Rep. Bill Thomas (R-Calif)

At a time of increased transatlantic division, a February 13 AEI conference organized by the New Atlantic Initiative reminded people from both continents that each can learn from the other in terms of tax, trade, and general economic policy.

Describing the economic differences between America and Europe, AEI resident fellow James K. Glassman said, "Europe sees its economies as a postmodern paradise: stable, peaceful, plentiful, and requiring only skillful maintenance by technocrats." On the other hand, "the U.S. sees its economy as a Hobbesian domain of conflict, with government's main role to allow the fiercest kinds of competition to prevail."

Glassman argued that the European economy has structural weaknesses including excessive welfare and unemployment benefits, restrictions on the retail economy, and inflexible labor laws. These policies have led to high unemployment and low GDP growth.

Hans H. J. Labohm of the Dutch Institute of International Relations Clingandael gave a European perspective on these differences. In contrast to the United States, he said, continental Europe relies more on public responsibility, has medium to low labor mobility, and is focused on economic equality.

Labohm cited a recent European Union plan for increasing competitiveness without sacrificing some of the societal ideals. "A couple of years ago, we . . . formulated . . . an extremely ambitious goal: Within ten years time, the EU must become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth and more and better jobs and greater social cohesion. So actually we wanted to have capitalism with a human face." Labohm acknowledged that the European welfare state presented a problem in the execution of this plan. He said that many Europeans are critical of the American model because it is perceived to lack the humanity of the European system.

The European model does offer some lessons for the American system. Corporate tax rates are much lower in some European countries, presenting to that extent a more business-friendly environment. Chris R. Edwards of the Cato Institute noted the impact on Ireland's economy as that country's corporate tax rate dropped since the mid-1980s from 50 to 12.5 percent. "Ireland has received huge inflows of investment over the last decade or so. They have moved from being the poor man in Europe, or one of the poor men in Europe, to having the sixth highest GDP per capita in the OECD now."

Seeing the benefits of lowering corporate taxes to compete with European countries, Edwards said, "Tax competition is about creating a good tax climate for multinational headquarters, for R&D facilities, for financial services firms, and other types of investment." By retaining high rates on mobile tax bases, the United States risks seeing them move elsewhere. "By and large so far," Edwards noted, "tax competition has created more efficient tax systems by lowering taxes on capital, and providing some needed restraint for government."

In general, European economies are ailing and the U.S. economy, even in its current weakened state, seems relatively robust. Some conference participants offered prescriptions for European economic reform. Robert D. Atkinson of the Progressive Policy Institute argued that Europe needed more competitive markets and a more entrepreneurial, dynamic economy. "At the core of Europe's problems is that they haven't really embraced that new model of economic growth whereas the U.S. has. We've pioneered it." The Europeans, Atkinson argued, need to relentlessly spur competition, make it easier to lay off workers, and liberalize Internet laws and financial markets.

Representative Bill Thomas (R-Calif.), chairman of the Ways and Means Committee, saw a bright future for the U.S. economy and freer trade worldwide. He said: "I do hope we go somewhere and that the rest of the world goes with us in making this a safer world, a freer world, a world in which trade is the primary means of international competition and that our taxes reward effort; our structure rewards risk; and that the human condition improves."