Hah, Im from one of those European countries and lived it. We had an E34 520i and family had a host of different BMWs of the era (including e34's). The 518i is 112HP in a heavier car than the E36 so your comparison is kinda pointless. The 518i, depending on options, is between 50 and 75hp a ton.
IMO, they only get balanced properly at the 525i level (around 120hp a ton) and in our familial experience, fuel consumption is better on that mid point than on the entry level engines, in the real world. I think we can probably agree the designers of the e34 did not plan the 518i as an optimum or efficient idealised example of the product. Its a symtom of tax regimes, not good product design.
Is it functional? Yes.
Is anything more competent a capitalist luxury? In my opinion, no, thats a tad extreme lol.