Many observers found the Nobel Committee’s decision last week to award the European Union the 2012 Nobel Peace Prize surprising. Several European countries are in the midst of a deep recession, and as a quote from this New York Times article suggests, many in southern Europe see the austerity measures imposed by the leaders of Northern European countries, notably Germany, as “economic war”.
Regardless of the current financial frailties, though, the Committee is correct in pointing out that the existence of the European Union has coincided with peace in Europe. The European Coal and Steel Community, founded in 1951 between France, Germany, Italy, Belgium, Luxembourg and the Netherlands, aimed to integrate the major economies of western Europe to such an extent that warfare would simply be too costly for all parties concerned. (Incidentally, it is this integration that also make recessions like the current one more pervasive.) And it certainly has realised its mission: Europe has enjoyed peace for 67 years (except for civil wars in the Balkans) and it is, at least for my generation, impossible to imagine war between major European nations today.
But two issues should be raised: Firstly, it is not clear whether the European Union has caused peace. To attribute peace in Europe to the work of the European Union implies a causal link. With the Marshall Plan contributing to rapid post-War growth (and growth elsewhere in the world providing lucrative export markets), was Europe not anyway on the road to such prosperity that warfare would be too costly? Perhaps deeper integration (i.e. European Union) and a peaceful region is both simply a consequence of greater levels of prosperity. (Of course, greater prosperity is also the result of integration and a peaceful region – bi-directional causality.)
The Nobel Committee warns that “there is a real danger that Europe will start disintegrating. Therefore, we should focus again on the fundamental aims of the organization”. But it is no coincidence that Europe is suffering from its worst recession since the 1930s, the period preceding World War II. Prosperity → integration → peace. Perhaps the Nobel Committee should have awarded the Peace Prize to twentieth-century European entrepreneurs, rather than the European Union.
Secondly, and much more contentiously, while we know economic integration boosts prosperity, to what extend is political integration good for growth? Here’s Douglas North (2005: 42-43):
Conformity can be costly in a world of uncertainty. In the long run it produces stagnation and decay as humans confront ever new challenges in a non-ergodic world that requires innovative institutional creation because no one can know the right path to survival. Therefore, institutional diversity that allows for a range of choices is a superior survival trait, as Hayek reminded us. Religious diversity such as Luther and Calvin produced has long been celebrated as providing just such a stimulus, as Weber famously argued. But a more fundamental source of creativity has been the evolution of institutional diversity in general, of which Protestantism was one illustration and symptomatic of the overall diversity in thinking associated with the Renaissance. Political fragmentation in western Europe played just such a role in creating diverse and competing institutional settings for diverse beliefs and hence economic institutions which were critical in the relative rise of Europe as well as critical to the growth of impersonal exchange which underlies modern economic growth.
China, the most prosperous world region of the Middle Ages, was politically unified and as a result had no competition between polities that would create diverse institutions. Political fragmentation in Europe did exactly that, and those institutions that resulted in prosperity were those that was adopted by the countries left behind. And as David Landes notes, “that is the way of achievement, correction, improvement, and success”.
Peace in Europe (and everywhere else) is built on prosperity and, more fundamentally, on the institutions that incentivise entrepreneurship and trade (of which regional integration is one of many pro-growth institutions). But peace should not equate conformity. Political fragmentation which results in institutional diversity – allowing countries to experiment with different policy options in a fast-changing world – is perhaps key to Europe’s long-run survival.