I have already written before (in a tweet) that no one who travels
through Western Europe, especially in Summer, can fail to be impressed by the wealth
and beauty of the continent as well as by its quality of life. The latter is
less obvious in the United States (despite US higher per capita income) in part
because of the greater size of the country and lower population density: US
thus does not present to the traveler the spectacle of an impeccably maintained
countryside dotted with numerous castles, museums, excellent restaurants and Wi-Fi,
that one sees in France, Italy or Spain. I think that one can reasonably argue that
no people in the history of the world have lived so well as the West Europeans today,
and Italians In particular. Yet, as everybody knows, there is a deep malaise
and dissatisfaction across the continent, not least in Italy: unhappiness with
how European politics work, with immigration, with the prospects of the young
generation, precariousness of jobs, inability to compete with a cheaper labor
force from Asia or to catch up with American IT giants and American start-up
culture. But I will not write about this today. Instead I would like to focus on two
“curses of wealth” which paradoxically European prosperity bares
The first curse of wealth has to do
with migration. The fact that the European Union is so prosperous and peaceful,
compared both to its Eastern neighbors (Ukraine, Moldova, the Balkans, Turkey)
and more importantly compared to the Middle East and Africa means that it is an
excellent emigration destination. Not only is the income gap between the “core”
Europe of the former EU15 and the Middle East and Africa huge, it has grown. Today, West European GDP per capita is just
shy of $40,000 international dollars; sub-Saharan’s GDP per capita is $3,500 (the
gap of about 11 to 1). In 1970, Western Europe’s GDP per capita was $18,000,
sub-Saharan, $2,600 (the gap of 7 to 1). Since people in Africa can multiply
their incomes by ten times by migrating to Europe, it is hardly surprising
that, despite all the obstacles that Europe has recently began placing in the
way of the migrants, they keep on coming. (Would, say, a Dutch citizen be
indifferent between making 50,000 euro annually in the Netherlands and half-a-million in New Zealand?)
Given the size of the income gap,
migration pressure will continue unabated or greater for at least fifty or more
years —even if Africa in this century begins to catch up with Europe (that is,
to grow at rates higher than those of the European Union). Nor is that
pressure, in terms of the number of people who are banging on Europe’s doors, static.
Since Africa is the continent with the highest
expected population growth rates, the numbers of potential migrants will rise
severalfold. While the population ratio between today’s sub-Saharan Africa and
the EU is 1 billion vs. 500 million, in some thirty years, it will be 2.2 billion
vs. 500 million.
But migration, as everybody knows,
creates unsustainable political pressures on European countries. The entire political
system is in a state of shock—as Italy’s cries of having been left alone by its
European partners to deal with migration, or Austria’s and Hungary’s decisions
to erect border walls, illustrate. There is hardly a country in Europe whose political
system was not shaken by the question of migration: rightwing shifts in Sweden,
the Netherlands, and Denmark; accession to parliament of AFD in Germany, the renewed appeal of Golden Dawn in Greece.
Other than migration, the second issue
fueling European political malaise is rising income and wealth inequality. European
inequality is, in part, a “curse of wealth” too. The wealth of the countries whose
annual income increases over several decades does not rise only in proportion
to income but by more. This is simply due to savings and accumulation of
wealth. Switzerland is not only richer than India in terms of annual production
of goods and services (the ratio between the two countries’ GDPs per capita at
market exchange rates is about 50 to 1), but Switzerland is even "more richer" in terms of wealth per adult (the ratio
is almost 100 to 1).
The implication of the rising wealth/income ratio as countries
grow more prosperous is that the amount of income from capital tends to increase
faster than GDP. When wealth is heavily
concentrated, as is the case in all rich countries, the rising capital share in
total output almost automatically leads to an increase in inter-personal income
inequality. To state it in simple terms, what is happening is that the income
source that is very unequally distributed (profits, interest, dividends) is
increasing faster than the source that is less unequally distributed (wages). Thus,
if the very process of growth tends to produce higher inequality, it is clear
that stronger measures to combat its rise are needed. But in Europe, like in
the United States, there is lack of
political will (and perhaps it is difficult to summon it in the era of globalization
when capital is fully mobile) to increase taxes on high earners, to reintroduce
in many countries taxation of inheritance, or to enact policies in favor of small,
rather than big, investors. There is thus a policy paralysis in the face of political
upheaval.
When one puts these two longer-term trends
together: continued migratory pressure and a quasi-automatically rising inequality,
that is, the two problems that today poison European political atmosphere, and
one contrasts this with the difficulty of moving decisively towards solving
either of them, it is not surprising that one might expect political convulsions
to continue. They will not be gone in a couple of years. Nor does it make sense
to accuse “populists” of irresponsibility or to believe that people preferences
have been distorted by “fake news”. The problems are real. They require real
solutions.