The EU's Economies Are Falling Behind The US, But It Should Still Take The Regulatory Lead

The EU’s growth projections look bad. The bloc isn’t expanding at the rate it would like, leading to lower-than-hoped productivity and impending social problems due to the aging workforce. Worse still, the U.S. recently revised its third-quarter growth up to a massive 5.2%, adding insult to injury. This shows that technology or human capital isn’t the problem: it’s the EU’s approach to doing business. 

With that said, there are strong arguments in favor of the bloc continuing to take the regulatory lead. Despite the harmful effects on growth and lower standards of living for many people living in the affected countries, these policies have some strange and weird upsides you wouldn’t expect. 

The EU’s Influence In Global Standard Setting

The U.S. and China might produce lots of products, but they rarely take the lead on the global standard setting. America still uses ounces and pints, pounds and stone, and yards and miles, all of which the EU ruled out decades ago. 

This influence on global standard setting is important because it sets the rules of business for the world. Companies in America and China can’t always look to their own trade blocs to provide the rules for the international system, so the EU’s regulatory powerhouse is doing it for them. This raises the standing of the bloc in the eyes of businesses around the world and, ironically, builds trust, despite the higher costs. 

Regulatory Expertise

Related to this, much of the world now looks to the EU for its regulatory expertise. It’s able to put policies in place without having a significantly negative effect on the region’s economies (red tape does still hurt in many places.)

One example is the new carbon border tax. This policy would have been virtually impossible to implement anywhere else in the world, but the EU found a way to make it happen. 

The tax says that companies importing products into the EU must pay a levy proportionate to the goods’ carbon intensive. The more carbon dioxide emitted during their production, the higher the taxes. 

The idea is to hypothecate this additional income and put it into developing more renewable sources of energy for European economies. 

Whether the scheme succeeds or not remains to be seen. However, the mere fact that it is in operation is remarkable and sets the EU apart from the rest of the world. 

Protecting EU Values

Another virtue of the EU as a regulatory powerhouse is its ability to protect EU values. The European Union is not the same as the U.S., despite the latter seemingly having unlocked the secrets of high growth in a high-income society. Europeans want to make it clear that they have a different way of life and that they are willing to stick with it, even if that means there is a substantial economic penalty. Things like personal data privacy, consumer rights, workers’ rights, and environmental protection matter more to the EU than they do in other wealthy or up-and-coming parts of the globe.