Ed Driscoll

The Anti-Galbraith: Or Yet Another Vote Against Centrally-Planned Economies

Economist John Kenneth Galbraith has long been admired by the left because of his love of top-down, centrally-planned economies. But as Joel Kotkin (whom Glenn Reynolds notes was one of the few economists who saw past the “Rising Sun” conventional wisdom of the early 1990s) notes, France’s own top-down, centrally-planned economy is actually a key cause of their riots:

State-directed capitalism may seem ideal for American admirers such as Jeremy Rifkin, author of “The European Dream,” and others on the left. Yet it is precisely this highly structured and increasingly infracted economic system that has so limited opportunities for immigrants and their children. In a country where short workweeks and early retirement are sacred, there is little emphasis on creating new jobs and even less on grass-roots entrepreneurial activity.

Since the ’70s, America has created 57 million new jobs, compared with just four million in Europe (with most of those jobs in government). In France and much of Western Europe, the economic system is weighted toward the already employed (the overwhelming majority native-born whites) and the growing mass of retirees. Those ensconced in state and corporate employment enjoy short weeks, early and well-funded retirement and first dibs on the public purse. So although the retirement of large numbers of workers should be opening up new job opportunities, unemployment among the young has been rising: In France, joblessness among workers in their 20s exceeds 20%, twice the overall national rate. In immigrant banlieues, where the population is much younger, average unemployment reaches 40%, and higher among the young.

To make matters worse, the elaborate French welfare state–government spending accounts for roughly half of GDP compared with 36% in the U.S.–also forces high tax burdens on younger workers lucky enough to have a job, largely to pay for an escalating number of pensioners and benefit recipients. In this system, the incentives are to take it easy, live well and then retire. The bloat of privileged aging blocks out opportunity for the young.

Luckily, better-educated young Frenchmen and other Continental Europeans can opt out of the system by emigrating to more open economies in Ireland, the U.K. and, particularly, the U.S. This is clearly true in technological fields, where Europe’s best brains leave in droves. Some 400,000 European Union science graduates currently reside in the U.S. Barely one in seven, according to a recent poll, intends to return. Driven by the ambitious young, European immigration to the U.S. jumped by 16% during the ’90s. Visa applications dropped after 9/11, but then increased last year by 10%. The total number of Europe-born immigrants increased by roughly 700,000 during the last three years, with a heavy inflow from the former Soviet Union, the former Yugoslavia, and Romania–as well as France. These new immigrants have been particularly drawn to the metropolitan centers of California, Florida and New York.

The Big Apple offers a lesson for France. An analysis of recent census numbers indicates that immigrants to New York are the biggest contributors to the net growth of educated young people in the city. Without the disproportionate contributions of young European immigrants, New York would have suffered a net outflow of educated people under 35 in the late ’90s. Overall, there are now 500,000 New York residents who were born in Europe (not to mention the numerous non-European immigrants who live, and prosper, in the city).

Contrast this with Paris, where the central city is largely off-limits to immigrants, in some ways due to the dirigiste planning that so many professional American urbanists find appealing. Since Napoleon III rebuilt Paris, uprooting many existing working-class communities, the intention of the French elites has been to preserve the central parts of the city–often with massive public investment–for the affluent. This has consigned the proletariat, first white and now increasingly Muslim, to the proximate suburbs–into what some French sociologists call “territorial stigma.” In these communities, immigrants are effectively isolated from the overpriced, elegant central core and the ever-expanding outer suburban grand couronne. The outer suburbs, usually not on the maps of tourists and new urbanist sojourners, now are home to a growing percentage of French middle-class families, and are the locale for many high-tech companies and business service firms.

The contrast with America’s immigrants, including those from developing countries, could not be more dramatic, both in geographic and economic terms. The U.S. still faces great problems with a portion of blacks and American Indians. But for the most part immigrants, white and nonwhite, have been making considerable progress. Particularly telling, immigrant business ownership has been surging far faster than among native-born Americans. Ironically, some of the highest rates for ethnic entrepreneurship in the U.S. belong to Muslim immigrants, along with Russians, Indians, Israelis and Koreans.

Perhaps nothing confirms immigrant upward mobility more than the fact that the majority have joined the white middle class in the suburbs–a geography properly associated here mostly with upward mobility. These newcomers and their businesses have carved out a powerful presence in suburban areas that now count among the nation’s most diverse regions. Prime examples include what demographer Bill Frey calls “melting pot suburbs”: the San Gabriel Valley east of Los Angeles; Arlington County, Va.; Essex County, N.J.; and Fort Bend County in suburban Houston. The connection between this spreading geography and immigrant opportunity is not coincidental. Like other Americans, immigrants often dramatically improve their quality of life and economic prospects by moving out to less dense, faster growing areas. They can also take advantage of more business-friendly government. Perhaps the most extreme case is Houston, a low-cost, low-tax haven where immigrant entrepreneurship has exploded in recent decades. Much of this has taken place in the city itself. Looser regulations and a lack of zoning lower land and rental costs, providing opportunities to build businesses and acquire property.

It is almost inconceivable to see such flowerings of ethnic entrepreneurship in Continental Europe. Economic and regulatory policy plays a central role in stifling enterprise. Heavy-handed central planning tends to make property markets expensive and difficult to penetrate. Add to this an overall regulatory regime that makes it hard for small business to start or expand, and you have a recipe for economic stagnation and social turmoil. What would help France most now would be to stimulate economic growth and lessen onerous regulation. Most critically, this would also open up entrepreneurial and employment opportunity for those now suffering more of a nightmare of closed options than anything resembling a European dream.

As I wrote four days ago:

The now-defunct Ottoman Empire was the first of several countries over the previous century to be dubbed “The Sick Man of Europe”. But economically and socially, Europe as a whole increasingly looks to be the Sick Man of the World, with dire–and now immediate–consequences for all of its population.

Of course, it is possible to end a malaise and restore vitality, but the EU’s endless bureaucracy is far too entrenched–and far too blind–to allow such measures to actually be implemented.