Photo by: Ben Weinberger
In the words of a classic individualistic thinker, Adam Smith believed that each individual is continually searching for the highest rate of return on their projected capital in a market economy. Adam Smith speaks of one of the underlining theories in capitalism and how human beings aspire to continually better themselves. John M. Keynes, an influential economist and advocate of the capitalist market economy, said that investment helps the capital stock grow, which leads to the increase in the economy’s productive capacity. He concluded that when people who acquire more income usually save more money than people acquiring less income. The European Union is facing a future of necessary economic development in order to remain a vital economic power throughout the world. The EU needs to continuously think back to the underlying themes of classic economic philosophers such as Smith and Keynes to maintain a positive capitalist market economy that will stay near the top of the world. There are various problems within supporting EU countries and challenges that Europe faces to utilize its economic strengths. As the EU continues to expand with more countries joining, such problems as unemployment, immigration, and competition are imperative issues that concern the citizens and officials of the EU. The geopolitiks of each country within the EU often determines its economic strengths and weaknesses; thus, creating problems for unifying the European Union economy. The future of the EU could turn in many directions and its sustainable economic system must act as water in our ever changing world. When we use the analogy of “water” we mean that water is able to shape to any form, any problem, or any challenge. When you poor water into a bottle it immediately conforms to the shape of that specific bottle. Thus, the EU economy must act as water to shape itself to the ever changing competition of other global economies, and be able to shape itself to overcome its problems and future challenges. There are many major problems within the EU economy and one of the vital problems is concerning unemployment. “Persistently high unemployment threatens the economic and social cohesion of the EU. European countries now have targets for raising employment and the participation ratio in the European labor market – but the most significant problems appear to be structural in nature and may take several years to resolve”1. Europe’s labor market shows signs of market failure and this threatens living standards for millions of people for future years. At the 2000 EU Summit at Lisbon in Portugal, the EU agreed to take concerted action to reduce unemployment. However progress so far has been limited. The recent slowdown in the Euro Zone economy has seen unemployment rising above 8.5% in the summer of 2003.2 One of the major concerns is that the European Union unemployment rates will continuously become higher in the future because the real GDP growth is not growing as fast as economists are hoping. The economy is more stagnant than growing and this creates problems for unemployment rates to increase. The statistics released by the World Bank proved that the EU has the highest rate of unemployment at 9 percent compared to the two other prominent economies of the world, the United States and Japan. With an annual growth of only 2 percent each year, a population trend stagnating with the problem of immigration, and the combined 9 percent unemployment rate, economists of the EU are concerned about the unemployment rate rising in the future. Some say that the problem of unemployment in the EU is due to insufficient demand to provide full employment. A problem is that within the last thirty years, EU economies have been running with too heavy a deflationary bias. Therefore, because of this deflationary bias the economies have grown slower. Possibly a significant re-flation across the whole EU would create lower interest rates and to increase work in the technology sector to compete with Asia and the United States.
A major concern for EU citizens is the rising rate of immigration and its direct effect on the EU economy. Immigration is seen as a problem in the eyes of many European Union citizens. Some critics of immigration believe that the immigrants are contributing to rising prices of welfare, questioning the national identity of a nation, leading to division among people. Nevertheless, some of these concepts are completely erroneous on all counts. Like the United States issues with immigration the EU faces similar problems; however, the solutions are more complex because initiatives at a European level require consensus from all Member States, which is hard to accomplish. There is a broad consensus to continue to develop diversity within the EU and immigration to fill jobs that some normal citizens of a country would never do, is necessary to keep economies of the EU to progress. Conversely, the European nations are finding it difficult to handle ethnic diversity and the EU states on welfare are unable to fully maintain fairness and equality. This is placing both the nation states and the welfare systems under great pressure. The 25 countries of the EU have different immigration programs in terms of foreign work programs, ways to obtain citizenship, unemployment rates, inheritance of citizenship, and other official immigration programs which allow individuals to live in one or several of the EU countries. Some immigration programs can end with a citizenship while other programs are time limited and related to work, tourism and study.
The Member States have a long tradition of immigration, which, on the whole, has contributed positively to economic growth and labor market adaptability. In 2000, third-country nationals living in Europe represented around 4% of the total population of the EU. Over the last ten years, there has been a broadening and diversification in the typology of migrants, of the patterns of flows and of the mix of the sending and receiving countries. Many studies carried out by the International Labor Organization (ILO) or the International Monetary Fund (IMF), among others, have shown that immigration has had an undeniable positive effect on employment and growth for two reasons: it increases the supply of labor and tends to have a positive influence on the demand for products. In terms of employment opportunities, there is little evidence that immigration has led to higher unemployment. Moreover, in general, migrants are not taking the jobs of national workers. The advantage of citizenship in an EU country is that the laws and regulations of the EU are applicable to any country that you decide to live and work.Another problem for the EU is remaining one of the top economies in the world and being able to compete with the Asia and the United States. The future of the world is in the hands of technology, thus, the EU must invest in sciences and the framework of the information age to remain competitive. The best way for the EU to remain competitive is to be innovative, come up with new and better ideas for alternative resources, technological advances, and maintain a strong transportation industry. As the EU hopes to become more unified in the years to come, to be competitive, countries need to work more in unison to exchange collaborative ideas to foster innovation and competency. Countries in South America, such as Brazil, and the Far East such as India and China no longer are behind in innovation and technology. Last year, in a global competition to award the best information technology specialists, India won the competition with the United States placing in second. This tells us the innovation and brain power is starting to even out around the world. Delocalization is now an important challenge for the European Union economy. With offshore production increasing and the accessibility to make more profit off of paying third world workers less than more developed nations, the EU is facing a challenge to promote a larger work force within each home country. Some economists believe that there is a direct correlation between the offshore strategies of major companies to gain profit from cheap labor and the rising rates of unemployment. There needs to be strategies implemented to help influence companies to make profit without moving employees or labor to other countries. It can be a positive impact for underdeveloped countries; however, the zero-sum game doesn’t play a role in the EU’s desires to offshore production in other countries. Both the underdeveloped countries and countries within the EU can both be gaining from the grown of business within the home country, and the growth of employment and infrastructure in the underdeveloped countries.Globalization refers to international interdependence. Globalization can be seen as a challenge for the European Union economy in the future years to come. Most global issues stem from the forces that shape globalization. Globalization can be interpreted as processes whereby many social and economic relations become relatively focused away from territorial geography, so that human lives are increasingly played out in the world as a single place. There are quite a few advantages to globalization such as, it weakens the power of authoritarian governments, it creates jobs, capital, choices, wealth, and offers exposures to other cultures. On the other hand, some individuals believe that there are disadvantages to globalization. Some view the negative effects of globalization are that unwanted external influences are difficult to control. Furthermore, globalization can be exploitative, while only benefiting a few, and creating cultural imperialism. As we have talked about in class, there are new actors in the world influencing other cultures, such as India, China, and Brazil. World prices can no longer be seen as being set by developed economies for such natural resources and the future of information technology is changing. The population growth of the EU is stagnant, while the US and China continue to grow creating larger industrial demands. Past underdeveloped countries, now have amazing growth rates and the future of globalization through economic matters provides that prices will matter to more nations, excluding only the top three economies. Instead of the top three countries, globalization is a challenge to the EU to provide more work in the fields of technology and continue to produce transportation. As a consequence, globalization can lead to even more companies of the EU to utilize underdeveloped economies for the labor and low wages, which may create an influx. Overall, the economy of the EU lies in the hands of innovation and creative thought processes. We have talked about various problems and challenges that face the economy of the European Union now, and in many years to follow. In order to decrease unemployment, help with the problem of immigration, competition, and the challenges of globalization, and delocalization, the EU must develop further advances within the information age to stay at the top of economic world. The EU must be flexible and cooperative to meet the demands of the changing times and to help build relationships with competing nations.
1. “Unemployment in the European Union.” Tutor2U. 2006. Tutor2U Limited. 20 Nov. 2006
