international analysis and commentary

Europe’s hidden barriers to economic excellence

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In a sense, every macroeconomic debate I have had about Europe’s endemic malaise over the past 17 years always comes down to this: Given the undoubted quality of the continent’s higher education system (of which I myself am a grateful product), how can one explain that Steve Jobs, Bill Gates, Henry Ford, Thomas Edison and Alexander Graham Bell are all Americans? Why is it that the market disruptors that create wholly new industries from scratch invariably come from the US, rather than from the other side of the Atlantic Ocean? I have perfected a telling response to this puzzling reality: In America, our mad tinkerers toil alone in their garages, which could never happen in Europe, as the EU would declare it an unsafe workspace.

There is much truth in this throwaway line. The US practices a form of benign neglect towards the odd men who create new worlds; it does not support them, but neither does it stand in their way, which is all too often the case in Europe. But now that tariff rates across the world generally rest at very low levels, another terribly destructive form of protectionism – always the enemy of the truly innovative – has reared its head, killing off the very innovators necessary to economically re-make a continent in desperate need of such dynamism. Junk science and false scares are blurring objective reality, nobbling European businesses, just as they struggle to find their footing in the highly competitive post-Lehman Brothers world.

Recently, I read about such a case in the very old European field of horticulture, long a hobby of mine. European wines are still – despite all the very healthy competition that has sprung up from North America, Australia, and South America – considered to be world-class, even if their margin of dominance is dwindling. At this critical juncture a European firm (Diam) has managed to develop a cork that does away with the endemic problem of cork taint, the undesirable smells and tastes that can be found in a bottle of wine, usually detected only after opening. Though there are a number of causes for this, the primary one involves the stopper, or cork, that secures the wine in the first place.

To do away with this problem is in a sense the holy grail for the winemaking industry, as cork taint can affect the wine, regardless of its price and quality. It is not too much to say that to regularize the product inside the bottle would be the next big thing in the wine industry. Secure corking would allow for greater European wine exports – especially Italian – throughout the world, as the basic continental comparative advantage in this field could be fully taken advantage of.

But of course such a market disruption, though beneficial for both European innovators and global consumers in general, is inherently threatening to those left behind the curve; innovation always has its enemies. Which brings me to the recent January 2016 claims by wine expert Rolf Cordes in the German wine review Wein Plus that Diam’s supposed innovation is actually a mirage. Cordes states that based on a personal study he conducted, that wines using Diam’s closures have a “persistent dry aftertaste” that he describes amounting to “atypical bitterness”. In essence, Cordes is saying that Diam’s corks contribute to the problem of cork taint, rather than solving it.

Interested, I scanned the piece eagerly for the study details. I must say that when I actually found them, I almost fell off my chair laughing. Cordes took seven to eight wines (red, white, and rose) pouring 1.5 liters of each into a pair of identical jars. Of each pair, one jar was secured with a Diam cork and one with another brand. He then let them sit for between two and 94 days, reopening them to see how the wines had fared. From this “study” Cordes made his rather sweeping pronouncements.

But this is all nonsense of the highest order. In terms of methodology, Cordes forthrightly admits he dipped the whole cork in wine, which in the real world is simply not how cork comes into contact with wine stored in a bottle. Even more puzzling, the study was replicated by ten other researchers conducting trials. While in terms of sensory testing it is difficult to get sufficient sized samples, a group of ten is an awfully low number to base such an important finding on. Why didn’t Cordes simply partner with a reputable lab or wine institute or university to give his findings real scientific rigor? Serious wine people, including Diam, rely on independent laboratory tests, as they absolutely should in terms of product testing, given their greater accuracy.

Further, Cordes displays a willful ignorance as to how wine itself works; some vintages become more expressive with time, some do not. How did he choose his time periods for the red, white, and rose wines, and how did they relate to this important fact? We simply do not know. In other words, you can drive a truck through the holes in these findings, which amount to little more than junk science, allowing Cordes to use faux scientific rigor to get the results he wanted in the first place.

But if junk science is laughable, it is also economically dangerous. Falsely raising concerns – disparaging or raising questions about the safety or efficacy of innovative products – can do both them and the European marketplace great harm. Most businesses are inherently conservative, tacitly accepting the “Where there is smoke there must be fire,” adage, wrongheaded though that may be. In other words, by simply muddying the waters, junk science can easily derail the innovations the European economy so desperately craves, leading to the triumph of inferior products, and robbing the consumer – and in this case, the winemaker – of the right to decide for themselves.

Now is not the time for junk science – another (if hidden) form of protectionism – to hobble the weak European market. Rather, innovators like Diam must be supported if the continent is to regain its rightful economic place in the sun.