European Economics Make Federalism Look Really Good

If I were to rank the objections to federalism and open markets, the winning objection would be the infamous comparison between the United States and Europe. If you’re familiar with comparative political economy, you undoubtedly know what I mean. The thought process goes like this: “Well, nationalized industries work so well in Europe, so why shouldn’t we follow the European example?”

It’s a tricky argument, especially when someone defends it with decontextualized statistics and data. Maybe some European countries are achieving relative short-term success by adopting statist policies. But, if we examine the European situation more carefully, we’ll quickly learn that some aspects of European policy-making may be desirable, but for completely different reasons.

First, we have to remember that when drawing comparisons between the United States and Europe, it is important to compare Europe as a whole. We can’t selectively pick a nation whose policies most closely resemble those we’re advocating in America. Why? Because comparing the continental United States to a single European country is significantly disproportionate, and yields no practical application. There are too many variables: wide-ranging difference in the sizes of the economies, natural resources, and other innumerable factors.

Second, we have to recognize that continental Europe allows for the people of any member state to move freely within the European Union. In other words, when a country passes legislation that is unfavorable to a particular industry, the industry can (and often does) migrate to another EU nation which offers a more favorable economic environment. Take the election of Socialist Party’s Francois Hollande, for example. When they proposed a scary 70% income tax, France’s investors and business owners fled to Belgium, Switzerland, England, and other EU countries. The beauty of the European system is that nations (often the sizes of American states) serve as laboratories of social innovation while allowing their citizens the liberty of movement to more favorable economic environments.

Do the statists in the U.S. offer a similar freedom of movement between states? No. Their programs are designed to be implemented throughout the entire country, so if you are dissatisfied with the programs, you’re out of luck. The European example proves my point: that largely diverse social and cultural societies must provide for large levels of self-government in order to ensure the most favorable economic conditions for the widest spectrum of socio-economic preferences and values.

There is intrinsic value in federalism, and regardless of what some people may think, it’s not some outdated structure of government with no modern application.