But G.D.P. per capita (an insufficient indicator, but one most economists use) in the U.S. is nearly 50 percent higher than it is in Europe. Even Europe’s best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis (and both countries have roughly 15 percent of their populations living below the poverty line). While Norway and Sweden are richer than the U.S., on average, they are more comparable to wealthy American microeconomies like Washington, D.C., or parts of Connecticut — both of which are actually considerably wealthier. A reporter in Greece once complained after I compared her country to Mississippi, America’s poorest state. She’s right: the comparison isn’t fair. The average Mississippian is richer than the average Greek.
Europe is undergoing not one but two simultaneous economic crises. The first is a rapid, obvious one — all about sovereign debt, a collapsing currency and austerity measures — that we hear about all the time. The second is insidious but more important. After decades of trying, Europe as a whole still can’t quite figure out how to be flexible enough to compete in the global economy.
The story of how Europe lost its flexibility can be told in three stages. First came rapid growth that economists called “convergence.” With a lot of help from the U.S., Europe developed massive industrial capacity in the postwar years. Many of Western Europe’s economies grew so fast that governments could easily afford health and unemployment insurance and other benefits that, by U.S. standards, were remarkably generous. Most observers expected that its wealth would soon “converge” upon that of the U.S.
But the European economy did not recover from the worldwide oil shock of 1973 nearly as quickly as its American counterpart. For more than 25 years (phase two), as its population aged, Europe’s economy grew more slowly than the United States’. Its active capitals belied bloated businesses that were losing contracts to U.S. competitors or growing suburban ghettos filled with a permanently unemployed underclass.
Even its major successes — like Germany’s impressive machine-tool and automotive-industrial sectors — were refinements of old ways of making money rather than innovations in new industries. Western Europe played a remarkably small role in the computer and Internet revolutions. (On the other hand, Estonia, with less than two million people, gave the world Skype.) When the economic forecasts were written during Europe’s doldrums, the Continent looked destined to become a decrepit old-age home with too few young people around to pay the bills.
Enter phase three: what might be called the Principled Compromise. Increasingly since the mid-1990s, European leaders have been trying to figure out how to keep up with this new globalized digital economy. To compete with the U.S., China, India and Brazil, Europe focused more intently on broadening its internal market. It’s easier for businesses to stay competitive when there are a few hundred million potential customers using the same currency and not requiring customs forms.
To many American eyes, however, Europe’s creation of a common market and currency was only half the battle — and probably the less important half. It’s a core view of U.S. business that success requires a degree of destruction. If workers can’t be fired, companies can’t drop unproductive businesses and invest in more promising new ones. If workers know they’ll get generous government benefits no matter what, so the theory goes, they’ll get lazy.
Article source: http://feeds.nytimes.com/click.phdo?i=f064184e859232c1cbac361690545581