They Didn’t Want to Call it the “5 Year Plan”
We have already commented on previous occasions on the EU’s “investment plan” (see: “EU Planning to Spend Money it Doesn’t Have” for details), which is bound to result in the production of countless white elephants across Europe (such as Poland’s “ghost airports”). These investments are apt to “boost GDP” in a number of countries, but will very likely leave nothing but proverbial bridges to nowhere behind. It is going to be yet another giant waste of scarce resources.
Apparently the EU has now given its placet to a “Four Year Plan” with the aim of investinf €315 billion, with various EU governments vying for the best place at the trough. It seems they didn’t want to make it a “Five Year Plan” – that would have been too reminiscent of the Soviet GOSPLAN agency, so a four year plan was adopted. However, what they may not have been aware of is that Stalin actually gave orders that the Soviet Union’s five year plans had to be fulfilled in four years:
An old Soviet GOSPLAN poster: “Let’s fulfill the five year plan in four years!”
As Reuters reports on this latest giant boondoggle thought up by the administrative apparatus of the European socialist superstate project:
“EU finance ministers agreed the details of a 315 billion euro ($338 billion) investment plan on Tuesday to help revive the European economy without piling up more debt, and now aim to get the first projects going by the end of the year.´EU lawmakers must now approve the fund.
“The plan is the answer we need to confront the main handicap of the European economy: the lack of investment,” said Pierre Moscovici, the EU economics commissioner, adding that investment had fallen by 15 to 20 percent since 2008.
The four-year plan fleshes out a call by European Commission President Jean-Claude Juncker to back riskier projects from airports to railways and to confront the fall in investment since the financial crisis. Setting up the European Fund for Strategic Investments (EFSI) has been sensitive, with EU governments fearful of not having their projects chosen from a list of almost 2,000 projects worth 1.3 trillion euros that countries put forward. Some EU lawmakers are wary of favoritism toward western European countries over poorer, eastern European members.
Another problem has been that the Commission wanted countries to stump up money for the fund, insisting that it would not be included in debt and deficit calculations. That idea flopped because countries had no guarantee that their projects would be chosen.
Instead, countries such as France, Spain and Germany said they would help fund projects in their country via national development banks, and Italy on Tuesday promised to contribute 8 billion euros to the Italian projects chosen, via its national promotional bank.
There are also doubts whether the plan will attract enough private money, however. Juncker’s goal is to have 315 billion euros of largely private new investment by providing 21 billion euros in capital and first-loss guarantees from the EU budget and the European Investment Bank.
Under the plan agreed by ministers, the plan will run for four years but will be reviewed after three years to see if it is working. A steering board made up by the European Commission and the European Investment Bank will oversee the fund, while an eight-member investment committee will choose the projects.
The list submitted in December, which officials stress is not definitive, includes plans for housing regeneration in the Netherlands, a new port in Ireland and a 4.5 billion euro fast rail connection between Estonia, Latvia, Lithuania and Poland. Other ideas involve refueling stations for hydrogen fuel cell vehicles in Germany, expanding broadband networks in Spain and making public buildings in France more energy-efficient.
Saints preserve us.
“Growth” by Government Decree
The plan is quite typical of the eurocracy’s view that “economic growth” is something that is brought into existence by government decree. As noted above, it is certainly likely that a measure “economic activity” can be generated in this manner, which will inter alia be reflected in one of the most useless economic statistics ever invented by statist/Keynesian planners, namely GDP.
It will however fail to create even an iota of real wealth. The notion that all this money can be raised “without increasing government debt” is of course utterly ludicrous as well. In fact, Poland’s ghost airports show clearly that one of the essential features of such projects is that the government indemnities against “first losses” mean that the private sector beneficiaries of the projects get to suck on the government teat forever and ever once it becomes obvious that the investments fail to produce even a single cent in profits (on the contrary: they are apt to produce nothing but losses).
The shortlist of proposals mentioned by Reuters above essentially screams boondoggle. Ports, fast railway connections, “housing regeneration” and “improving the energy efficiency of public buildings” all sound like major avenues for cronyism, waste and malinvestment. It should be clear that if private sector investors were of the opinion that these projects might actually be profitable, they wouldn’t require any state/taxpayer funding to realize them. They would invest in them of their own accord.
The lack of investment in Europe is definitely not the fault of too little central planning and government intervention, it is the result of too much of same. If EU officials really wanted to see a revival in investment in Europe, they would plead for lowering taxes and removing the countless burdensome regulations and bureaucratic red tape hampering the economy. Allegedly the JC Juncker-led EU Commission will actually look into the latter problem. The credibility of this effort is unfortunately close to zero, especially after we have heard the EU’s “digital commissar” hold forth with his personal plans to further regiment the economy and add to its tax and regulatory burdens, so as to make it more 21st century-proof.
Evidently, it was not considered by the nomenclatura in Brussels that resources and capital are actually scarce. There is no hidden reserve fund that can be tapped by governments at will. Sensible investment is not merely a question of “money”. All the resources that will be employed for the various statist boondoggles that are eventually going to be included in the “Plan” won’t be available anymore for alternative employments.
How can government bureaucrats possibly know how these resources should be best employed? The answer is that they cannot possibly know that, because their decisions are not based on the profit motive. “Activity” is all that counts in their eyes. It is impossible for them to gauge the opportunity cost of their plans. They will never know what the most urgent wants of consumers are – many of which will have to go unsatisfied as a result of these wasteful etatiste projects gobbling up scarce capital.
Essentially they are faced with a version of the socialist calculation problem. While they are not totally bereft of knowledge regarding the market prices of the means of production, these prices really mean very little to them. An entrepreneur taking personal risk can be relied upon to engage in sensible economic calculation before embarking on investment projects – no bureaucrats will ever do anything remotely comparable, regardless of whether they have good intentions.
It is important to keep in mind in this context that any changes in aggregate economic statistics that may result from the implementation of this plan will mean nothing from the point of view of the prosperity and living standards of people in society at large. Any increase in spending will probably be trumpeted as a great “success”. In reality, these efforts are likely to be only slightly superior to Keynesian ditch-digging (in the best case – not even that is certain, as ditch-digging would be a great deal cheaper), while increasing Europe’s public debtbergs even further.
Soviet math of yore: the five year plan is really the “2 plus 2” plan.
The notion that the State should play a leading role in economic life unfortunately has a long tradition in Europe. It is a remnant of the ideas of the predecessors of Marx, the “utopian socialists”, i.e., the followers of the Comte Claude Henri de Saint-Simon and his secretary August Comte, the man who coined the term “sociology” (it is probably no coincidence that government spending in France amounts to nearly 58% of reported economic output nowadays. He country was at the forefront of implementing an economic system modeled on the ideas of said gentlemen).
Le Comte Claude Henri de Saint-Simon
As an aside, the association of various intellectuals inimical to economics with the term “sociology” was one of the reasons why Mises felt the need to draw terminological consequences and led him to reluctantly adopt the term “praxeology” to describe the sciences of human action (of which economics is a branch). He rightly felt that the anti-capitalistic mentality of Europe’s (at the time especially Germany’s) “sociologists” necessitated a differentiation [note: Guido Hülsmann reports this in his foreword to the collection of Mises essays on methodology, Epistemological Problems of Economics].
This anti-capitalistic mentality has brought about today’s essentially bankrupt “middle of the road” welfare state system, in which governments and big business are in a tight embrace that utterly deadens economic progress. The EU’s latest “Four Year Plan” is yet another in a long list of examples of this prototypical continental tradition (incidentally, Europe’s moribund banking system is one of the end results of these economic policies as well). What is really required is a return to free market principles, not yet another “government plan”.
European Economic and Financial Affairs Commissar Pierre Moscovici, who oversees the EU’s grandiose new investment plan. He was formerly finance minister in Mr. Hollande’s socialist government of France and is therefore definitely no stranger to central economic planning. Many European political has-beens eventually land in extremely well-paid sinecures in Brussels.