In Each Crisis Lies a Chance: The British referendum is a tremendous crisis for the European Union. It won’t be enough to merely pass the blame onto uninformed poor or alienated voters. We need to go deeper and understand that the European Union offers very little visible benefits to them. Rather than reacting defensively, for instance, making compromises in immigration or even devolving competences to the nation state, we should discuss how to reform and improve the current set of EU institutions and policies.
While doing so, it is very important to highlight two things: First, such an attempt is not necessarily about deepening the EU further making it a gigantic super-state. It is mainly about fixing some parts of the institutional set-up which seems to be ineffective or broke. Second, the populist equation of integration and loss of autonomy is a fallacy. To the contrary, in an open economy integration in areas such as tax revenues or social policy may be the only way to bring some form of autonomy back.
What could be an example of improving the existing institutions? I know very little about monetary policy, but a bit about EU-wide structural and regional policies. While I don’t agree that these policies have had relatively little impact or are highly inefficient, I do think they often target adhocratic or outright second-order issues. Moreover, there are serious issues channeling the resources to where they really belong. Finally, they often substitute policies at the national level, which creates all sorts of problems. I would suggest that part of this money, or perhaps some more of this money should be used for a specific problem only a union can tackle: compensating externalities.
Externalities, as every econ 101 textbook would show are situations in which either someone produces something for which he or she doesn’t reap benefits (positive externalities) or someone produces something for which he or she doesn’t have to pay costs (negative externalities). It is well-known that international brain drain can be such a source of externalities: some countries (especially those with public education systems which are for free or subsidized) educate their young, but then the young decide to move to other countries to get better earnings and better job prospects.
The best example of such brain drain comes from the field of medical staff. Each year thousands of doctors and nurses move from one country to another within Europe. This creates tremendous liabilities. Medical training is expensive; countries which lose a lot of doctors need to train even more. There are many solutions for this problem. One is to stop public funding is one and replacing it with private education. Yet, for various good reasons, this is not necessarily a politically desirable solution. Another solution would be to introduce fees even in public education. Again, many people find this unacceptable.
But there is a solution, and we only have to look to a field which is very much deregulated, fairly darwinistic, and totally capitalist: professional football. In many professional football leagues in Europe, clubs which train a lot of young players, but regularly lose them to richer clubs, get compensation. This might not be the full costs incurred in training these players, but some smaller clubs have successfully established training academies and have become specialized in this. (a link here?)
What works for the Bundesliga should also work in for Europe. Why not give, say, Hungary, monetary compensation for training doctors who move to Sweden or Germany? The system would be relatively easy to implement. For professions in which training is either very costly, or for society very important (or both as in the case of medical professions), ‘training’ countries should receive compensation for each emigrant they lose. Structural funds could be used for this purpose. They could be earmarked to the very purpose: being channeled back directly to the education system or even the universities or the schools from which the migrating professionals graduated.
I think such a scheme would have many benefits. First of all, rather than damaging the educational institutions in the sending countries, compensation would allow them to turn training doctors into a ‘business’. It would allow strengthening higher education systems in countries which are on average poorer than the other member states. It would also give some more regional balance to the EU and reduce the increasing regional disparities among member states.
Second, it would breathe new life into the rationale for giving structural funds. Dealing with externalities is precisely the kind of task which goes beyond individual member states. Even in football, FIFA has regulation in place for such compensation fees. In general, brain is a huge problem, and the European Union has a lot of money that otherwise goes into projects many of which do not have a clear economic rationale or purpose. And last, but not least, it would not damage national autonomy. To the contrary it would strengthen both receiving and sending countries, as well as the relations between them. It’s time to think big again.