Small is beautiful

Time running out on the Superstate

In the old world the European Union is seeking safety from the economic storms by looking for scale.  The Eurozone is seeking monetary, fiscal and banking structures that provide a federal solution to the currency and banking crises across the Eurozone.  Member countries seem alarmingly eager to hand over the management of their economies to the bureaucrats in Brussels, who will be enthralled to German policy making.   Interestingly as the EU seeks safety from the outside world through a more federal approach a glance across the pond tells us that there are alternatives to this vision of federalism.

View across the pond

In the US today  confidence in the national institutions to fix the economy is at an all-time low, the best measure for this is that the country’s largest corporations are sitting on nearly $2 trillion in cash, afraid to invest because of distrust in politicians of both sided to come up with coherent plans and effective execution.

However in the real world away from the Capitol things are different.  Investment in research and development as a share of output recently matched the previous record, 2.9% of GDP, set at the height of the space race.  The US still leads the world in university research output and it is still good at developing those ideas.   New technology is securing the energy future and the “shale gale” is now billowing the economy’s sails.

The shale revolution has largely happened despite Mr Obama and his tribe of green regulators. It has been driven from the bottom up—by entrepreneurs and by the states who have been competing to lure in investors.  This fits a pattern. Hard-up states are adopting sweeping reforms as they vie to attract investments. Louisiana and Nebraska want to abolish corporate and personal income taxes. Kansas is on a mission to reduce red tape; Ohio has privatised its economic-development agency; Virginia has just reformed its petrol-tax system.  This energy and can-do attitude on local government is in stark contrast to the terrible record of ‘achievement’ in Washington.

As Europe tries to emulate Washington’s federal controls and regulation it is both weird and frightening that  Americans are rushing, successfully, in the other direction.  Years of economic miss management from Washington have encouraged this dynamic localism and Europe maybe about to learn a painful lesson.

Read a great book - Small is Beautiful by Edwin Schumacher 

http://www.amazon.co.uk/Small-Beautiful-Economics-People-Mattered/dp/0099225611