The Future of Europe: Reform or Decline [Hardcover]

Before reading this book I had ambivalent expectations. On the one hand, I had read Alesina's "Fighting Poverty in the US and Europe" and found it pretty reasonably argued. On the other hand, the words on the back cover sounded like banal conventional wisdom; the favorable review by Niall Ferguson, whose economic reasoning with regard to many issues such as imperialism and fiscal policy has been rightly ridiculed by Krugman and others, did not promise much either.

Luckily, this book turned out to be decent. It presents mostly standard neoclassical arguments about the problems of Europe. The arguments about inefficient universities, overregulated product markets and so on are pretty pretty persuasively developed. Moreover, the authors make valuable qualifications - they do not suggest Europe should get rid of its generous social safety net; instead they say it could be delivered much more efficiently. Nordic countries, routinely disparaged by neoclassical economists as a nightmare, get credit for efficient judicial systems and labor market flexibility. Furthermore, postwar European industrial policy gets credit for high postwar growth (something many neoclassical economists try to deny), although the authors believe that its continuation is one of the reasons why European economies are sluggish. Basically, the strength of this book is a pretty nuanced exposition of traditional arguments about Europe's economic problems.

However, there are some parts that are not so persuasive or well argued. The authors' general admiration of the American financial system is laughable in the light of the current crisis. Their suggestion that European countries should have bigger military budgets since many technological innovations in the US come through military projects sounds like a joke. Although it is true that many technologies came about this way, doing it through the military involves immense waste and handouts to private industry (Chalmers Johnson has recently provided some scathing coverage of the issue). As Alesina and Giavazzi seem to be concerned about crowding out in general, it is strange that this concern is forgotten when it comes to military spending. Finally, their assertion that Americans work more and make more is problematic, too, as is their meritocratic picture of compensation in the US. Up until recently about 40% of all profits in the US economy went to the financial sector (employing only about 10% of the population) which would imply it was the most productive industry. However, now we know that bloated compensation in the US financial sector had little to do with productivity. Furthermore, most Americans work more than Europeans because for the past three decades real wages have stagnated for everybody but the really well off and in order to keep consuming more most people had to work more.

This book is decent if one wants to read a coherent exposition of the neoclassical position. However, do not expect too much - there are quite a few silly arguments, too.

This book deals with several major policy problems that Europe and Europeans are facing today. The usual suspects include non-competitive research and universities, mishandling of the increasingly multiethnic societies, liberalization of markets, high price of the social state, rigid labor market, to name just a few. There seems to be an increasing amount of literature and critical articles dedicated to these issues, in a stark contrast to the inability of European politicians to get a firm grip on them. Even though this book claims that Europe should not necessarily adopt Anglo-Saxon social and economic model, it is hard to escape this conclusion when reading the actual comparisons with the UK, US and other "Anglo-Saxon" countries.

One big policy issue that is not being discussed here deals with the collapse of the European family and its roots in the dismantling of the Judeo-Christian religio-ethical tradition. A good place to start reading more about this is George Weigel's "The Cube And The Cathedral: Europe, America and Politics Without God"

Additional criticism of this book concerns its editing. There are numerous spelling and other mistakes, and several graphs and charts are not all that clear. Otherwise, it is a very readable and engaging book.

I read carefully Alesina's book. It is well written and it really gives Europe and Europeans something to think about. Basically, the authors defend that Europe should start doing things "The American Way", that is, work more, attract young researchers/scientists to universities and spend more in military programs.

Several of these ideas are valid and I believe the authors are completely right in their insights, namely, the absolute need to attract young scientists and researchers to european universities.

This being said, there are other issues, where it is unclear Europe could follow the approach the authors sugggested:

a) Banks - the authors defend European banking system should learn some lessons from the American Banks. The book was written in 2006, there is, before subprime crisis. To be honest, I don't think Europe should copy the US Banks model of management. And subprime crisis is right here to prove what I am saying;

b) Military spending: this is the most controversial aspect of Alesina's book. Military spendig is connected to one of the last barriers of sovereignity - military secrets, national defense system, industrial secrets. It is impossible to forget what could be the reaction inside Europe, if national governments started a big military program. Suppose, Germany would say: "we are going to start a giantic military program". I don't think UK or France would be at ease.

A possible solution: European programmes. But once again, this is easier to say than done. Europe is at peace only for 60 years. It is not exactly peaceful to agree on military spending/programmes.

All in all, it is an interesting book. But some of the ideas, I am afraid can work really well in a Union such as the USA, but probably not in European Union.