When faced with a trade-off between security and liberty, it’s often said, Europeans will invariably choose security while Americans prefer liberty. That adage holds less true these days. Consider, for instance, how much of the US Federal Budget is spent on entitlements, not to mention the refusal of American legislators and citizens alike to contemplate any retraction whatsoever of the welfare state.

　　That said, there’s little doubt that many Europeans’ preference for security via government intervention is exacting a high economic cost from many European countries. Indeed, Europe’s declining international competitiveness and low economic growth are the subject of a major EU report by no less than Mario Draghi, the former Italian prime minister and former President of the European Central Bank.

　　Entitled The Future of European Competitiveness, this 404-page document is remarkably candid about Europe’s economic troubles. Draghi acknowledges that Europe “is stuck in a static industrial structure,” increasingly devoid of innovation, unable to resist regulatory creep, weakening in capital markets, experiencing a demographic implosion, enduring accelerating energy prices, and losing some of its best entrepreneurs to America. Thousands of European businesses, reports Draghi, identify “regulatory obstacles and the administrative burden as their greatest challenge.” Then there is Europe’s sclerotic tech sector. “Only four of the world’s top 50 tech companies,” Draghi observes, “are European.”

　　Taken together, this constitutes a damning critique that underscores Europe’s ongoing eclipse as an economic power vis-à-vis other developed economies. It also means a considerably poorer Europe, at least by comparison to America. “Europe’s households,” Draghi states, “have paid the price in foregone living standards. On a per capita basis, real disposable income has grown almost twice as much in the US as in the EU since 2000.” That is an astonishing number, one that should worry those Europeans who have not resigned themselves to managed decline.

　　Dirigisme Reigns

　　One would think that this state of affairs would itself suggest the solution: an aggressive deregulation of European economies at the national and EU levels. Alas, it is a sign of the dirigiste mindset’s iron grip upon wide swathes of the EU’s political class that Draghi’s proposed cure for fading competitiveness amounts to more political centralization and greater state intervention, the exact opposite of what is necessary to make EU economies more dynamic and fitted up for twenty-first-century challenges.

　　A prime example of this counterproductive approach is Draghi’s proposal for reducing the EU’s regulatory burden by “increasing the depth of coordination.” In EU-speak, “coordination” is code for shifting more power to Brussels. The regulatory complexity that comes from 27 member-states issuing many of their own regulations, the argument goes, can be reduced by moving more regulatory authority to Brussels, thereby giving EU institutions the capacity to standardize regulation across the EU.

　　That amounts to giving more power with less accountability to those very same EU institutions that have promulgated so many of the regulations presently crushing European businesses. To suppose that these institutions will suddenly undergo a revolutionary upheaval in their basic view of regulation is at best naive. Moreover, the proposed centralization will also diminish the capacity of reform-minded national governments to pursue their own deregulatory agendas.

　　These measures form part of Draghi’s ambition “to lay out a new industrial strategy for Europe” to overcome its waning competitiveness. One feature of this strategy is the extensive use of industrial policy. Draghi acknowledges the failures and drawbacks of industrial policy “such as defending incumbent companies or picking winners.” Nonetheless, he insists that Europe can overcome the problems inherent to industrial policy by adhering to “a set of key principles which embed best practice.” That involves, according to Draghi, focusing on sectors rather than companies and subjecting the process of allocating subsidies and other forms of assistance to “rigorous monitoring.”

　　What “rigorous monitoring” means is left undefined, but we have good reason to doubt that it would have any effect. Once set in place, industrial policies are notoriously hard to terminate, even when the failure is manifest. The recipients don’t want government assistance to stop, and no political leader or bureaucrat wants to concede failure.

　　More generally, applying industrial policy to a sector inevitably involves government officials making choices about which companies in that sector are given assistance and which are not. Therein lies the inescapability of industrial policy’s problems. The temptations of collusion and cronyism are irresistible, but even scrupulously honest governments could not know everything they would need to know to identify in advance which companies will succeed.

　　Draghi provides no counterargument to these textbook objections to industrial policy. Instead, he insists, “Industrial strategies today—as seen in the US and China—combine multiple policies, ranging from fiscal policies to encourage domestic production, to trade policies to penalize anti-competitive behavior, to foreign economic policies to secure supply chains.”

　　Complicating matters is many Europeans’ inability to conceive of a world in which non-state institutions play a major role addressing genuine situations of poverty.

　　Draghi, however, seems unaware of the failures that already mark the various industrial policies adopted by China and America over the past 6 years. If anything, these fiascos should give European leaders significant pause before accepting Draghi’s recommendations in this area.

　　Going hand-in-hand with this commitment to industrial policy is Draghi’s insistence that governments must boost “the total investment-to-GDP rate rise by around 5 percentage points of EU GDP per year to levels last seen in the 1960s and 70s.” Europe’s private capital markets, he argues, are simply not up to the job of providing the financial fuel needed to turbocharge productivity and growth. Private investments, Draghi maintains, must therefore be supplemented by capital from the public sector to drive productivity.

　　Left unsaid is the fact that government institutions providing capital will want a major say in where that investment goes, and that their motivations will not be the same as private capital investors pursuing profit. After all, the politicians and Eurocrats leading these institutions will be subject to relentless lobbying by special interests. That adds up to inefficient allocations of capital on a mass scale and therefore less productivity: the converse of what Draghi is aiming for.

　　Killing Competition via Corporatism and Climate

　　Draghi’s interventionist approach to competition isn’t limited to a predilection for industrial policy and government efforts to direct investment flows. He is determined to uphold the European social model with its emphasis on minimizing inequality. It follows, Draghi maintains, that any reform effort to bolster competitiveness must be grounded in a network of endless consultation:

　　A key part of this process will be empowering people. Leaders and policymakers should engage with all actors within their respective societies to define objectives and actions for the transformation of Europe’s economy. More effective and proactive citizens’ involvement and social dialogue, combining trade unions, employers and civil society actors, will be central in building the consensus needed to drive the changes. Transformation can best lead to prosperity for all when accompanied by a strong social contract.

　　The word to describe this is “corporatism.” This is a political model with deep roots in continental European political culture which regards private enterprise, markets, and competition as useful but also with suspicion on the ostensive grounds that they produce excessive wealth disparities, diminish security, and undermine solidarity. It follows that markets have to be embedded in political frameworks that seek to establish consensus around achieving particular social and economic objectives—a process overseen, coordinated, and ultimately enforced by the state.

　　The problem is that corporatism is incompatible with a dynamic competitive economy. In corporatist settings, competition and entrepreneurship are inhibited by protocols that mandate ceaseless consultation with sundry interest groups. Those same settings give substantial political clout to entities (unions, established businesses, etc.) whose priority is maintaining the status quo. Indeed, corporatism actively disincentivizes anyone from questioning the economic status quo, precisely because it prioritizes the harmonization of views. However, questioning the status quo and prevailing consensus are prerequisites for successful entrepreneurship and growth-enhancing competition.

　　One such competition-crushing consensus that reigns among the EU political class is the imperative of addressing climate change. This topic permeates Draghi’s report from beginning to end. The need to decarbonize European economies as quickly as possible is presented as a non-negotiable given.

　　Yet so many European nations—most notably, Germany, once the EU’s economic powerhouse but now becoming Europe’s sick man—are presently paying a big price in terms of productivity and growth because of efforts to pursue net-zero. In an October 2023 report, the University of Cologne’s Institute of Energy Economics estimated that the cost of decarbonization for Germany between 2024 and 2030 would be just over €1.9 trillion in private investment and public spending, with the private sector bearing an ever-increasing share of the cost. That translates squarely into less private-sector productivity.

　　The self-crippling of substantial parts of many European economies in the name of combating climate change, and the associated failure of the promised green businesses and green jobs to materialize on any meaningful scale, is one of the major economic stories of our time. Few European political leaders, however, are willing even to discuss it. Such is the power of the climate consensus to suppress acknowledgment of reality.

　　Security Uber Alles

　　It is difficult to believe that Draghi is unaware of these and the other contradictions undermining competition throughout the EU from within. It may be, however, that he recognizes that there are unspoken but severe limits to how much security millions of Europeans are willing to trade-off for the greater economic freedom that ultimately delivers greater growth.

　　In several sections of his report, Draghi comes close to suggesting that attitudinal change by Europeans is necessary if the EU is not to become an economic backwater. Each time he does so, however, Draghi immediately blunts the force of his point, often by suggesting that Europeans won’t and shouldn’t accept what they regard as the deep inequalities that characterize America.

　　Complicating matters is many Europeans’ inability to conceive of a world in which non-state institutions play a major role in addressing genuine situations of poverty. That blind spot is shared by many Americans. Nonetheless, America does have a long history and contemporary practice of private associations addressing social and economic problems that Europeans across the political spectrum typically regard as the primary (if not sole) responsibility of government.

　　Therein lies the deeper problem that makes reversing Europe’s growing lack of competitiveness difficult. Placing so much faith in state action makes it hard to concede that an addiction to government overreach is central to Europe’s present economic challenges.

　　Altering policy is critical. Without, however, a fundamental shift in attitudes that involves more faith in freedom and deeper skepticism about the efficacy of interventionist policies, Europe’s economies will continue deteriorating, rendering much of Europe a bit-player in world affairs. Decline is indeed a choice. Absent a deep change in Europe’s economic culture, decline is effectively the choice that Europe has made.