Europe is pitiful, these days - economically speaking, that is.

The European Union is far from the position of strength politicians only a few years ago were portraying it would be. The socialist welfarism of the recent students riots in France, Italys shift to the left, Britains Tony Blair under siege and a still comatose German Panzer Economie all signal that Europe is in economic decline. It certainly does not appear that Western Europe can now afford what it is politically committed to do, and certainly not so within a decade or two as it regards health care and pensions for the elderly. The hope is to turn the most populous former Eastern European countries Poland, Bulgaria, Hungary and Romania into large self-sustaining consumers markets, and that may one day happen but certainly not in the foreseeable future. The economies of the West and the East are too far apart to be integrated. Even Germany has considerable problems assimilating the former East Germany, and this notwithstanding all the billions of Euros that the Deutsche Gesellschaft has poured into the East already. Not to mention the Unions energy dependence on the flimsies of the Ukraine and Russia, an entirely separate matter all in and by itself.

The recent French riots in particular underscore the increasingly untenable system of job security at the expense of entrepreneurship, and that the grounds are set for a collision between expectations and economic reality. And whereas certain niches can certainly be found for international real estate investors, especially in countries like Bulgaria, the implied economic risks that must be assumed far outweigh, for the time being, the profits that can be reaped.

In China the economic achievements are huge, but so are the problems. President Clinton, in one of his last speeches, said that 200 million people in China were lifted from absolute poverty from 1978 to about 1999. That's equivalent to about two-thirds of the entire population of the United States in twenty years. But, at the same time, the factors of economic instability are many and worry the leadership. These factors include a financial and banking system that is basically bankrupt, with bad loans-out greater than the real net reserves of the entire banking system.

But, perhaps even more importantly, there is a great imbalance of wealth between the thirty-five percent of the population that lives in the cities and the sixty-five percent inhabiting the countryside. If one is lucky enough to be born in a city - and registered as a city dweller - it is easier to get into university. In the city, one can work at all the large companies and government agencies. Conversely, those who are registered as rural persons are subjected to very severe restrictions on where they can live and work. And this is actually the biggest human rights problem in China today. There is a majority of this population of 1.3 billion people that are, by law, second-class citizens. And unless the Chinese leadership comes to terms with this reality, this social injustice is a ticking time-bomb that one day will explode, also in the faces of those foreign venturers that invest in China.

Since capitalism is, by definition, a system in which the means of production are predominantly privately owned and operated for profit, and which operates in the absence of government coercion or constraint on the production, distribution, or consumption of goods and services, the whole of Islam, most of Africa and all South America with the notable exception of Chile are entirely cut out. This includes wealthy countries like the United Arab Emirates and especially Dubai, where the real estate boom of recent years has been plagued by slavery, stories of construction workers not being paid for months on end, and excessive working hours all of which have led to the rioting early in the year, as upset workers damaged cars, buildings, and construction equipment. Again, investment niches can be found anywhere, but risk far outweighs profitability.

Everything taken into account, therefore, real estate markets in the United States and Canada are still the two safest havens for secure investments. The production of real estate output depends essentially on the accumulation of capital. This is so because the propensity to invest depends on expectations of future profitability and on the present perceptions of market risk. If the present perception of market risk increases sharply, capital will exit more and more from the sphere of real estate production. What drives the accumulation process, therefore, is the perpetual search for more surplus value - that is the amount of the increase in the value of capital upon investment, i.e. the yield regardless of source or form.

North Americas real estate markets offer this surplus value, both in the short and long run, coupled by political security and financial stability, and thus position themselves as the destination of choice of all those who want to reap the profits of investment while, at the same time, minimizing the socio-economic risks of investing.

Luigi Frascati