Merging Dinosaurs

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.

19 thoughts on “Merging Dinosaurs”

  1. This is a really interesting – and it seems to me sensible – take. Thanks for the facts and the perspective.

    Ash (Bainbridge is arguing against him) was on C-span last weekend and he seemed to be quite critical of the fact that Bush asked him, well, do we (the US) want the EU to succeed? Ash said no previous president would have asked that question and that Bush quickly said, I’m only testing you. Ash seemed to be speaking as if this showed Bush’s stupidity; it is about as stupid as Lamb’s lines of questioning. Given some of Chirac’s statements about it as a counter force, this did seem a question that a lot of us – not just Bush – would like to ponder.

    That Ash didn’t see that he was being asked to summarize and make an argument and seemed, instead, to expect Bush to start with a given seems to me an indication of the problems with Ash’s – and the EU’s – approach. And not just with America’s reaction but their future as well.

    If you just move on and ignore the assumptions you can found a system concocted on a base full of the kind of holes you point out.

    One of their assumptions appears to be that bureaucrats are benign despots upon whom no checks and balances need to be set. That is not, of course, an attitude supported by history.

  2. I think it’s an empirical question. The EU might be a good idea if it really did mean general liberalization and if the common currency were stable. But in reality the EU behaves increasingly like a socialist cartel, and the European Central Bank looks like a shaky foundation for currency stability, so it’s difficult not to be pessimistic.

  3. I agree with the premise of the story as in order for the EU to succeed, it needs to fundamentally change the way Europeans see themselves. At present, Europeans are coalescing their opinions around what they aren’t (anti-americanism). This will last for a while and political entropy will set in. At that point, they will need to look inside to define themselves as who they are.

    I look at this in an animal husbandry scenario. I suspect that the European political thought is being domesticated (counter balance the the United States) in much the same way that they went through previous communal/collectivist political philosophies. Once domesticated, they will be easier to manage and/or assuage. The animal husbandry scenario is that one mild mannered shepherd or cowboy can manage a large herd of sheep or cattle from the fringes, so long as the internal pecking order of the domestic animal herd remains in place and is not disrupted too severely.

    I think that as the EU takes off, it will be easier for the rest of the world to use the EU for their benefit, rather than the benefit of the Europeans.

  4. This article, and most of the comments miss the point. In the aftermath of the cold war, the counterpoint to the US must be the EU–if you are European. As Europe is no longer under a US umbrella, by consent, they must create their own. And for the newer states, formerly in the USSR or its allies, there is great desire to pursue a better model. The EU may not be perfect, but the US went through growth pains with greater dislocations than we see in Europe now. The challenge will be for freedom of labor and freedom of intellectual property across the EU. Confederations are evolutionary, which is not the same as the road to extinction.

  5. Speaking of unquestioned assumptions… Tom, your comment seems to rest on a big and very questionable one: first that the EU’s historical development maps generally to the US’s, and thus that its future development will resemble the US’s, i.e. it will grow into a cohesive and powerful state. Neither holds, IMO, there is the only the most passing resemblance between the two. There are few if any historical lessons for the EU in US history.

  6. “In the aftermath of the cold war, the counterpoint to the US must be the EU”

    Why? Why does there have to be a “counterpoint”? What does that even mean? If it means “military and political competitor”, then I agree that a united Europe has a better chance of thwarting and damaging US interests than France does by itself. If “counterpoint” means something else, I don’t see why there is a need for an EU government dictating the size and shape of cereal boxes to achieve some lesser end.

    With the Cold War over, no security threat like the USSR exists. There is no longer any reason for any “umbrella”. Same thing. Not raining, no need for an umbrella. As to terrorism, the various states could cooperate without any “EU”.

    Bottom line is this. Europe wants political union because it wants to gain sufficient power and influence to change the way the world is run, particularly to present an alternative to the United States and to actively oppose the United States and its economic and security interests.

    This means that they are now somewhere on the continuum between a competitor and an enemy.

    They are resuming sales of arms to China to strengthen our military enemy. That too is fine. That is fine. They are free to try us. The world is a small place and there is apparently not enough room in Dodge City for the USA and the EU. We have faced far worse enemies. The Third Reich and the Soviet Union were fearsome opponents. The EU is a joke in comparison. I’m more afraid of the nutty Muslim terrorists, who at least believe in their civilization enough to reproduce themselves, and are willing to bleed for their beliefs.

    “Europe”, meaning the core of the EU, France, Germany, Benelux, wants a competitive, zero-sum relationship with the United States. That is the reality. They are conducting this effort quietly but consistently. They are serious about their program, while we continue to pretend that this hostile entity is an “ally”.

    Bush, apparently, is starting to get it.

    I am hopeful that the day is coming when we will respond to these people in a way that their actions merit.

  7. I think the EU’s evolution may make more sense from a sociological viewpoint than economic or political, although none of the three operate independently.

    I see the EU as an attempt by European elites to attain stasis. The edifice they’re constructing seems designed to freeze their society into a model familiar to them. Putting aside the sanity of such a goal, it’s increasingly clear the Left worldwide has adopted a highly reactionary posture to the changes that are occurring around them. They can’t stop the world from changing, although the UN, Kyoto and a lot of other transnational progressive initatives seem to have that as a goal, so I believe they are constructing an EU to keep the changes out. Change is a threat to elites, bureaucrats and statists. The reactionary Left, along with a selection of European elitists from the Right, is responding in a very human fashion to that threat.

  8. This article reminds me of when I was in England about 4 years ago, and it was anounced in the press that the EU had decreed that henceforth all “Wellies” (Wellinton boots) which for the uninitiated are knee high rubber boots commonly worn in the English countryside when walking about, must come with instructions on their use! A bit like having shoes come with instructions! My reaction at the time was if this is how Europe is going to be competitive in the World then bring them on! I have little respect for the EU. It is unrepresentitive to an extreme, and bogged in beauracracy.

    Le Messurier

  9. I tend to agree with Lex. Europe, and especially the France-Germany-Belgium axis, is staking out a position as a strategic competitor of the US. That’s not quite an enemy. But it’s not an ally either.

    I think the Europeans strongly believe the US needs to be restrained. Just as importantly, they believe they offer a superior version of society, an alternative model of civilization. The US, from their perspective, is simply too capitalistic and too militaristic.

    There are two things binding the US to Europe: NATO and trade. NATO may have outlived its usefulness to the US. At this point, the US is simply subsidizing the EU by shifting their military burdens onto the backs of US taxpayers, as it has for 50 years.

    On the other horizon we have China. With 1/4 of the world’s population within their borders, they’re potentially the biggest economic/military power the world has seen in generations – possibly in history.

    The world is changing. The 21st should prove to be an interesting century.

  10. Shannon,

    I think you mistaken about the meaning of the expansion. A EU with 15 members could have pursued increasing integration. But an EU with now 25 and by 2007 27 or 28 members is completely different beast. And by the time it has digested the enlargement in 10 or 15 years Turkey is going to join, with by then about 80 million inhabitants. The plans for this additional enlargement is basically a tacit repudiation of any hope to become some kind of counterweight to the United States.

  11. The fact that European elites (and their American shills) have been screaming so loudly confirms their Dinosaur status. They’re drowning in the Andreas tar pits. And we’re still sweeping up after “winning” the Cold War.

    If Bush demonstrates that free standing republics, ie “Nation States” are the most stable, defensible and prosperous states, and that these states function best by defunding their central governments and freeing capital to engorge private organs (pardon the inuendo please), rather than governmental ones, then the whole lot of them, from Ottowa to Berlin, are out of a job!

    I can’t speak for you, but this yankee cowboy capitalist cannot wait for the next election cycle in Netherlands, France, Germany, Belgium, and little Lux-istan. Will their free bloggers finally bury Chirac and his chafed-knee, clique of EU Socialist patrons?

    Here’s hoping…
    Merry Christmas all!

  12. NATO’s usefulness continues unabated as the Polish would happily identify. The US investment in NATO is also cost effective as were it to withdraw, it is far from inconceivable that the continent would degenerate into general war within 20 years, necessitating another bail out, if not a nuclear war.

  13. What is the tipping point for France, when it becomes essentially muslim in outlook? French leftists have sided with muslims of imperialist bent, the Caliphists. What size coalition of muslim immigrants and leftist sympathizers will swing France into the de facto muslim world? With nuclear weapons re-targeted against western nations? Why is France still in NATO? What does it contribute, and what does it destroy?

  14. “Ash … was on C-span last weekend ” Ginny, do you have a link to this? I could not find it. I’d be very interested in hearing the exact language which Bush supposedly used.

  15. Sorry, Lex. It was Dec. 12 at 2:00 I find from going back over the schedules; here is the link for the description:

    I’ve got to admit, this was my interpretation of what he said (and I tend to keep the tv on c-span while cleaning house, etc. on the weekend, so my attention may not have been what it should have been). He described an interview he (and another Brit – no other Europeans, he said) had with Bush shortly after 2000 inauguaral (I believe). (My sense of his attitude came in part because he complained about being flown over coach class.)

    But in C-Span’s summary, he appears more open to the pulls of our Anglo-bond than I’d remembered. Perhaps I’m just becoming hypersensitive.

  16. To me it seems clear that the US centric model of world development is the wheat and the EU centric model of world development is the Chaff.

    Let the winds of change determine what blows where.

Comments are closed.