Doubts about Free Flow of People and Goods in Europe: Where is the “U” in EU?
The international traveler is often keen on comparing the prices of basic commodities among different countries, often as a simple-minded effort to gauge the local standard of living. Here in Europe, the same basic travel necessities a traveler comes across in different countries, such as a bottle of Coke, a kebab, or a bar of soap with the same brand name, happens to fluctuate enormously from country to country, even if the towns of different countries use the same currency and are literally less than an hour away from each other.
Massive differences in prices between short physical distances are especially the case across the old “Iron Curtain” between the long capitalist Western Europe and the “transition economies” of the East. In one instance, the traveler snacks on a hot dog and a bottle of diet Coke first in Slovenia, costing him a total of 1.40 Euros. Then the traveler heads to Austria, a couple of hours to the north, and orders the same thing. He is shocked to find that the same bottle of diet Coke by itself cost 2 Euros, and the hot dog is another 1.50 Euros.
Finally he heads east for an hour to Slovakia, again buying the same two items. The price of the Coke goes down to 1 Euro and the hot dog is now 60 cents. Within four hours of train travel, there are three vastly different costs for the same goods. All uses the same ingredients to produce the same goods, and the location where the goods are sold is the completely the same (near major train stations of capital cities in little street side kiosks). All three countries use the Euro and are part of EU, so free travel exists among their citizens.
From strictly an economic point of view, this phenomenon makes no sense. In the common market that is EU, all raw materials to make the Cokes and hot dogs should come from the same sources (or at least, sources of great physical proximity) so that the production and transportation cost of the goods should be about the same in all three countries. And even if the goods initially have vastly different prices, people from the countries with more expensive prices can easily, quickly, and cheaply move across the border to take advantage of the cheaper prices.
Eventually, from the economic standpoint, cross-border production and consumption should bring the prices of hot dogs and Cokes to around the same among the three countries. Such is what one sees within any country, and EU, despite cultural and language barriers, have the same characteristics of a large country (free movement of people and goods) to make the same economic logic work. So, then, why are the prices so different for the same goods in three close neighbors.
From a crude analysis, it seems like the assumption of free movement of people and goods is the invalid part of the whole logical process. Young locals in Slovenia and even Greece marvel at the high wages, in the order of three to four times of the average salary in their home countries, given to them when they were working in Germany or Sweden. If there is indeed a free movement of labor, the wage differences would not be so big, at least in neighboring states, because the citizens of countries with lower cost of living can drive down wages across the border b working there and living in their still cheap home countries.
The fact that both costs of living and wages remain so far part among the Western and Eastern members of the EU, years after they are supposed to be integrated in a common resource and labor market, shows that the barriers to movement still exist so much as to make the concept of common market largely unworkable in reality. And the reason may not be economic at all. The nationalistic identities of the different peoples crammed into this little corner of the world still plays the dominant role.
The Slovakian worker, willing to work at a third of the wage of a local in Austria, still may not be hired (legally) by the Austrians because problems of communicating may make him or her not even a third as efficient and productive as a local. The Austrian consumer may not be keen on buying Slovakian vegetables at his or her local supermarket even if it is a third the price, simply due to some sort of long-held distrust or worse, a sense of superiority. Until these cultural factors are obliterated, ture economic integration of the EU may only be an empty dream...
Massive differences in prices between short physical distances are especially the case across the old “Iron Curtain” between the long capitalist Western Europe and the “transition economies” of the East. In one instance, the traveler snacks on a hot dog and a bottle of diet Coke first in Slovenia, costing him a total of 1.40 Euros. Then the traveler heads to Austria, a couple of hours to the north, and orders the same thing. He is shocked to find that the same bottle of diet Coke by itself cost 2 Euros, and the hot dog is another 1.50 Euros.
Finally he heads east for an hour to Slovakia, again buying the same two items. The price of the Coke goes down to 1 Euro and the hot dog is now 60 cents. Within four hours of train travel, there are three vastly different costs for the same goods. All uses the same ingredients to produce the same goods, and the location where the goods are sold is the completely the same (near major train stations of capital cities in little street side kiosks). All three countries use the Euro and are part of EU, so free travel exists among their citizens.
From strictly an economic point of view, this phenomenon makes no sense. In the common market that is EU, all raw materials to make the Cokes and hot dogs should come from the same sources (or at least, sources of great physical proximity) so that the production and transportation cost of the goods should be about the same in all three countries. And even if the goods initially have vastly different prices, people from the countries with more expensive prices can easily, quickly, and cheaply move across the border to take advantage of the cheaper prices.
Eventually, from the economic standpoint, cross-border production and consumption should bring the prices of hot dogs and Cokes to around the same among the three countries. Such is what one sees within any country, and EU, despite cultural and language barriers, have the same characteristics of a large country (free movement of people and goods) to make the same economic logic work. So, then, why are the prices so different for the same goods in three close neighbors.
From a crude analysis, it seems like the assumption of free movement of people and goods is the invalid part of the whole logical process. Young locals in Slovenia and even Greece marvel at the high wages, in the order of three to four times of the average salary in their home countries, given to them when they were working in Germany or Sweden. If there is indeed a free movement of labor, the wage differences would not be so big, at least in neighboring states, because the citizens of countries with lower cost of living can drive down wages across the border b working there and living in their still cheap home countries.
The fact that both costs of living and wages remain so far part among the Western and Eastern members of the EU, years after they are supposed to be integrated in a common resource and labor market, shows that the barriers to movement still exist so much as to make the concept of common market largely unworkable in reality. And the reason may not be economic at all. The nationalistic identities of the different peoples crammed into this little corner of the world still plays the dominant role.
The Slovakian worker, willing to work at a third of the wage of a local in Austria, still may not be hired (legally) by the Austrians because problems of communicating may make him or her not even a third as efficient and productive as a local. The Austrian consumer may not be keen on buying Slovakian vegetables at his or her local supermarket even if it is a third the price, simply due to some sort of long-held distrust or worse, a sense of superiority. Until these cultural factors are obliterated, ture economic integration of the EU may only be an empty dream...
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