Just a year ago, Europe was happy to have gotten through the energy price shock and the threat of energy supply bottlenecks. The deep recession feared by some economists did not materialize. Somewhat surprisingly, this relief quickly turned into pessimism. After the pandemic and the energy crisis, the eurozone is indeed weakening economically and the long-standing economic engine Germany is currently one of the worst performers in Europe in terms of economic growth. The European economy is often compared with the US economy, especially in the media. On March 9, for example, the Financial Times ran the headline that the European economy was in a competition crisis compared to the United States. Several economists – from the European Central Bank, for example – have recently presented similar analyses.
These findings are mostly correct. It is important to follow the example of the technologically leading United States. This must be Europe’s aspiration. However, the strong focus on the USA also means that Europe comes off too badly in the overall assessment, creating an exaggerated impression of decline. A look at productivity growth, which determines prosperity in the long term and is defined here as economic output per hour worked, shows this very well. It is often forgotten that the USA, with its relatively strong productivity growth, is an exception among advanced economies. This is probably due to the United States‘ lead in information and communication technologies, as the well-known economist Robert Gordon has shown, among others. Germany and the eurozone as a whole fare similar to other advanced economies.
According to data from the Long-Term Productivity Project, the US economy is pretty much alone at the top in terms of growth in labor productivity – i.e., gross domestic product per hour worked – and has increased by around 35% since 2000. In many other major economic areas – i.e., the eurozone, the United Kingdom, Canada, and Japan – it was around 20 percent in the same period. Germany developed more dynamically than the rest of the eurozone until the end of 2019. Of the larger advanced economies, only Australia and presumably South Korea (although there are gaps in the data here) have achieved relatively strong productivity growth similar to the United States since the 2000s. Looking at a slightly different period or other indicators would not fundamentally change this picture.
The fact that the eurozone as a whole is falling behind the US is, therefore, not a purely continental European phenomenon and should not be prematurely labeled as a decline. The good news is that much can be improved in Europe. In addition to bureaucracy and lagging digitalization, investment – especially in research and development in information and communication technologies – has also been slower than in the United States. This could also have led to the fact that in many European countries the advantages of mobile working are used to a lesser extent than in the United States. At least, that is what studies by Nicholas Bloom and other economists suggest. In Europe, it is possible that too little of this potential for higher productivity in the service sector is being utilized. The energy transition, additional spending on defense, and the aging population require considerable financial efforts. Higher productivity growth would help Europe to finance these challenges and avoid falling further behind the US.
At the same time, it should be remembered that not everyone in the USA has benefited from growth and that society is particularly polarized. In Europe, inequality has risen less or even remained more or less constant. Despite its good macroeconomic development and impressive technological progress, the United States is, therefore, only of limited use as a model for economic and social progress on a broad scale.
Kommentar verfassen