Synthesizing Goals for Growth

A New Path For Europe

A while back I wrote an essay for the McKinsey Global Institute Essay for Europe contest. It made it to the final round of judging (15 out of 401). The top 15 included the top 10 highest-rated essays and the top 5 most controversially-rated. Though I did not get confirmation my essay fell into the latter category, it is my guess that was the case.

That’s true of most of my work in any domain, so here it is, the (likely) most controversial idea on spurring European economic growth, for your enjoyment.

Europe today has an important, yet time-limited opportunity to boost its economic growth substantially over the next decade. But to take advantage of this opportunity member states must implement structural reforms in lockstep. The McKinsey Global Institute (MGI) report A Window of Opportunity for Europe details the eleven growth drivers, broadly categorized as investing for the future, boosting productivity, and mobilizing the workforce that can make 2 to 3 percent growth a reality. The report finds that three-quarters of these growth drivers are best executed on the national level rather than the European level. Consequently, this essay will focus primarily on the implementation of national-level structural reforms.

The Problem

In order for any pro-growth reform program to be made deliverable by 2020 and appeal to electorates and decision makers alike at the national and European level, it must meet the goals of all parties involved. At first glance, the goals of European and national level players seem intuitively intractable. On a basic level, European decision makers desire a more unified economic system and a new consensus to increase trust and cooperation, making the EU stronger. National electorates desire individualized solutions to their economic problems, free of EU influence, as well as a transfer of power from the European level back to the national level.

National-level decision makers are caught between these competing goals. They can either do as the EU suggests and make tough reforms their voters are skeptical of and may vote them out of office for or they can stand against necessary structural reforms even though it is detrimental to their country’s economic growth in the long run. The Growth Project, proposed in this essay, aims to give national-level decision makers a third option wherein they are able to implement pro-growth reforms while saving face with their electorates.

The focus of this essay is primarily on addressing the challenge of encouraging parliaments on the national level to implement economic reforms in lockstep without introducing moral hazard. This essay will not focus on specific economic growth policy recommendations as this problem was effectively addressed in the MGI report A Window of Opportunity for Europe and because the program proposed here is designed to effectively implement a wide range of possible reforms now and in the future regardless of their specific policies.

The Goals

In order to be successful, any solution must include fulfilling the goals of European-level decision makers. Such goals, as outlined in the MGI report A Window of Opportunity for Europe, include urging national-level decision makers to accelerate the adoption of leading practices at the national level while “stimulating investment and job creation at the European level in lockstep”, avoiding moral hazard, and creating a new consensus to lay the foundation for a post-Maastricht system.

But any successful solution must also include fulfilling the goals of national-level electorates and decision makers. While most electorates would like to see economic growth and are willing to make some sacrifices to achieve it, they generally do not approve of the way the economy has been handled by the EU, would like to see some powers transferred back to their national governments and would like to focus internally on solving their own national problems.

The MGI report A Window of Opportunity for Europe clearly shows that citizens across the continent “seek further improvements in their incomes and priority areas including healthcare, education, security, and the living environment equivalent to 15 percent of GDP even if they require trade-offs such as working 1.8 hours more per week or reducing social protection.” If citizens want the benefits of economic growth and are willing to make sacrifices to get there, why are reforms so difficult to pass?

The problem may lie in who they are making the sacrifice for. A recent Pew survey finds, on average, Europeans overwhelming disapprove of the job the EU has done in handling the economy. Although responses range from 92% disapproval in Greece to 33% disapproval in Poland, in no country do the majority of citizens approve of the job the EU has done in handling the economy.

These figure shine a light on the lack of trust many citizens have in the EU’s ability to handle economic matters. It stands to reason that if citizens in a country do not approve of the way the EU handles economic matters, they would likely not approve of the EU telling them what they should do to improve their economy, especially if it involves painful reforms. If national-level politicians have no way to save face when passing what are perceived as EU-forced reforms, it stands to reason that it might be difficult for them to pass such reforms and also be re-elected.

As shown above, national-level electorates do want to make improvements to the economic conditions in their country. They just want to be able to focus that energy inwardly and work on their own problems without outside interference. In another recent Pew poll, a median of 56% of European citizens agree that their country should “deal with its own problems and let other countries deal with their own problems as best they can” compared to 40% who agree their country should “help other countries deal with their problems.” Notable exceptions include regional leaders such as Spain, Germany and Sweden where a majority of citizens agree they should help other countries.

While players on the European level desire a more uniform economic system across the continent, setting the stage for a post-Maastricht system, citizens on the national level desire just the opposite. When asked asked by Pew about their views on the future of the European Union, a plurality of citizens in almost every country said some powers should be returned to national governments.

The challenge on the national level is to create a system where electorates feel heard, empowered, respected and trusted to know what their nation’s problems are and how best to fix them. Indeed, the solution proposed by this essay rests on the following hypothesis: European citizens would be significantly more willing to accept difficult reforms in exchange for economic growth if they were presented by their own national leaders free of perceived European-level pressures or influence. Such a system would also reduce political moral hazard because national-level leaders would be held accountable by their electorates for the effects of their policies.

The real challenge lies in combining a system that makes electorates feel like power is being returned to their national governments with a system that builds trust in and strengthens the influence of the EU, giving European-level lawmakers a stronger mandate to pass meaningful legislation and set the foundation for a post-Maastricht system.

The Solution

The solution to European growth is no secret. Indeed, it is clearly laid out in the MGI Report A Window of Opportunity for Europe. “To deliver on citizens’ aspirations in a smarter way than having them work longer or harder, European leaders must collaboratively develop a comprehensive program of reform largely at the national level — together with investment and job creation enabled by pan-European action. Only this combination, pursued in lockstep, will overcome inertia and get Europe’s growth engine motoring again.”

The true problem now is finding a way to implement the known solutions. This essay proposes a path to doing just that by creating an annual programme, herein referred to as the Growth Project, to includes four basic steps:

1. First, all national parliaments will submit model legislation in lockstep to IPEX (Interparliamentary EU information exchange) based on the most successful economic growth policies they have implemented.
2. Second, all MPs and MEPs will be invited to attend a symposium and exhibition, similar to any typical industry convention, focused on the model legislation submitted and pan-European economic growth generally.
3. Third, National Parliaments will use what they’ve learned to incorporate applicable model legislation and tightly-knit reform packages into their own voluntary, individualized, national-level economic growth and reform legislation to be passed in lockstep each year.
4. Fourth, the European Parliament will craft economic growth legislation to standardize and enhance the most popular model legislation passed by the national parliaments as well as any investment and stimulus packages that make sense in that year.

Ideally, the first two rounds of model legislation development and adoption should be carried out by 2018 and 2019. Rapid development of the program was a key consideration when proposing the use of existing institutions. It would be naive indeed to expect many of the most difficult and important reforms to be passed in the first years of the program as national-level electorates and lawmakers are likely to be skeptical of any program proposed with European-level involvement. But by beginning as soon as possible, this program aims to begin building trust and making incremental improvements so that the meat of the reforms proposed in the MGI report become deliverable by 2020.

Step One

The MGI Report A Window of Opportunity for Europe report makes it clear that for every policy that needs to be implemented on the national level, at least one country has already successfully implemented it. “The challenge is not to reinvent the wheel, but to spread and accelerate the adoption of leading practices that already exist in the region.”

If every necessary reform has already been successfully implemented by at least one member state, the first step in spreading those leading practices would be to make them as simple as possible to exchange and adopt. This is why the first step of the Growth Project proposes turning those leading practices into simple, clear, model legislation that can be easily adapted and integrated into any country-specific legislation. To avoid creating a brand-new department for this, this essay proposes expanding and re-imagining the role of IPEX and creating an annual model legislation swap program.

IPEX already has a database containing draft legislative proposals from each national Parliament. Under the Growth Project, the IPEX database would be expanded, the user interface of its website improved so that it is simple and intuitive to users of any age. In addition, applications for smart phones and tablets would be developed so all the information in the database can be quickly and easily accessed by any lawmaker on the national or European level.

Each national parliament should have an advisor within IPEX to help them identify the policies they have implemented that were especially effective and applicable to other member states. The advisor should assist them in turning those policies into model legislation that is as clear and simple as possible. By the time the MPs and MEPs go to the symposium and exhibition, they should all have access, via the IPEX website and app, to a wide menu of specific, a la carte model legislation to peruse at their leisure.

Outside of the official annual Growth Project, any MP or MEP from any country should be able to easily utilize IPEX resources to help them craft well-written legislation. The goal is to make it as simple and enjoyable as possible for like-minded members of various parliaments to connect and work together on legislation they are passionate about. The aim is to create stronger cross-border coalitions and make it easier for EU member states to learn from each other and reach a consensus among themselves, laying the foundation for a post-Maastricht system. This goal has yet to be achieved through traditional interparliamentary conferences, but may be achieved through 21st century technology that leverages humans’ natural inclination for social networking.

Step 2

The second step in the Growth Project is to host an annual symposium and exhibition for all MPs and MEPs. It should ideally be sponsored by COSAC (Conference of Parliamentary Committees for Union Affairs of Parliaments of the European Union) and EUSC (Conference of Speakers of the Parliaments of the EU). MPs from every member state will come together to present and discuss the model legislation they’ve submitted and the model legislation they wish to adopt. This way, leading practices can be spread between member states without a strong perceived EU influence. Though MEPs should still be invited to attend the symposium, especially to learn about the most popular model legislation.

COSAC currently meets biannually, includes only small number of representatives from each parliament rather than every member, and focuses more on scrutinizing the EU than sharing leading practices with each other. Because national parliaments are a direct representation of their electorates, the hope of this program is that giving them a slightly stronger voice within the EU concerning their domestic economic policies will help fulfill their electorates’ desire to transfer power to the national level. Because this program does not affect the amount of influence national parliaments have on paper, simply encouraging them to cooperate and organize better on economic policy would not take away any “sticks” on the European level or require any formal transfer of power to the national level.

Step three

The third step is to encourage all national-level parliaments to use what they’ve learned to pass their own individual, voluntary, Growth Project legislation in lockstep once a year. By advertising the program with copy that appeals to electorates’ desire to solve their own economic problems domestically, without EU influence, the programme aims to give national-level leaders a chance to introduce difficult reforms and accept tightly-knit packages while still saving face.

National-level leaders should be able to frame the reforms as something their specific country is electing to do without EU pressure in order to encourage economic growth because they are happy to finally have the power to solve their own problems and they know their electorates will do whatever it takes to create a brighter economic future for their children. Such an angle plays into electorates’ desire for economic growth, willingness to sacrifice for it, and desire to focus inwardly on their own country’s problems.

An example of copy promoting the program might include something like:

“You spoke and you we listened. We know every country is unique and you as citizens are the ultimate experts on your own needs. So we are turning the task of economic growth over to you and your elected representatives. Because we know that when every nation has the tools they need to solve their own problems, we all become stronger.”

It is important to note that just because the program is voluntary and empowers national-level parliaments does not mean it must introduce moral hazard. If a country wishes to gain a benefit that is part of a tightly-knit package, it must still accept the whole package. The voluntary aspect simply means they are free to accept or reject any package, not that they are free to fully dictate the terms of said package.

If lawmakers wish to accept a tightly-knit package with tough reforms, the programme aims to help them save face by making it just one piece of their overall Growth Project legislation that year alongside more popular reforms and by promoting it as both a voluntary and necessary sacrifice for the economic future of their nation. If it is politically infeasible to pass a necessary reform in a given year, this programme provides lawmakers the chance to work out how they might frame the reform in following years to increase its political feasibility.

Step Four

The fourth step is for European-level policymakers to use the results of the Growth Project to shape their next Commission Work Plan and write new legislation. If many member states adopt a particular piece of model legislation, the European parliament will have a much stronger mandate to formalize and standardize that policy on a continent-wide basis. Additionally, by anticipating which reforms member states expect to pass after the symposium and exhibition, European-level decision makers can better decide which pan-European investment and job creation policies would be most effective in a given year.

Additional Considerations

Though on paper this programme does not not technically affect the power of either the EU or individual member states, it may be uncomfortable for European-level decision makers to try a plan that effectively increases national parliaments’ political power simply by helping them organize better among themselves. But on this note it would be wise for European level decision makers to reflect on the lessons presented by the Brexit vote and heed the advice of the band 38 Special whose lyrics advise one to:

Hold on loosely

But don’t let go

If you cling too tightly

You’re gonna lose control

It is also important to acknowledge there is a high chance, especially in the beginning, that anti-EU factions would use the Growth Project to come together to more effectively oppose European-level policies. In the moment that will seem like a step backward. But under such circumstances this programme is meant to act as something of a Chinese finger trap. The more these groups come together to oppose the EU, the stronger norms of coordination, cooperation, consensus building, and cross-border coalition development they create. These norms are necessary to lay the foundation for a new consensus in a post-Maastricht system. Additionally, this programme is designed to be difficult for anti-EU groups to oppose because it does what the electorates they represent claim to want. That is, appearing to transfer power from the European to the national level.

The Growth Project strives to erase the political moral hazard anti-EU politicians often employ. In the first year or two, especially resistant member states are likely to test how voluntary the program actually is by not passing the strongest EU recommendations or perhaps even passing legislation that goes directly against those recommendations. By allowing them the freedom to do this, the program aims to transfer accountability for economic growth outcomes to national leaders. If they elect not to pass strong reform legislation in the 2018 and 2019 cycles and then have weak economic growth compared to neighboring countries who did pass strong model legislation, national-level electorates will able to see clearly where the fault lies and demand their national lawmakers pass reforms they’ve seen spur economic growth for their neighbors.

The Growth Project also aims to re-direct electorates’ nationalist sentiments into pride for the things their country has done well. By encouraging every state to submit model legislation, the programme shines a spotlight on every country’s lawmakers, forcing them to show their citizens just how effective they have actually been while in office. In this arena, competition between member states would be beneficial as they are competing to create legislation that has an objective, measureable, significant, positive impact on economic growth. If a country does not have impactful model legislation to contribute, their electorates should ask themselves why this is the case and start developing new expectations for the efficacy of their elected national-level representatives.

This electoral pressure is the key to making reforms deliverable by 2020 and every year thereafter. The programme aims to set norms for continual improvement and cooperation by member states. Should there be another economic crisis, having these norms in place will make it significantly easier for decision makers on the national and European level to coordinate a response quickly and implement it in lockstep.

Conclusion

In order to make a pro-growth reform program both deliverable by 2020 and appealing to electorates and decision makers alike at the national and European level, it must meet the goals of all parties involved simultaneously. These goals include accelerating the adoption of leading practices on the national level in lockstep and without moral hazard, increasing trust and laying the foundation for a post-Maastricht system, as well as making electorates feel empowered enough to hold their national-level lawmakers accountable for domestic economic growth outcomes.

To achieve these goals, this author proposes the development of an annual programme, referred to in this essay as the Growth Project, which utilizes IPEX and creates an annual symposium and exhibition to promote the exchange of effective model legislation and knowledge between between member states with minimal perceived European-level interference. It aims to help national-level lawmakers save face while implementing tough structural reforms and give European-level lawmakers a stronger mandate to pass legislation to stimulate and standardize the European economy.