‘The ten years to 2017 could be the first peacetime decade since the 17th century to see no economic growth in Europe’
Has something gone wrong with us Europeans? We fancy ourselves as the bastion of parliamentary democracy, the champions of liberty, equality and fraternity, the home of the industrial revolution, the continent to which, above all, Fukuyama’s “end of history” is meant to apply . . . And yet, economically, we seem to be going nowhere. In the six years from 2007 the gross domestic product of the European Union has not increased at all.
Perhaps we are wrong to equate GDP growth with “progress”. One of the sobering lessons of the 20th century was that industrial expansion does not guarantee moral or cultural progress. All the same, most people would regard material progress — more output, crudely — as a crucial dimension of any larger notion of progress. In modern Europe it has now been absent for more than five years. Unless something changes soon, the ten years to 2017 could be the first peacetime decade since the 17th century to see no economic growth in the continent usually seen as the core of Western civilisation.
The counter-argument might be that the six years to 2013 constitute “the Great Recession”, a blot on the historical record comparable to, although mercifully rather milder than, “the Great Depression” of the early 1930s. It might be claimed that Europe’s performance has symptomised wider trends in the world economy, so that there is nothing much to worry about. Indeed, many Europeans may interpret the apparent stagnation of their continent’s economy as an inevitable and desirable adjustment to a planet beset by intensifying resource scarcity and environmental deterioration.
Europe boomed in the first 30 years from 1945; its growth slowed to a more moderate and sensible rate in the next 30 years; and now the halt to that growth confirms that life is about more than economics. So what? Living standards cannot rise indefinitely. In the much quoted title of the 1972 Club of Rome report, we do indeed confront Limits to Growth.
But does the world as a whole share this interpretation of the end of economic dynamism? Are all nations being held back by the same forces as Europe, and seeing little or no increase in their GDP? As on other occasions in this column, I will appeal to the International Monetary Fund’s superb database to answer these questions. The result may cause a little consternation among the peoples and governments of Europe.
The typical annual growth rate of world output from 1945 to the 1970s was about 3.5 per cent a year, with Europe usually exceeding this figure and hence boosting its share of world output. Since then the typical annual growth rate of world output has remained about 3.5 per cent, but there has been some variation. In the decade to 1992 the average growth rate of world output was exactly 3.5 per cent. In the next decade it dipped a little, to 3.2 per cent. However, in the most recent decade for which complete data are available, that is, the decade to 2012, world output climbed by 3.8 per cent a year. In other words, just as Europe gave every sign of losing its economic vitality, the world as whole achieved faster economic growth than ever before.
The unexpected message here is that, for all the gloom and doom about the Great Recession of recent years, and however justified that gloom and doom may be in Europe, mankind continues to advance rapidly in economic terms. Since 1950 the growth of production has outpaced anything that had been seen in earlier eras. If 3.5 per cent a year were maintained over a full century, the magic of compound interest would cause output to rise by more than 20 times.
The evidence so far available for the 21st century is that economic growth at the 3.5-per-cent-a-year figure is unchecked. The great majority of the world’s nations have learned the tricks of prosperity, with the adoption of free-market institutions, and ever-increasing participation in international trade and finance. Only hapless anachronisms, such as Cuba and North Korea, or failed states, like Somalia, Afghanistan and Bolivia, have failed to see the light. But none of these states are big and important. They matter only in that their plight shows that Soviet-era planning, public ownership, autarky and political instability make nations poorer.
So the stagnation of Europe is not symptomatic of a wider international trend. No, the world’s continents taken together are doing better economically than in any previous multi-decade period. Something has gone wrong with the European economy. Of course, many debates about the source of Europe’s failure are likely in coming years and no early consensus is to be envisaged. But a basic premise of debates on economic policy must be that by global standards Europe’s performance has become lethargic, feeble and unimpressive.