This Past Is No Path for the Fu­ture.

Forbes Middle East - - CONTENTS - STEVE FORBES

Eu­ro­pean eco­nomic growth rates have lagged those of the U.S. for decades. Since the cri­sis of 2008, for in­stance, the av­er­age pace for the EU has been 0.9% ver­sus al­most 2% for the U.S.—and that 2% is re­garded as sub­par. This EU slug­gish­ness (along with deep con­cerns over un­con­trolled im­mi­gra­tion) has spurred the rise of non­tra­di­tional, “pop­ulist” po­lit­i­cal move­ments. And how are ex­ist­ing par­ties re­spond­ing? By pro­mot­ing poli­cies that guar­an­tee even more eco­nomic stag­na­tion: more taxes on cor­po­ra­tions and the “rich,” more spend­ing for so­cial pro­grams and pen­sions and more reg­u­la­tions on busi­nesses. As the Wall Street Jour­nal head­lined, “Europe’s Po­lit­i­cal Par­ties Prom­ise a Re­turn to 1970s—To fend off pop­ulists, strug­gling par­ties em­brace big­ger govern­ment.”

Yes, our con­ti­nen­tal friends did do some things right, thanks to the suc­cesses of Ron­ald Rea­gan and Mar­garet Thatcher, pri­mar­ily sell­ing off govern­ment-owned busi­nesses and some­what re­duc­ing their sky-high tax rates—es­pe­cially in re­cent years—on cor­po­ra­tions. How­ever, com­pared with U.S. stan­dards, the EU’s tax and reg­u­la­tory bur­dens are still crush­ing.

Every one of these coun­tries has fear­some value-added taxes, which are re­ally su­per sales taxes. In Den­mark the VAT is 25%, in be­lea­guered Greece 24%, in the U.K. 20% and in Ger­many 19%. The U.S. has no VAT; most states have levies, but none above 10%.

Far worse are Eu­ro­pean pay­roll taxes. The Amer­i­can ver­sion, dubbed FICA, is 15.3% on the first $132,900 of in­come and 2.9% on in­come above that. In con­trast, the level in EU coun­tries is, as­ton­ish­ingly, two to three times ours. In France, a slug­gish eco­nomic per­former since the 1970s, the pay­roll tax is 65%—45% paid by the em­ployer, 20% by the em­ployee.

Reg­u­la­tions, es­pe­cially those re­gard­ing la­bor, have long been more oner­ous and se­vere than those in the U.S. Ob­servers are only halfjok­ing when they say it’s eas­ier to di­vorce a spouse than it is to shed a worker in most of Europe. These bur­dens have been eased only slightly since the 1970s.

Struc­tural changes in pen­sions for govern­ment bu­reau­crats or in la­bor laws are fiercely re­sisted, as any French pres­i­dent can tes­tify. Ger­many was able to make some re­forms in the early 2000s that led to bet­ter growth. But they cost the chan­cel­lor his job and have been chipped away at since then.

Coun­tries that have upped their eco­nomic game a bit in more re­cent times, such as Swe­den, Den­mark and Hun­gary, didn’t go in an anti-Rea­gan/Thatcher di­rec­tion.

What we see un­fold­ing in the EU is a form of in­san­ity: Keep ap­ply­ing what doesn’t work, and when that fails, do it some more. It re­minds one of medicine a few cen­turies ago, when doc­tors would bleed pa­tients: The worse they got, the more they were bled.

This is all the more rea­son to clear away the trade/tar­iff un­cer­tain­ties that are hold­ing back cor­po­rate in­vest­ment. Busi­ness­peo­ple need to know what the rules are be­fore they will com­mit. Pro­vide those, and the U.S. econ­omy will re­ally roar—and that big suc­cess may pro­vide a teach­able mo­ment to our floun­der­ing friends over­seas.

with­out im­mense, time-con­sum­ing pro­ce­dures? Why have judges lost con­trol of their court­rooms to ex­tor­tion­ist lit­i­gants? Why have so many col­leges and univer­si­ties sur­ren­dered to an­tifree-speech ex­trem­ists? When things are not done right in the govern­ment, why is it im­pos­si­ble to in­sist on re­spon­si­bil­ity? And the po­lit­i­cal con­se­quences are se­ri­ous, as peo­ple in­creas­ingly feel they’re los­ing con­trol over their lives.

Howard says the cri­sis be­gan in the late 1960s, when the no­tion grew in law schools that so­ci­ety would run bet­ter and more fairly if we were gov­erned by pre­cise rules that would min­i­mize in­di­vid­ual dis­cre­tion, thereby pre­vent­ing the ex­er­cise of ar­bi­trary power. The sit­u­a­tion was made worse by the rise of govern­ment unions that have made the re­moval of non­per­form­ing per­son­nel a vir­tual im­pos­si­bil­ity.

Howard’s short yet blood-pres­sur­erais­ing book makes the case that the cur­rent po­lit­i­cal par­ties—rhetoric to the con­trary—are too vested in the sta­tus quo to make the rad­i­cal changes that would al­low Amer­ica to again be the prac­ti­cal cul­ture we once were.

True, the Trump ad­min­is­tra­tion is mak­ing a sus­tained ef­fort to roll back pro­vi­sions that have been crush­ing the econ­omy, an ef­fort that has been cru­cial to the eco­nomic resur­gence since 2017. But these gains still pale be­side the 150 mil­lion words (this is only a rough es­ti­mate, as no one re­ally knows) of rules and reg­u­la­tions out of Wash­ing­ton that have stul­ti­fied Amer­i­can life for a half cen­tury. How durable will the Trump gains be? Judg­ing from at­tempts by sev­eral pre­ced­ing ad­min­is­tra­tions to curb ex­cesses, the reg­u­la­tory on­slaught will re­sume as soon as there is a po­lit­i­cal change. Like kudzu, it seems un­stop­pable.

Congress, for ex­am­ple, struts about is­su­ing state­ments, hold­ing hear­ings and rais­ing funds but de­fers real re­spon­si­bil­ity to oth­ers, par­tic­u­larly ad­min­is­tra­tive agen­cies. Call it press-re­lease pol­i­tics.

In­de­pen­dent judg­ment by of­fi­cials achiev­ing real re­sults and be­ing in­di­vid­u­ally ac­count­able for per­for­mance have been smoth­ered by a cul­ture of op­er­at­ing by the rules. “Ter­ri­ble of­fi­cials, teach­ers and con­trac­tors keep their jobs be­cause they fill out the forms cor­rectly . . . . Wash­ing­ton is run by in­er­tia. No one wants re­spon­si­bil­ity for ac­tual re­sults.”

The con­se­quences of this tsunami of rules go be­yond govern­ment. Busi­nesses spend more and more brain­power and re­sources try­ing to com­ply with id­i­otic stric­tures. Howard cites the case of an up­state New York ap­ple or­chard that is sub­ject to 5,000 rules from 17 dif­fer­ent pro­grams and agen­cies. One par­tic­u­larly non­sen­si­cal edict: When ap­ples are re­moved from a tree, the cart in which they are put must be cov­ered by a tarp lest birds poop on them. Re­mem­ber, these ap­ples have been on tarp­less trees for five months be­fore be­ing har­vested and will be rig­or­ously washed when they get to the shed!

Un­der­min­ing democ­racy with a bl­iz­zard of nit­pick­ing, suf­fo­cat­ing rules was a dan­ger fore­seen by Alexis de Toc­queville, au­thor of the still highly per­ti­nent book Democ­racy in Amer­ica. He warned back in the 1830s of “a net­work of small com­pli­cated rules, minute and uni­form, through which the most orig­i­nal minds and the most en­er­getic char­ac­ters can­not pen­e­trate . . . . The na­ture of despotic power in demo­cratic ages is not to be fierce or cruel, but minute and med­dling.”

What’s to be done? Here are some reme­dies.

• Reg­u­la­tion by prin­ci­ples, not mas­sive rule books. Among the ex­am­ples cited by Howard is the case of Aus­tralian nurs­ing homes. Thick rule­books were re­placed with 31 gen­eral prin­ci­ples. Re­sult: “Within a short pe­riod, nurs­ing homes were markedly bet­ter be­cause . . . the op­er­a­tors, regulators, and fam­ily rep­re­sen­ta­tives started fo­cus­ing on qual­ity in­stead of com­pli­ance.”

• Re­move most govern­ment agen­cies from Wash­ing­ton and re­lo­cate them around the coun­try. This way of­fi­cials would be liv­ing and work­ing among real peo­ple in­stead of be­ing en­sconced in the Belt­way bub­ble.

Per­for­mance would im­prove as well. The ef­fec­tive Cen­ters for Dis­ease Con­trol & Preven­tion is lo­cated in At­lanta.

The Food & Drug Ad­min­is­tra­tion, for ex­am­ple, could move to a science-ori­ented lo­cale, such as Bos­ton. The De­part­ment of Hous­ing & Ur­ban De­vel­op­ment could pull up stakes for the re­viv­ing city of Detroit.

De­cen­tral­iz­ing the fed­eral govern­ment would also make life in­fin­itely harder for the hordes of lob­by­ists to ply their trade: Agen­cies would no longer be a cab ride away.

• File the law­suit of the cen­tury. Thanks to unions and ill-con­ceived leg­is­la­tion, it’s vir­tu­ally im­pos­si­ble to fire govern­ment work­ers. This dra­mat­i­cally hurts per­for­mance and has made it im­pos­si­ble to hold bu­reau­crats to any kind of ac­count­abil­ity. This is de­mor­al­iz­ing to peo­ple who are ac­tu­ally ded­i­cated to their work. And it makes for bu­reau­cratic bloat.

But such civil ser­vice in­vul­ner­a­bil­ity is un­con­sti­tu­tional. Ar­ti­cle II of the Con­sti­tu­tion gives the pres­i­dent the power to re­move ex­ec­u­tive branch em­ploy­ees. James Madi­son, con­sid­ered to be the in­tel­lec­tual fa­ther of the Con­sti­tu­tion, said: “If any power what­so­ever is in its na­ture ex­ec­u­tive, it is the power of ap­point­ing, over­see­ing and con­trol­ling those who ex­e­cute the laws.” The whole civil ser­vice re­form move­ment of the late 19th cen­tury was about stop­ping the hir­ing of po­lit­i­cal hacks and in­stead re­ly­ing on ex­ams to test for com­pe­tency. It was not about the pres­i­dent’s power to dis­miss govern­ment em­ploy­ees. A suc­cess­ful suit here would dra­mat­i­cally change the cul­ture of mod­ern gov­er­nance.

Howard also dis­cusses other ac­tions. Kudzu may be un­stop­pable, but the poi­sonous plants of wit­less, as­phyx­i­at­ing, ever pro­lif­er­at­ing rules and un­re­spon­sive, un­ac­count­able govern­ment bod­ies can be halted and rooted out—but as this book makes clear, only if we, the peo­ple, take ac­tion.

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