Recent Libertarian Failures in EU “Relationships” *

When speaking of failures, I mean first of all my own deficiency and lack of success in disseminating ideas I trust and/or in preventing bad ideas of being realized. Unfortunately, very often I realize that these are not only my failures. Before putting my thoughts black on white my intention was to have a relatively concise list of those failures. But then I realized that I dot have sufficient time and that two instances would be more than enough to describe a regularity.

Thus, I decided to focus on two Libertarian campaigns. One of those – on tax harmonization within the Union – is over, and it seems the Libertarian cause is victorious. The second is the debate on the EU draft Constitutional treaty. It is not over yet, and the Libertarian “camp” looks doomed to loose, irrespectively the speculations on the referendum in France.

Libertarians win the 2004 Tax Debate?

After new member states formally joined the EU in mid-2004 and the old Europe realized that capital and jobs are likely to move east, a criticism spurred against lower tax rates in New Europe. We, libertarian think tanks were outraged and invested efforts to counteract Sweden and Germany government leaders' views on how the Union taxes should be harmonized. We signed a petition, sent it to all Internet addresses we know, wrote articles in the local press, and talked the issue up on public gatherings. Friends from across the ocean raised their voices. Even OECD and Mr. Prodi (then head of the EU Commission) joined the choir and told PM Person and Chancellor Schroeder to calm their harmonization ardor. Not before too long, the chancellor seems to have changed his mood to the opposite and instead of seeking funny retribution (e.g. cutting Brussels subsidies) against freer newcomers announced his own plan to cautiously reduce corporate taxes.

Were the libertarians knocking on an open door? Why the victory happened to be so easy? Was the EU Commission more freedom loving than the governments of key member states or there was (still is) another constellation that enforces lower tax policy?

Libertarians fail preventing the adoption of EU Constitution?

If in the tax harmonization debate the Libertarian efforts were both proactive and reactive, but the reactive element was more visible: libertarian thinkers had the theoretical argument before hand and it was relatively easy, with a little research and preparation, to formulate the messages, react to and ridicule Schroeder/Person nonsense.

In the case of constitutional deliberations the argument is a little more complicated and threats and opportunities are not so immediately visible.

But the pattern was similar; the Libertarians had an alternative constitutional vision for year many years before the Draft Constitutional Treaty was made public and advertised. If I am not mistaken, the fist Libertarian draft alternative to what we have now as EU constitutional text was ready as early as in 1993. And this is the famous proposal for “A Basic Constitutional Treaty of the European Union”, which was put together by the European Constitutional Group. (1)

It was updated and made public even before the government draft in mid-2003. Some of the best Libertarian minds (2) were involved in the updating and virtually the entire community raised its voice against the product of the so-called European Convention for the Future of Europe. The message was reasonable, straightforward and, presumably, leaving no doubt that the politicians' draft should, at best, be send back to the drawing board.

As of today, there are about 1.8-1.9 million publications on new EU constitution. Obviously, it is impossible to have a sense from all these publications but with a little bit of reading one can review the professional comments. I have not seen any wholly glorifying professional publication about the text parliaments are already ratifying and voters are going to approve/disapprove in different referenda. (3)

Members of the abovementioned European Constitutional Group were also published. But their opinion is almost completely lost in the ocean of glorifying press. As far as it is possible to judge from a distance, reasonable opposition is visible in the British newspapers. EU sponsored Euronews TV has a completely non-critical attitude.

In the new member states, again to the extend it is possible to judge, their politicians, leading observers, press and TV compete in the propaganda for the Constitutional Treaty. Lithuanian Parliament was the first to ratify it; other New Europe countries, including the most Libertarian Estonia, would follow soon. Libertarian in Vilnius, at some point decided not to comment at all on the EU Constitution. (4)

Bulgarian Prime Minister – everybody knows the country is yet no member of the EU – rushed to sign the Draft Treaty along with heads of the member states. There was only one publication in the Bulgarian press.

Is the Public Opinion Anti-Libertarian?

For personal reasons, I would like to avoid firm answer to these entire questions. I myself witnessed too many failed Libertarian initiatives and political parties.

Different revenue, different opinion

The “harmonization” debate was on the direct taxes on corporate and individual income. It is more the national governments financed through them, not the EU international government – it lives from indirect taxes. “Sanctions” against lower direct taxed could jeopardize collection of all taxes.

This help winning the tax debate, and this explains the emphasis of the Draft Constitution on indirect taxes.

Stupid ideas are (sometimes) difficult to enforce

On the other hand, no sanction on “lower tax-rate” states could have been feasible and effective (if the objective was to stop enterprises emigrate east). Even if New Europe were to increase taxes the capital could move further east or elsewhere, to non-member countries (5).

On the other hand, the governments are doomed to collect fewer taxes due to different forces at work: a) electronic money and electronic execution of transactions, b) individualization of processes, influences and technologies, c) diminished role of taxation and state, d) increased mobility of factors of productions, and e) flexibility of skills and strategies.

All these factors helped the anti-harmonization attitude towards taxes, but they also motivate a search for substitutes, by Brussels government, national politicians and political parties and by rent-seeking groups in general. The worrying feature of EU law enforcement is that it works. It is almost certain that any silly constitutional provision might be implemented by the courts and administration. T he European Court of Justice has already found that in certain contexts economic goals are secondary to social goals, as it has happened in relation to the CASE C-50/99 Deutsche Telekom v. Schroder.

Libertarian optimism?

There is an optimistic worldview that could stem from the constellation of above factors. It would claim that, currently, the world is at a turning point in the history, perhaps; that it is not well recognized but is fairly visible. There is a belief that resources for big government projects seem to evaporate. Also, it might be argued that states loose ownership rights over citizens, and their lives due to the decline of state run healthcare and pension systems across the globe.

In fact, however, there are counter-currents. Evil-meaning individuals and groups could easier than destroy life. Physical and national security threats, real or imaginative, reinforce “justification” of big government. And supra-national, like that of the European Union, governments substitute national representative establishments, transferring responsibility to the Unknown, to entities that individuals prefer to be ignorant about.

The public rational ignorance is a key reason for many reasonable, not necessarily only Libertarian, initiatives to fail.

Difficult coalitions

If we trust Olson's “Logic of Collective Action”, special interest groups are better at organizing than larger groups of individuals, be they tax payers or consumers. The smaller collective groups gain easier from government intervention since costs are borne by a larger group.

One explanation of 2004 libertarian victory over taxes is that there was massive constellation of individual group interest that for decays sought privileges and subsidies financed ultimately from a rather different source, by quasi-tax and regulations.

A quid pro quo : the growth of regulations is the actual power

The combined compliance costs of EU member state registered firm (i.e. costs of operating in accord with the laws and regulations), in 2002 were Euro 540 billion (4.5-5% of GDP). (6)

Detailed rules and regulations tend to spread more often and faster than more abstract, simple and experience-based ones that allow for wider variety of choices. The destructive impact of this tendency was anticipated by Hayek.

Growth of EU regulations (rounded to thousands)

Source: House of Lord

There is a tendency of a steady widening of regulatory objectives (referring to risks for the public, consumers, “social dumping”) and for creating an over-regulation.

Regulatory choices are made as a result of complex bargaining between interest groups and compromises between government strata that fail to meet any common sense costs benefit standards.

Factors influencing Libertarian Failures

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* A speech before the Libertarian International European Conference, Sofia, 2- 3 April 2005.

(1)See: European Policy Forum, London, December, 1993

(2) Members of the Group were: Prof. Peter Bernholz (Basle), Prof. Charles B. Blankart (Berlin), Prof. Francisco Cabrillo (Madrid), Dr. Detmar Doering (Potsdam), Prof. Jacques Garello (Aix-en-Provence), Dr. Habil Lueder Gerken (Berlin), Prof. Kristian Kirchner (Berlin), Dr. Elena Leontieva (Vilnius), Prof. Angelo Petroni (Torino), Prof. Joachim Rueckert (Frankfurt am Main), Prof. Paskal Salin (Paris), Prof. Friedrich Schneider (Linz), Dr. Jiri Schwarz (Prague), Peter Stein (Stockholm), Prof. Roland Vaubel (Manheim), Frank Vibert (Lomdon), and Jan Winiecki (Frankfurt am Oder).

(3) I think that a referendum on such a vast and vague text is in itself an attempt to manipulate public opinion. By the way, the process of drafting and popular voting resembles that of Kygyzstan: very few could read and understand the text, opposition is out-published and 2001 amendments gained 90% popular approval. The difference is that Kygyz Constitution (the preamble actually voted) says literary: “We, the people of Kyrgyzstan… recognize the priority of the rights of man over government institutions”. There is no single sentence in the EU constitution that so clearly defends the individual. This and similar statements in the Kyrgyz Constitution are just statements and no more than statements. There is a fair chance that the statements of EU constitution will be implemented.

(4) The irony of the history is that the actual ratification took place at the very same day when European free market think tanks discussed in Vilnius Hayek's views on spontaneous order.

(5) In fact members of EU are states, not people who form countries; people are rationally ignorant about the EU – and this ignorance is revealed again and again by public opinion polls and elections for the European Parliament..

(6) See: SIGMA (OECD), Improving policy instruments through impact assessment, Sigma paper No. 31, 17 May 2001, p. 40