J.P.Floru: European Structural Funds - the socialist utopia we all pay for

In a departure from its persistent obsequiousness to the European Project, the Financial Times has published several investigative articles describing the opaque world of EU Structural Funds.   The series of two page spreads are highly informative and sprinkled with eye-wateringly novel examples of EU waste and fraud.  It is courageous for the FT to publish this first rate journalism: the Wrath of the Mandarins in Brussels is not to be underestimated.  A bad seat at an EU briefing is infinitely worse than sitting behind a pillar in the theatre or next to the loo in a plane.

What the articles do not tackle is the root cause of the scandal: the Smoke and Mirror Economics of John Maynard Keynes.  Structural Funds exist because politicians always prefer doling out other people’s money, rather than to allow people to do it themselves.  The ills described in the FT articles are inherent to state subsidies and cannot be remedied short of abolishing them.

As all readers know, structural funds are the EU subsidies to develop underdeveloped EU regions.  You pay for infrastructure, education and development in Calabria, in the hope that one day it will be economically prosperous.  In view of the amounts poured into the poorer regions, Sillicon Valleys and Hong Kongs should be dotted around Europe by now.  Yet there are none.  Why?  Because state sponsored economic development never works as well as the free market.

State investments always have a worse return than private sector investments, yet politicians persist in them no matter what.  Many will attack waste and fraud in EU subsidies, pleading for greater transparency and better controls.  It’s no use.  Bad returns and state investments are horse and carriage.  Yet politicians persist in Keynesian stimulation of the economy rather than trusting the free market.  Why?

Political success depends upon visible success (Getting Things Done).  This is why the EU is so keen on job creation hyperbole to legitimise structural funds: the last funding phase which ended in 2006 allegedly created 1.4 million jobs. The state’s visible hand doling out money is politically infinitely more useful than the invisible hands of millions of individuals investing money as they think best. 

Have you heard of The Fable of Mr. Smith and Mr. Keynes?  A not-so-long time ago, in a not-so-far away country, the state decided to “invest in job-creation”.  Once the factory was built, Mr. Keynes, a politician, said that 100 new jobs had been created thanks to his intervention.  Once the factory produced goods Mr. Keynes issued a second press release, stating that economic growth had increased thanks to him.   In a modest house within eyesight of the factory lived Mr. Smith, a taxpayer.  His life’s story remained untold until now.  He was unable to build his own factory because his money was taxed away.  In fact Mr. Smith could have built two factories, employing 200 people, for the same money - as the state’s inefficiency and some dodgy characters squandered about half of the tax receipts before the state-subsidised factory was completed.  And the Happy Ending?  Mr. Keynes was re-elected with an increased majority.

The FT’s juicy list of waste and fraud is like a feeding frenzy in the zoo for Euro-realists like you and me.  But let’s not forget that a state subsidy is not bad because the EU is in charge.  State subsidies are bad because they are state subsidies.