Wishful Thinking is Not a Strategy

In the following article LFMI’s Vice-president Guoda Steponaviciene comments on the revamped Lisbon Strategy and the services directive.

Lately two documents of the European Union have been discussed quite widely and passionately – a new version of the Lisbon Strategy and a proposal for the so-called services directive. No doubt, they are very much interrelated, though rather different in scope and complexity.
Being an essential and concrete element in the implementation of the Lisbon Strategy, the services directive turned out to be a test to verify if the strategy is just a mere pile of politically worked out compromises or a real commitment to change the living and working conditions in Europe.
After reading the Commission’s proposal for the services directive, at first I felt puzzled indeed. I haven’t seen anything more reasonable from the economic point of view in the EU legislation lately! Well, no question, there are excellently targeted provisions on a number of particular issues in the EU legislation, however, a broader view on economic policy is blurred enough.
One of the best examples of this blurred approach, next to the European Constitution, is the famous Lisbon Strategy. It was recognized in its mid-term review by a number of authors that the lack of focus in the strategy, caused by multitude of the tasks, makes the strategy unsuitable for implementation. More to that: these tasks themselves fall into different, directly non-comparable plans. They could be structured, however, only if a certain hierarchy was set up.
Yet, the document’s political nature didn’t allow putting things in a line based on common sense. Instead, sophisticated EU jargon positioned all of the major targets – economic growth, social cohesion and sustainable development – on one level.
True, this is very human: people want all kinds of public goods at one time, otherwise they don’t feel happy. But alas, the laws of nature and human behaviour do not allow this to happen. First of all, the law of scarce resources is there, and prevents us from having everything simultaneously. It makes us chose one or another wanted good, not all together. It makes us evaluate things and pay for one by another. In the realm of material life, the law of scarce resources is the major ruler which can never be forgotten if one wants to realise their wishes.
While observing political debates over economic strategies, it seems that most of the speakers have never heard of this law. Or they find it so terrifying that forget it instantly. This makes the decision makers’ life easier psychologically, but it doesn’t help the strategy to be implemented.
Another law that hinders the implementation of the European three-headed goals is the law of human behaviour. All humans have a natural motivation to act in the way which is beneficial for them (what is beneficial is an exceptionally individual decision). It means that provisions of economic policy shape actions of society. Substantial social guarantees undermine incentives to struggle to find a job, and considerable obligations imposed on enterprises – to become an entrepreneur. If taxes are kept high to finance social allowances and environmental projects, there is less incentive to start a business, to expand it or to report all income officially. Also, high education for free increases incentives to study seeking to postpone work, and free health care services result in unavoidable queues for treatment and inefficient use of resources.
These two laws are sufficient to see that it is the merest wishful thinking striving to have economic growth together with increased social cohesion and sustainable development. Five years had to pass to start talking about it, however, in hints and symbols only.
The revised Lisbon Strategy was presented by the President of the Commission nearly in the same way as the services directive – with a clear priority of goals and defined trends to achieve them. However, the Communication on a new Lisbon Strategy contains the same politically correct and economically void statements about the multiple goals and the “invaluable” European model. The attempt for a change has been done, but, alas, it’s just an attempt so far.
The fate of the services directive is taking a similar course: the proposal has been rejected by the two biggest EU member states as a threat to the European model. This threat most likely originates from the fact that provisions of the directive do respect the above mentioned laws. They address the issue of efficient distribution of resources in the common market (the law on scarce resources) as well as motivation to expand services into new markets (the law on motivation of economic activity).
The idea to adopt some version of the services directive has not been abandoned (the same political correctness). However, consideration of opponents’ arguments poses a very big question mark, whether the revised directive will have any meaningful effect at all. Opponents call lower salaries, caused by general differences in wealth in the EU countries, ‘social dumping’ (although goods produced by the same low-paid workers didn’t deserve to be called like that!). As a result of pressure from opponents, exceptions on the principle of free services that can be made by the national state are being expanded to fit the goals of public policy. This actually means that exceptions can be applied in any case and removes the very purpose of the directive.
As one American has noticed: Europeans want to have everything changed without changing anything. This also has a reference to one more law – the law of cause and effect.