European Lessons for American Economic Renewal

Most Democratic policy elites in Washington DC today believe that American economic renewal can only happen through bold tax and spending policies by the federal government. They compare the current state of U.S. infrastructure, from roads and bridges to railways and airports, and public services—including health care, vocational training, and public transport— to many European countries and point out the glaring disparities in public goods provision. At the same time, most of their Republican counterparts do not think the United States has any lessons to learn from Old Europe. They point to a continent mired in crises and systematically lower economic growth rates—generally buying into the idea, relentlessly promoted by their Conservative pro-Brexit cousins in the United Kingdom, that the European Union (EU) is a sclerotic Brussels-based institution with a tendency to over-regulate, stifling innovation, and under-deliver, illustrated by a lack of European technological giants like Apple or Google.

Both sides tend to overlook a core feature of the European Union that has implications for American debates: today’s EU is in many respects a more “complete” single market than the United States. As we argue in a recent essay in the May/June 2022 issue of Foreign Affairs, America is not fully exploiting its single market power compared to Europe, which has been doing so for decades. While it is indisputable that the United States enjoys much higher flows of interstate commerce and mobility than the EU—trade among U.S. states is estimated to be three to four times higher than in the EU, while mobility rates are anywhere between ten to twenty times as high—this is the case despite relatively high American interstate trade barriers rather than their absence. Americans move across interstate regulatory barriers thanks to social lubricants of language and culture that Europe lacks, but mobile Americans still pay substantial costs that the EU has reduced between its member states. The United States would stand to benefit significantly from efforts to imitate the EU’s more open single-market principles.

This is especially true for trade in services across state lines, where the EU has long established the principle of “mutual recognition,” meaning that services legally sold in one member state can be sold elsewhere without meeting further requirements. Furthermore, the Court of Justice of the European Union (CJEU), based in Luxembourg, is much more vigorous in striking down regulations it judges to have avoidable effects that “hinder” cross-border market access. Compare that to the U.S. Supreme Court, which has interpreted the U.S. Constitution’s Commerce Clause as simply barring egregiously protectionist “purposeful discrimination.” The legal contrasts between the EU and the United States have been greatly magnified by their legislatures. The U.S. Congress has rarely used its Commerce Clause powers to promote America’s interstate openness, while Europe’s supranational institutions—both the EU Commission and the European Parliament— have actively pursued a “single market” legislative agenda.

A few concrete examples underline our basic point for what it means in practice to have default rules (with exceptions) for openness in Europe, while American service providers face legally separate jurisdictions (with some exceptional areas of openness). While a hairdresser in Europe can close shop in Lisbon to start afresh in Amsterdam by simply registering and requesting a Dutch license online, a licensed hairdresser who moves from Ohio to Pennsylvania must submit to 2,100 hours of training and pass written and practical exams to obtain a new license. An experienced plumber from Georgia must pass a seven-hour exam to practice in bordering Florida. European plumbers can fix leaking pipes in neighboring countries with much less administrative hassle. A few professions in the United States have arrived at interstate compacts for licensing across many states, like nurses, but this remains far from the “universal recognition” that the EU has worked to establish as its norm.

Our description of the American market as fragmented, with substantial regulatory costs as a result, suggests a real opportunity for U.S. economic renewal. Indeed, an American “single market project” promises more plausible gains than further such steps in Europe. While Europe’s relatively distinct peoples move and trade modestly across intra-EU borders even once regulatory barriers are aggressively removed, Americans are socially disposed to flow across state barriers that they take for granted as the “cost of doing business.” It should be possible to identify opportunities for better single-market governance without threatening the norms and merits of the American system. The low-hanging fruit is definitely in services, where balkanized state regulation is especially notable. Congress could easily offer federal incentives for the establishment of state-run “digital single gateways,” for example, like those that EU members are building to facilitate interstate mobility and business operations.

But is such an agenda imaginable in today’s polarized America? Signs of interest in such reforms are visible in a realm where both parties are comfortable with federal authority: the military. Former First Lady Michelle Obama first drew attention to the problems that nurses, teachers, and other licensed professionals encounter as spouses of service members who move regularly from base to base. The Pentagon then considered the issue in a series of studies, seeding one of the only policy items that the Trump administration picked up from its predecessor. Bipartisan legislation requiring states to recognize military spouses’ licenses is now moving through Congress. Expanding this idea beyond Washington’s special authority for the military could operate mainly through federal incentives, not requirements. President Joe Biden’s Democratic administration could portray this agenda in practical terms of economic opportunity and fair competition, much as the European Commission has done. Republicans could support it as a return to the basics of free-enterprise ideals on which they believe the country was founded.