Via Instapundit comes a link to Professor Brainbridge’s observations on the European Union, in which he points out numerous problems with the EU’s future. Most EU optimists argue from a position that “bigger is better,” but while the EU certainly brings major advantages, internal free trade for one, I think the optimists miss that the EU could be in the business of building the world’s biggest dinosaur.
I think the EU is undergoing a process one commonly sees in the business world, wherein as an industry starts heading toward obsolescence the number of individual businesses begins to decrease due to mergers and acquisitions. When an industry is new and dynamic, it tends to support a huge number of individual businesses. You can see this in the 20th century with the evolution of industries like automobiles, aeronautics and computers. It is estimated that since 1887 there have been nearly 3,000 separate car manufactures in the U.S. alone. 95%+ of those existed before 1945. By the 1970s, the industry had coalesced into four companies. Aeronautics went from hundreds of companies to less than a dozen in the course of 40 years. In the 1980s there were hundreds of different computer manufactures, all making their own platforms. Today there is only a handful of individual platforms, and two, Microsoft and Apple, comprise 95% of all desktop installs.
In short, a wave of mergers indicates not increasing innovation, growth and future economic relevance but the exact opposite. Businesses begin to merge when they cannot grow by other means (such as by creating new markets by technological innovation). Instead they try to gain advantage by exploiting economies of scale and network effects. This works for a time but eventually they become hampered by diseconomies of scale and by lack of innovation, and the industry slips into economic irrelevance. The fate of railroads and steel makers illustrates the end-state of this evolution.
When an industry starts talking about “synergy” its era of dynamism is over. From then on, the industry is just engaging in a project to breed ever bigger dinosaurs.
I think the EU is basically doing the same thing. They have reached the limits of the statist model that all European nations pursue, and now they are seeking to improve their lot by economies of scale, and by creating a network effect with internal free trade. Like many in business, they think that increasing size equals increasing general influence and success, but in reality they become less important to the overall economy.
The EU will become a huge dinosaur that superficially seems to dominate the landscape, but that in reality is being driven to extinction by the tiny but agile mammals nipping at its heels.