European Smart Power

Inspiration struck while reading Joseph S. Nye's article in The World Ahead, the latest Foreign Affairs special issue. There he argues that America is not in absolute but in relative decline, and will thus have to learn to share the spotlight with other nations -- namely China --, due to their rising power there are still some worrying signs, namely the mounting government debt, primary and secondary education failure and political gridlock. However, he rightly assesses that America is still seen as 'the place to be' almost everywhere in the world: it is an enormous magnet of talent thanks to its famed multiculturality, openness and social mobility. In the words of the U.S. State Department policy czar Ann-Marie Slaughter, the U.S. can be defined as a country whose 'culture of openness and innovation will keep it central in a world where networks supplement or even replace hierarchical power.'

However, both these assessments fail to consider another huge, looming problem America has, one that has been very recently pointed out by several New York Times columnists: growing inequality and the alarming concentration of wealth in the higher echelon of U.S. society. Nicholas Kristof's latest piece -- which is, in fact, an even more pointing follow-up to his already polemic column "Our Banana Republic" -- is a very vivid account of this reality, as was Frank Rich's fittingly entitled piece, published only a few days before.

What Nye fails to acklowledge in his profuse analysis of America's ailings is that two of the most dramatic, indebtness and the inadequate schooling system, could be solved with one simple and not so unpopular move: raising income (and not corporate) taxes for the rich -- and no, letting the Bush tax cuts expire won't be enough mid-term. I won't elaborate too much on economic arguments for that: you can just read Mr. Rich's and Mr. Krystof's excellent articles to find them clearly explained in plain terms. There is also an excellent article by Roger Altman and Richard Haas in the same Foreign Affairs special issue, in which they also argue that tax increases are sorely needed. Using their own words, 'the only sound approach (to stabilize the U.S. debt-to-GDP ratio) is a mix of spending reductions and taxt increases. [...] Raising taxes is unavoidable'.

Despite the mounting evidence, the political gridlock Mr. Nye points out means America will probably stay put on that, thus deepening the potentially damaging effects to its current prowess. In any case, we can not blame political bickering as the cause for that, nor just globalization trends: as Jacob S. Hacker and Paul Pierson say in their new book, “Winner-Take-All Politics”, rising inequality is instead the result of policies championed by Washington Democrats and Republicans alike, in their a bidding war for donors in election after election.

How can we relate all that to Europe? The answer is easy: we have a window of opportunity, and we should not miss it. Europe has a chance. I call it European smart power, i.e. not based on the American version -- in Hillary Rodham Clinton's words, 'elevating diplomacy and development alongside defense' -- but on a genuinely European approach: attracting top talent lead in knowledge and innovation by promoting and reinforcing European strengths.

Let's apply a basic SWOT (strenghths, weaknesses, opportunities and threats) analysis to Europe. First, it is clear that we possess several strengths compared to other world regions: a rich cultural and historical heritage, a varied and savory gastronomy, unparalleled safety, top-notch healthcare and, of course, an undeniable economic prowess that fuels the most advanced welfare states in the world. What about the weaknesses? Using Joseph Nye's concepts, they are more 'relative' than 'absolute': Europe lacks the perceived openness, upward mobility and opportunities the U.S. has. In other words, and knowing the actual situation, it's rather a legacy and image problem than a real weakness. What are the threats we face? Well, we have a long list of items here, but we could easily sum it up: the same the U.S. faces plus an ageing population. And, finally, let's make our opportunity clear: to truly become the leading world region on the basis of an attractive lifestyle and a knowledge-rich society.

So, how can Europe achieve it? The answer should be applying a two-folded strategy. First, pumping money where it is most needed and where it gives the most returns in the context of our knowledge-based, postmodern society: education, science, technology and research. But that is not enough: Europe needs to market itself better, builing upon its unique attractiveness, to attract the people who could benefit from the aforementioned increase in resources. 

According to 2007 data, the U.S. clearly leads in terms of investment in reseach and development, at $370 billion (2.7% of its GDP), while the European Union came third as a block with just $263 billion, right behind from high-growing Asia. Europe should and could revert that. Top European researchers -- not just Indian and Chinese, as Mr. Nye argues -- also work in America. The reasons are crystal clear: funding and pay are far higher over there. How can European institutions expect to retain (or attract) top talent with salaries that barely allow to pay the rent and buy enough food for the month? Of course, thinking of buying a house, or even an appartment, is just a dream for most Europe-based researchers.

The U.S. also leads the world of higher education, dominating all the rankings of top universities, both in overall terms and specific knowledge sectors. Students from all over the world are willing to pay the high tuition costs in exchange for what is undeniably very high-level education. Can Europe compete with that, or is it just a dream if you drift too far away from Oxford and Cambridge?

The answer is yes, Europe can compete, but it must show resolve to do it. And resolve means putting money where it is needed, even in times of austerity. This seemingly contradictory goal can be attained applying a dual strategy, both at the EU and the national level.

First, the EU should take the chance offered by the upcoming negotiation of the 2014-2020 financial and budgetary framework to decidedly revamp its outdated and uncompetitive Common Agricultural Policy (CAP), which absorbs more than 40% of the Union's yearly budget. The European Commission has already proposed focusing more on environmental preservation and less on direct subsidies for farmers, specially cutting those for wealthy landowners or tying them to employment generation. However, we can clearly read between the lines that overall CAP expenditure is set to decline in the next multi-annual financial perspectives. 

To the dismay of Spain and France, nations such as Germany and the United Kingdom, which have recently pushed for budgetary restraint at the EU level, will be delighted. This should be leveraged by the European Commission and the European Parliament to extract some concessions out of these two reluctant spenders: in other words, they could be willing to accept significant EU budget increases in exchange for the reassignment of expenditures, with less money going to agricultural subsidies and more going into Europe-wide R+D projects. Of course, even if all the money currently spent on the CAP went to R+D, this would mean just 0.4% of European GDP. However, such a symbolic -- and also material -- move to shift a substantial amount of European funds to research and development would send a strong signal to everyone involved, of course including national governments.

However, as previously argued, the total EU budget is, at 1% of total European GDP, too small to make the difference Europe needs. Most of it (70% and rising) currently comes from member states' direct, GDP-based contributions, so it is quite understandable why most are increasingly reluctant to see the budget grow. Therefore, some kind of European tax makes sense. As much as six different ideas have been suggested by both the European Commission and the European Parliament, but only two of them would probably be substantial and feasible enough: a tax on bank transactions and an European income tax.


While the first option would be the most emotionally-fitting candidate, specially after the mounting bank bailouts European governments are suffering (last in line: the big Irish banks), it would probably make less sense than a modest -- let's say something around 2-3%, obviously modulated according to different income level ratios, so that the rich pay more than the rest -- European-wide income tax. It is quite obvious that the partition of funding between member states would not be fundamentally altered (i.e. the rich would still pay more), but the perception of fairness would be greatly increased. Moreover, with European governments set to cut expenses but not ready to accept the domestic political costs of tax raises, an EU-levied tax could be seen as a good scapegoat: member states could cut their expenses in some areas where competences are shared with the EU and blame Europe for the tax hike, while the EU could then properly fund, among others, academic and R+D projects.

In any case, the supranational level is not enough. How can national governments up the R+D ante in the midst of widespread budgetary cuts and within the context of a debt-threatened Eurozone? Military expenditure could be a big part of the answer. Europe, within the NATO umbrella and already 20 years removed from the Cold War era, is now a very safe place. Of course, a wider and deeper partnership with Russia, both in economic and military terms, would help a great deal in deepening the sense of security. The case for greater economic integration was already made just a month ago in this blog; as far as military integration is concerned, Russia is already set to become a preferential partner of the Atlantic Alliance after the NATO Heads of State and Government meeting in Lisbon. If both developments take place in the near future, Europe's hard power needs will diminish even further.

In this era of understandable fiscal austerity, European countries should further cut their military budgets. This should not necessarily curtail their citizens' security: both NATO and the EU's Common Security and Defence Policy (CSDP) are ideal supranational structures for states to profit from the economies of scale of paneuropean cooperation. A good way to start would be, for instance, using the recent Franco-British treaty as a framework for a wider structured cooperation strategy at the EU level. 

That would free up some money at the national level, that could and should be directed to funding research, development and education programs. Spending cuts in R+D such as the ones included in the Spanish government's 2011 budget are shortsighted and unacceptable. EU-level pressure should be applied: fiscal restraint is obviously needed, but the solution is not mortgaging the future like that. Military budget cuts might not be enough, either, but should be part of the fix to both deficits, fiscal and in research funding.

Despite all that, creating high-tech centers, in which publicly funded research programs would seamlessly mix with private initiatives and innovative start-ups, or properly funding universities across the continent, including generous grants for top students, both European and foreign, will not be enough if we do not market Europe as an attractive destination for bright minds. Europe must make everyone clear how appealing the European way of life can be.

The EU has the hardware it needs for showing off. First, most EU countries enjoy top-notch infrastructure, only comparable to that in Japan and, increasingly, coastal China. In contrast, U.S. infrastructure is in urgent need of a major overhaul, which is not likely to happen anytime soon. On top of that, European towns and cities also offer the most extensive and efficient public transportation networks in the world, also only paralleled in Japan and increasingly in China. U.S. public transportation systems are, with very few exceptions -- the long-suffering MTA is the most prominent example --, in no way comparable to Europe's. These two elements combine to offer an energy-efficient, confortable commuting and travelling environment, complete with high-speed rail and (extremely) low-cost flights connecting all major Western and Central European cities.

Speaking of European cities, their relatively compact dimensions also allow for livelier environments, full with parks, shops, cafés and bars, restaurants, theaters, pubs or other recreational offers, fully accessible without having to use a car to move around.  European-style downtowns, which combine remarkable architecture with lively streetlife, are almost unheard of in the sprawling American cities.

And there is still much more in the European way, starting with the unparalleled cultural and historical heritage the Old Continent boasts, undeniable an appealing asset for many people. Religious freedom is guaranteed everywhere in the European Union. Traditions and folklore, old and new, art and music: it all combines in a way that can full everyone's senses. And who could resist a meal at a tidy French restaurant, or a dinner out with some tapas and good wine? Or, why not, a Viennese coffee with an authentic apple strudel. Oh, and in case you feel indisposed, Europe also boasts top-notch healthcare, free for everyone, just like schools and many other services.

Traditions, culture, infrastructure, gastronomy, welfare state: an undeniably appealing mix of virtues that the European Union and its member states should work much harder to properly market in their fight to recruit the brightest minds. Obviously enough, these perceived advantages alone will not do the trick; however, when coupled with increasing remuneration and research funding, they can be a very powerful tool to help shape this vision of a knowledge- and lifestyle-based European smart power.

Of course, after extensively dealing with both the U.S. and the European Union, one question still looms: What about China? Are we leaving it out of this discussion?  Well, the fact is, the Chinese are not yet good enough at smart power, although they surely have their own vision, conveniently branded harmonious world. China has a rich  and fascinating historical, philosophical and cultural heritage, and it is striving to expand its values all over the world; for instance via the ever-growing number of Conficius Institutes it sponsors and runs in many corners of the globe, in what is a laudable and rather effective soft power tool. However, the real attraction China holds for most foreigners, be it Europeans, Africans, Americans or Asians, is doing business; and even here they encounter barriers, both technical and cultural, that hinder most relations. Moreover, appealing as it might be, Mandarin is also a barrier for most foreigners. In fact, one of the reasons that explains America's cultural dominance is also the relative simplicity of the English language, which combines the limited-character Latin alphabet with relatively simple grammatical rules and syntactic structures.

As far as hard power is concerned, although China's military is growing at an alarmingly rapid pace, its strength and capabilities won't be comparable to NATO's in the future to come. Moreover, China's setting in Asia is not the best to solidify its hard power structure, as it is surrounded by wary nations -- such as India or Pakistan, or even the 'rebellious province' of Taiwan -- whose militaries can and will probably also be a threat to Chinese supremacy.

Therefore, Europe must take this chance without much hesitation. The Europe 2020 strategy, one of its stated targets being that 3% of the EU's GDP (public and private combined) be invested in R&D/innovation, can help a great deal. However, this new European strategy will probably not be enough under its current recommendation and cooperation-based setup: greater commitment at both the EU and the member states level is needed if we want to avoid the unfulfillment of the Lisbon strategy for the period 2000-210.

European nations should leave fuzzy goals behind and start seriously working together for the future. The window of opportunity is open right in front of our eyes: let's make the most of it before it is truly too late. We have the economic prowess to do it: we just have to learn how to harness it. The U.S. Constitution gives all Americans the right to pursue happiness. Meanwhile, the European welfare states and modern economies offer the tools to do it.

Europe should focus on a different kind of smart power: one that relies on a 'softer' form of hard power and a revamped, more appealing form of Western soft power. If we take the right steps and make use of our undeniable strengths, opportunities will become reality.