Policy Paper: Europe - A Force for Free Competition

This policy paper, written by economist Stefan Karlsson, describes the benefits derived from globalization – and shows why we need more of it. Globalization will go on. The question is whether Europe will benefit from it in the future or if only other parts of the world will.

During the economic and financial crisis, many have criticized the market economy. The crisis has been blamed on economic freedom, on increased globalization and in particular on de-regulations during the last decades. This is a view which is not supported by many facts. The banking crisis started in the highest regulated areas, whereas the least regulated financial institutions, such as Hedge Funds, did not cause the problem. On the contrary, monetary policies, low interest rates, flush liquidity and government interventions in the US housing market are core causes. One of the deeper roots of this crisis is the huge global imbalances following the growth of world GDP in the last 20 years, which the financial institutions could not cope with.

There may be de-regulations that go wrong, and this will happen. Economic freedom, however, is not to blame for the crisis. In fact, the globalized economy has brought tremendous benefits for the world and has led to the strongest poverty reduction in our known history. Now, we need to see how economic freedom is essential for the world and in particular for Europe to emerge from the crisis.