” it plays a major role in
regulating the economy, despite its questionable constitutionality. Its
independence and private ownership make it seem odd to many citizens, as it
looks and sounds like a federal agency, but it is not. Central Banks in the EU
tend to have more public involvement and are mostly less independent that the
Federal Reserve, although Austria and Germany’s central banks are generally
thought to be independent much like the Fed, although with the advent of the
euro, they may not be as relevant as the Fed in the USA. One thing that diverts
a great deal of public spending on welfare goods and investments in such things
as education and infrastructure in the USA is the massive amount of public
funding that is earmarked for military purposes. The USA is responsible for
about a third or more of global spending on the military for a population
comprising a little less than 5% of the global population. What is also
interesting is the per capita expenditures, relative to the EU and its member
states. Top Per Capita Military Expenditures
2013 is Oman Saudi Arabia Israel USA Singapore Kuwait Norway Bahrain Australia Brunei
France UK Denmark Sweden. The countries that spend the most on the military per
capita are Oman, Saudi Arabia, and Israel. So, the top spenders per capita are
two oil-rich rentier economies in the Middle East. For these petroleum
exporters, the state is presumably paying for its military via the sale of
petroleum. The third biggest spender, Israel, is a state with a very precarious
strategic position. This makes the USA
the biggest spender per capita on a military in the West. In comparison, EU member states are nowhere
near as generous in terms of military spending, as the figure shows. So,
European governments spend half or less per capita on military expenditures as
their counterparts in the USA, meaning that US military spending is in a
different league from that of EU member states. Economically, this means that
the massive military spending of the USA makes the US economy qualitatively
different and to a large extent creates a system of “military Keynesianism,” as Chalmers Johnson [9]
referred to it. It is a system in which the economy builds up great amounts of
debt and distorts the economy into a permanent wartime economy. The USA has
this feature in its economy, in contrast to its counterparts in the EU. The military expenditures of the USA
obviously squeeze out funds for civilian purposes. According to SIPRI, the USA
spent 10% of government expenditure on the military in 2013. Corresponding
figures in the EU are much lower, with the largest EU equivalent being the UK
and Greece, spending 5.2% of government expenditures on the military. Other EU
member states spend much less, presumably, as they invest in other types of
spending (welfare, education, and infrastructure). The outcomes of the economic
situation in the USA and EU member states are different in terms of the
distribution of wealth. While some member states of the EU are not far from the
inequalities of the least developed members of the OECD in an ordinal measure
of the inequalities of OECD member states, the drop off is quite significant
between the USA’s .389 and the most unequal EU member state the UK (with .344)
[14]. What is interesting and paradoxical the UK with a monarchy and sizable
landed aristocracy has more equality than the USA, a republic with no
recognized aristocracy. What is also noteworthy is that levels of development
seem to be linked with less equality, as Spain, Portugal, and Greece show
levels of inequality that the wealthier and Scandinavian states of the EU do
not exhibit. What underlines the
interesting data on inequalities between the USA and the EU is that in the USA,
it seems that inequalities are tolerated. While the level of inequality of the
USA may seem rather mild relative to Latin American countries, but in
comparison to other developed countries, the inequalities are rather large.
There seem to be cultural reasons for the permissiveness of this [16] and there
are scholars who investigate this phenomenon and try to understand why this
occurs in the USA [see, for example; 11; 12]. The ultimate reason that the
citizenry and political elites are permissive of the inequalities in the USA
may be disputed and will likely be researched for many years to come but the
fact remains is that this seems to be a feature of the USA’s polity and society
that will not go away any time soon. An interesting note to this is that
President Obama in 2011 asked a gathering of historians to find a phrase that
he could use to discuss inequalities without being accused of inciting “class
warfare” Zelizer [21], showing that such discussions by many in the USA are
deemed unacceptable in public debate.
Another key difference between the US and EU is the
size and scope of the welfare state, as there is a link between inequalities
and the size and model of the welfare state. While the US has gone through
periods in which its welfare state has been bigger and is currently operation
on a much leaner welfare state than was the case in the 1970s, it was always
working under a different logic than the prevailing welfare state structures of
the EU countries.
According to the leading scholar in the welfare state
Esping-Andersen [5], there are three prevailing styles of the welfare state
(the liberal, the socialist, and the conservative). The intents and structures
of the welfare state are generally based upon one particular philosophy. The
conservative welfare state and the policies emanating from it at designed to
reinforce and guarantee the general stratification of the society and maintain
the economic, social, and political status quo. This is very different
from the socialist approach which creates a regime and programs with the
intention of creating a more equal society. However, the liberal approach
generally builds a regime that places the market in the limelight, assisting it
in providing welfare solutions, correcting market failures, and providing
welfare goods, when all else fails.
What is noteworthy is that Anglophone countries seem
to have an attachment to liberal approaches in terms of providing welfare
solutions. While many predominantly Anglophone countries have welfare states
that usually prefer to feature markets as solution to welfare problems, there
are other logics that may interfere in the functioning of a welfare state that
works purely on the logic of liberalism. For example, the prevailing logic of
the Canadian welfare state is liberal but the way that healthcare is supplied
to its citizens is clearly socialist in nature. It is not coincidental that it
was incorporated into the Canadian welfare system by the social democratic
politician Tommy Douglas.
The welfare system in the USA is clearly liberal in
nature, focussing upon the market as the source for the solutions, correcting
markets to enable solutions to be made, and with the state providing the good,
if all else fails. For example, the federal government encourages citizens to
be generous by offering tax relief for giving money to charities. The logic is
that the government gives an incentive so that citizens will therefore give to
charities, so that the government will not have to supply welfare goods, as
charities fuelled by the charity of citizens will do the job that the
government may otherwise have to do. There are other market failures that in
the USA are fixed with market-oriented solutions. While the private sector
generally fails to supply unemployment insurance, the federal government in the
USA forces employees to pay into an insurance fund. Thus, while such insurance
may not exist without the government forcing it to happen, there is forced
savings into a fund to enable payouts when a person is unemployed. In addition,
although markets may not be very good at supplying educational loans to
teenagers with no collateral or housing loans to the poor, institutions were
created in the USA such as Fannie Mae and Freddie Mac to alleviate some of
these concerns. In
contrast, countries in the EU have institutions that were largely developed in
ways to ensure that either the society remained stratified the way some desired
it (conservative regimes and programs) or in ways to ensure equality (socialist
regimes and programs). It is no coincidence, then, that Scandinavian countries
have high levels of equality relative to much of the rest of the world, as the
welfare state there was developed in ways to ensure a certain level of
equality. It is no accident of history that equality of the population in the
EU is more equal than in the USA, as social democratic parties have been influential
in the Western portions of the EU following the Second World War. They have
influenced the welfare state in many countries to ensure more equal outcomes
and many of the same core values of
economic equality were consistent with many of the programs and welfare regimes
championed by the other influential Marxists in Europe, the Communists. So,
much of the inequality of the USA is attributable to not only the size of the
welfare state, which is much less massive and inclusive as the typical welfare
regime in the EU but also to the underlying philosophies involved in the
welfare state. For example, while in the Netherlands disabled citizens get
subsidies to visit brothels up to twelve times a year, such a policy in the USA
would be unthinkable or laughable. But it is not just in the Netherlands where
there is such an anomaly. Government funds are used to send disabled people in
the UK to enable them to have a sex life [17] and Scandinavian governments
regularly offer orthodontic treatment to its citizens at state expense. The
difference is that in many EU countries, welfare states are so large,
well-funded, and work on the intent that equality should be the outcome, or
part of the outcome. Perhaps, if the USA had a strong and influential social
democratic party, its welfare state would change and there would be further
redistribution of wealth to the poorer segments of the society. 3. Underlying
Philosophy of Political Economy What
really makes the USA and the EU different is a difference in the underlying
faith in markets and market solutions to social, political, and economic
problems. While the EU’s political elites have to a large extent placed their
fate at the mercy of markets, they have not done so with the vigor and devotion
of their counterparts in the USA. In the USA, the ideology of liberalism is
very powerful, probably because of an Anglo-Saxon predilection to markets as
well as a lack of a strong and influential social democratic party. While in the
USA there had been a period in which socialists made inroads and were
influential in the political arena, they never quite bounced back from the
period during World War One when they were arrested and intimidated out of the
public discussion. The anti-Communist fervor and the intimidation by the
political authorities following World War Two played a large role in terms of
limiting public discussion regarding political solutions and made anything that
seemed socialist or Communist to be discounted from viable political
discussions. Unsurprisingly, the orientation of the public and the elites in
the USA was largely centered upon liberal solutions to political and economic
problems, with some room for maneuver via Keynesian solutions. Occasionally,
programs were developed to deal with emerging problems and this has resulted in
state subsidized healthcare for the very poor and the elderly, as well as a
bunch of other “New Deal” programs. The
outcome of the devotion of the USA’s population and elite to the wisdom of the
market comes out sometimes in interesting ways. For one thing, the federal
government in the USA does not stipulate how long employees should have for
yearly vacations. Europeans, on the other hand, often have government
regulations that stipulate how long each employee is guaranteed to have in
terms of vacation. This is an indicator of the faith that the authorities have
in the USA for the liberal system in which each employee makes a contract with
an employer in a free labor market. What is interesting too is that this is
reflective of the belief that the government should not be unduly involved in
the affairs of employers. This system is unthinkable to most Europeans who
would expect authorities either at the EU or country-level to implement
regulations that ensure a certain base amount of holiday time per year. But
then, these countries have had a long tradition in terms of non-market thinking
with socialist and communist parties working in conjunction with trade unions
to ensure regulations to give the working population a desired quality of life.
Such thinking is very foreign to the population in the USA, for the most part,
as the organization and impact of trade unions and political parties were not
aligned as they were in Europe following World War Two. Because
of their faith in the importance of the market, the US population works much
longer working hours that the population of Europe. Labor productivity in the
USA is higher and has increased in recent decades but EU productivity has
dropped [1]. But that should not be a surprise, as workers in the USA work more
days a year, in accordance to the demands of the market. 4. Conclusion When the surface structures of the economy
are stripped away, author see that the basic differences between the EU and USA
are largely ideological. While in the USA, the political establishment and
public demands and expects market-based solution to problems, Europeans are
more willing to look at political solutions. There is a massive blind spot in
the US in terms of markets, as in the USA military expenditures and
agricultural subsidies are largely expected to be independent of markets.
However, for everything else, it seems, the population and political
establishment in the USA expects to use market-based solutions to economic,
social, and political problems. There are benefits to market thinking, as the
USA shows. While the EU’s populations are largely expecting the state to do the
job of caring for the society, the USA’s population is expected to do its
share. So, it is unsurprising that in the USA there are high levels of
volunteering and charity, not just because the governments support it but also
because it is part of the ethic of the population. The data on public employment
illustrate, generally, the USA’s dedication to smaller government. The OECD
[13] reports that in 2011, about 14.4% of the USA’s population works for
government or a public enterprise. In comparison, the corresponding figure for
Denmark is 29.9%, for France 21.9%, and the UK 18.3%. In terms of public
employment is Greece, with only 7.9% of the population working for the
government. One thing that probably inflates for the USA a great deal is its
large military (about 1,400,000 in active service) and multiple levels of
government (federal, state, country, and others). In addition, the is also
somewhat inflated since it has the highest incarceration rate in the world.
Although a large minority of prisoners are held in private prisons in the USA,
a sizable public workforce is needed to guard the more than 700,000 people in
prisons throughout the USA’s federal, state, and other detention facilities.
Much of the differences are not just dependent upon the desire for the EU’s
population to seek statist solutions to solve problems, but also the alienation
of statist thinking from the political arena in the USA. While in the EU,
Marxist parties over the decades have offered various solutions that include
public ownership and redistribution of wealth to the poorer segments of the
population to social and economic problems, such an ideological approach has
been forbidden in the USA. For the most part, the population in the USA is
faced with two liberal parties in a two-party system, one the radical liberals
(the Republicans) and one the moderate liberals (the Democrats), as other
political parties have been marginalized. In comparison, Europeans have a wider
political spectrum represented in the public debate regarding how to solve
social and economic problems.
Future research should look into the benefits
of economic centralization, as this is a major feature that the US has in
comparison to the EU. While the USA may benefit from an economy of scale with
one pension scheme (Social Security), the EU member states deal with multiple
different pension schemes and other entitlements for their populations. While
much of the EU is integrated into one currency, it is rather interesting that
many of the entitlements and elements of the security net remain solely in the
hands of member state governments. There may be times when market thinking is
helpful. For example, the political leadership in the USA regularly speaks of
lowering taxes or rebates in order to sustain a moderate boost in the economy
to increase tax revenues. Such thinking would be alien to many Europeans who
would rather simply increase taxes to increase state revenues. There are other
things that are largely alien to the statist approach that most Europeans
accept, such as the concept of school vouchers (the notion that parents should
decide which school their children should attend and the government subsidies
to the schools they choose follow the child) and the privatization of pensions.
In reality, different types of solutions are
needed for different economic problems. One interesting difference between
Anglophone and eurozone solutions to the current financial crisis is rather
telling. While the UK and USA simply print more money (quantitative easing) the
eurozone response imposes austerity in an effort to oppose inflation. The
eurozone’s approach seems to be reflective of a German mentality that is
historically anti-inflationary while the Anglo-American approach seems to
recognize that money is really only a reflection of the imagination of value.
The main lesson, really, is that responses to economic issues and the
institutions that are built to respond to them are at least a partial
reflection of ideological approaches to political economy but also a reflection
of historical experiences, including the constellation of political parties and
labor unions.
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