Europe is currently struggling to keep pace with other regions in terms of economic performance and innovation. Nevertheless, it is exaggerated to speak of a decline of Europe. The figures look less dramatic than is sometimes suggested. However, this should not lead to complacency and a failure to tackle the urgently needed changes. Indeed, Europe has to foster innovation and economic prosperity. Switzerland has no reason to be complacent. Based on conventional data, it has lost a considerable lead in international comparison over recent decades, especially before the turn of the millennium. While it is still noticeably wealthier than the rest of Europe, the gap has gradually narrowed over time. If any country is in decline, it would be, somewhat provocatively: Switzerland.
Much is currently being said about Europe’s economic problems. Indeed, many European countries are currently struggling to prosper economically. The European Union (EU) has partly over-regulated, and Europe’s largest economies, such as Germany, France, Italy, and the United Kingdom (which is no longer a member of the EU), are experiencing economic difficulties primarily due to homegrown problems. Smaller and medium-sized economies such as Sweden, Denmark, the Netherlands, or Ireland are performing well economically in international comparison and occupy leading positions in various innovation rankings.
Interesting contributions and analyses are being published that are intended to give Europe more economic momentum (in addition to many others, particularly the reports by Draghi and Letta). Recently, Luis Garicano, Bengt Holmström, and Nicolas Petit published a worthwhile and important contribution: The Constitution of Innovation: A New European Renaissance. I agree with many points. However, I stumbled upon a figure (Figure 1). There, the economic development of the countries that today make up the eurozone is compared with the United States since the end of World War II. Measured by gross domestic product per capita, there is a clear catch-up process by Europe compared to the USA after the destruction of the war, which, however, was stopped in the 1980s and even slightly reversed. The economic gap between the eurozone and the USA has widened somewhat in recent years.
However, with a somewhat longer-term view, one sees that Europe has consistently achieved only about 70 to 80 percent of the prosperity level of the USA since the end of World War I (Figure 2). Without a doubt, one must keep in mind that the data becomes increasingly unreliable the further back in time one goes. One can also clearly see the long-lasting economic damage (alongside all the other suffering, which is far greater) caused by a war.
Against this background, the gap that has been opening since about the 1990s appears to be a serious warning signal, but does not look very dramatic in this representation. In retrospect, the years after the end of World War II were primarily a catch-up after the destruction of the war. One should therefore not fall into a rhetoric of decline, but rather use Europe’s economic difficulties of recent years as an occasion to initiate reforms such as bureaucracy reduction and openness to innovation, with a focus on the still considerable strengths, particularly in industry.
Switzerland represents a special case, as its economic output per capita has long been significantly above the level in the United States and Europe. However, at least according to these data, there has been a clear loss of this lead since the 1980s. Since the turn of the millennium, the diminished lead over the United States has then been roughly maintained. Whether this is related to the bilateral agreements and freedom of movement, we do not know with certainty. But without doubt, the years since the turn of the millennium have been economically good years for Switzerland.
The examination of labor productivity – that is, gross domestic product per hour worked – is also interesting (Figure 3). Qualitatively, the pattern looks similar to that of gross domestic product per capita. But there are also interesting differences. Productivity in Europe is only slightly below that of the United States. The higher economic output in the USA is therefore also attributable to more working hours. Fundamentally, employees in Europe – especially in Germany – are only marginally less productive than on the other side of the Atlantic. When considering productivity, Switzerland’s lead over other advanced economies becomes smaller.
Overall, the examination of these long-term developments should be a warning signal for Switzerland. Arrogance is out of place, and high prosperity is not guaranteed. It can gradually erode without being noticed. Regardless of the discussion about our relationship with the European Union and the United States, we should increasingly consider how we can maintain and improve our productivity and prosperity.
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