- The Washington Times - Tuesday, July 10, 2001

At the heart of the controversial decision by the European Union to reject the proposed merger between General Electric and Honeywell is a basic cultural conflict with the United States. Namely, the Europeans still believe strongly in the wisdom of government economic planning and state ownership, while the United States has turned decisively toward market-based decision-making and private property rights as the most efficient means of allocating resources and promoting economic growth.

The GE-Honeywell decision itself is merely another symptom of this ongoing cultural clash. Because EU antitrust czar Mario Monti does not trust markets, he felt compelled to step in and disallow the corporate merger on the dubious ground that the new business combination would impair "competition." What he really meant, however, is that the proposed merger might hinder European corporations that are afraid to compete with American firms in a level playing field marketplace. In a word, the Mario Monti decision sounds like more Euro-whining over U.S. world business leadership.

Europe nearly always opts to protect its existing corporations, including those companies that are wholly or partly government-owned. Protecting inefficient businesses, however, usually comes at the expense of consumers and investors. Just one day after the GE-Honeywell decision, for example, the European Parliament voted against important measures that would have liberalized the Continental economy and its financial markets by forcing corporate management to consult shareholders about takeover bids.

As a result, foreign investment capital will not be permitted to flow freely into Europe. But it is precisely foreign capital inflows that raise the level of global competition and force domestic firms to downsize, restructure and become more productive. Remember the Japanese auto invasion of the United States in the 1980s? All those Toyota and Nissan car plants forced the U.S. Big Three carmakers to modernize. Europe, however, would prefer to protect its corporate ancien regime. Europe is afraid to change.

The European Union has also ruled against legislation that would deregulate its energy sector, force governments out of newly privatized companies, integrate financial service sectors and protect private patents. In each case, governments teamed up with large public and industrial unions to defeat pro-shareholder and pro-consumer reform measures.

In Europe, it is consumers who are being denied the benefit of product choices and more efficient service delivery that comes from market-driven competition. The consumer is king in the United States, where President Bush's newly appointed antitrust chief Charles James criticized the EU decision on GE-Honeywell by saying the merger "would have been pro-competitive and beneficial to consumers… . Our conclusion was based on findings, confirmed by customers worldwide, that the combined firm could offer better products and services at more attractive prices than either firm could offer individually. That, in our view, is the essence of competition."

For many years, European economic growth has lagged well behind U.S. performance. A recent Euro think tank calculated that productivity in the EU nations hasn't increased in six years, contrasting that with the high-tech productivity miracle taking hold in the United States. Why? Because Europe is afraid of free-market competition and the transforming power of new ideas.

Perhaps nothing symbolizes European hostility to innovation, entrepreneurship and private investment returns than the steady decline of its new currency. Offered initially at nearly $1.20, the Euro has fallen to 85 cents, a roughly 30 percent depreciation in only 18 months. All too reminiscent of failed Latin currencies, the Euro is fast becoming the Euro-peso.

Because of its deep-rooted commitment to national (and now EU supra-national) planning, Europe has failed to rid itself of top-heavy government regulations, be it overtaxation, excess social spending, rigid labor laws, hyperactive environmentalism, nationalized health care or sheltering its most powerful businesses from global competition.

Repeated attacks by EU commissioners on Irish and German tax cuts are one example. Opposition to Wal-Mart price cuts in Germany is another. Trade restrictions remain in effect. It's still far too expensive to hire or fire European workers.

U.S. Treasury Secretary Paul O'Neill recently blasted the EU rejection of the GE-Honeywell deal, calling its regulatory process "flawed" and unfairly "reaching into the affairs of other countries." Democratic U.S. Sens. Jay Rockefeller of West Virginia and Fritz Hollings of South Carolina harshly criticized the action.

But a retaliatory trade war that would almost surely cause yet another sinking spell for world stock markets and the recession-prone global economy is not the answer. Instead, President Bush should play a leadership role by using his bully pulpit to defend U.S. businesses and extol the economic benefits of market-oriented competition, tax cuts, deregulation and free trade.

At the upcoming G-8 economic conference, Mr. Bush can sell the virtues of the American system of free-market entrepreneurial capitalism, a system with a proven record of prosperity. If, however, Europe remains intransigent, then it will continue to suffer from capital flight and a brain drain, as its best and brightest will seek the safe harbor of economic freedom in the United States.

Lawrence Kudlow is a nationally syndicated columnist.

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