European economic performance
I’ve been promising an article about the relative merits of the US and Eurozone economies for some time now, based on an article by Kevin Daly of Goldman Sachs. However laziness and a preference for making snarky comments have meant I haven’t done anything. Luckily someone at The Economist has, so I’ll paraphrase theirs.Essentially the argument is well-known generally. US GDP growth, averaging 3.3% p.a in the ten years to 2004 outperformed the Eurozone, which managed 2.1%. However much of this is due to America’s faster population growth. GDP per capita grew at 2.1% in America and 1.8% in the Eurozone.
The US productivity miracle is also less impressive than commonly thought, due to differences in the way statistics are presented. US non-farm output per house grew by 2.6% over the same period, whilst EU GDP per worker managed only 1.5%. But these are different definitions. Comparing like with like and you get 2.0% in the US and 1.7% in the Eurozone. And if you adjust for economic cycles, the Eurozone has had faster productivity grown over the 10 years (though not in the last 5).
What about jobs? In the US they have grown at 1.3% a year between 1994 and 2003, in the Eurozone 1.1%. Return on capital? The same.
Furthermore the official data boosts US growth and minimises that of the Eurozone. A famous example is computer spending – investment in the US and an expense in the Eurozone. One adds to output, the other doesn’t. Also on computers is measures of prices – in the US a doubling of power is seen as a 50% fall in price. Many European countries don’t do this.
Of course European GDP per capita remains substantially lower than in the US, though perhaps for reasons that mean it can never be fully removed. Also most of the discrepancy is due to Europeans working shorter hours, which is good if it reflects a preference for leisure, but bad if it reflects labour- or other-market laws. The Economist suggests there is evidence it is a voluntary choice.
In short therefore European and US economic performance has been similar over the last ten years, and there seems no reason to believe it won’t be similar over the next ten years, particularly given the continuing implementation of labour- and product-market reform. If Europe wants to be an economic superpower going forward it needs to worry about its GDP not just its GDP per capita, which will require greater population growth (whether by birth or immigration). But in terms of increasing living standards the continent is not doing badly; something you wouldn't hear from most UK and US commentators.
posted by Matthew @ 6/18/2004 12:29:00 PM
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