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When jobs create new jobs

 

When the Iron Curtain was lifted in 1989, the only
country in Europe that earned a per capital GDP
appreciably higher than the US was Luxembourg, a
small country and a major banking centre. Norway, a
country with important oil reserves, and Switzerland
reached roughly the US level. Poorer European countries
like Greece, Spain, Portugal, and Ireland achieved
roughly half of the aggregate value added reported
for the US. This put them at around the same level as
the best-performing eastern European countries, the
Czech Republic and Slovenia — the former still part
of Czechoslovakia and the latter still an autonomous
Yugoslavian republic. Measured in terms of its per
capita GDP, Bulgaria was four times poorer than the US.
By 2007 a total of 23 European countries had moved
closer to closing the gap on the US, including 21 of the
27 EU member states.

 

One of the reasons for the huge gap separating Europe
from America was the former’s political fragmentation.
Those interested in exporting goods from Lisbon to
Riga were forced to pass six border checkpoints and to
come to terms with two fundamentally different political
systems. It was necessary to fill out forms in seven
national languages, to comply with a hotchpotch of
rules, and to contend with two different railroad gauges.
It was virtually impossible for job seekers to move in
the opposite direction. Not only was that bothersome,
even dangerous at borders where officials had orders to
shoot persons attempting to leave a country “illegally”
— it at the same time stifled economic growth. It prevented
countries from making use of what economists
refer to as “comparative advantages”, i.e. a situation in
which nations specialize in those goods which they can
produce and export better and more efficiently than others.
In this way all countries concerned stand to become
better off, and gain more from trade, than if they themselves
produced everything they needed.

 

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