Is Europe doomed to economic decline? That’s the question that boggles the mind as the old continent loses ground to the United States in terms of productivity. The long-awaited report from Mario Draghi, the former Italian Prime Minister, brings an alarming observation of the situation!
The gap between Europe and the United States is widening
Europeans are on average 25% less wealthy than Americans. Contrary to popular belief, this difference can only be marginally explained by longer working hours across the Atlantic.
The reality is more disturbing: Europeans simply produce less for each hour worked.
This trend is not new. Since the mid-1990s European productivity is gradually declining. While 30 years ago it was comparable to the United States, it now lags significantly behind. This phenomenon affects many countries on the continent, including leading economies such as Germany, France or Italy.
Draghi’s report, commissioned by the European Commission, highlights three main challenges for European competitiveness:
- AND lack of innovation screaming
- AND energy too expensive
- from vulnerable supply chains and a weak defense industry
Europe is no longer innovating
The observation is clear: Europe suffers from a lack of leading technology companies.
The question “Where is the European Google?” » remains unanswered. Even more worrying are European companies slow adoption of technology. This delay results in an increase productivity at half mast, especially in IT-intensive industries such as business services.
Europe is facing an energy challenge
In the field of energy, the situation is not much better. Europeans pay much more for electricity and natural gas than their American or Chinese counterparts.
A major handicap for the competitiveness of the old continent which puts a heavy burden on the production costs of European companies.
Draghi’s message reads like a must call to order for a region that has for too long been considered an unchanging and preserved “garden”.
Too many old people in Europe?
Surprisingly, Draghi’s report does not mention the aging of the European population as an explanatory factor for the decline in productivity.
However, since the mid-1990s the median age in Europe has increased by 2 to 4 years older than in the United States. Numerous studies show the negative effect of aging on growth, both by increasing the burden of dependencies and slowing productivity.
This demographic phenomenon has profound consequences for the European economy. It affects not only the size of the working population, but also its composition and dynamics. An aging workforce may be less inclined to adopt new technologies or take entrepreneurial risks.
If Draghi thinks that nothing can be done about ageing, he deserves to at least be mentioned as a likely cause of divergence between Europe and the United States.
Too much state?
The report calls for increased coordination between EU countries in many areas: regulation, trade policy, industrial policy, spending on research, education and training, land use, etc. The goal is to make Europe a more unified whole, like the United States or China.
If this approach can be beneficial in certain areas, such as the single market, we may question its systematic relevance. Europe will always remain it lags behind the United States and China in terms of centralization, if only because of its linguistic and cultural differences.
It wouldn’t be more reasonable playing to your strengths rather than trying to imitate his competitors?
Historically, European fragmentation has been a source of dynamism and innovation.
Competition between states fueled industrialization and technological progress in the 18th and 19th centuries. More recently, China benefited from competition between provinces during a period of strong growth (1980–2007). This emulation has enabled the emergence of centers of excellence and innovative local initiatives.
Europe could benefit from its diversity by encouraging it emulation among its members. Some European countries, such as the Scandinavian countries, already have higher productivity than the United States.
Why not learn from their best practices rather than seek centralized coordination at all costs?
European institutions could focus more on the dissemination of best practices forced centralization.
America: Ally or Foe?
Draghi’s report implicitly states The United States as Europe’s competitor. If this rhetoric can be mobilizing, it obscures it cooperation possibilities transatlantic which could be beneficial for both parties.
Europe faces far more pressing threats, including Russia and ChinaE. The latter represents a a major challenge for European industryespecially in the electric vehicle and green technology sectors.
Beijing’s massive subsidies to domestic industry pose a far more serious threat than American competition.
Rather than seeing the US deflationary law as a threat, Europe would benefit from being inspired by it while deepening its economic integration with the United States. American LNG exports have already saved the European economy when Russian gas was cut off.
Europe could benefit from US investment in venture capital, participate more in joint research projects or even negotiate a major transatlantic trade agreement.
Faced with the rise of China, the western alliance remains more relevant than ever.
Europe corrupted by ideology?
Some recent European decisions seem to be driven by ideological rather than pragmatic considerations.
The abandonment of nuclear power in Germany is a striking example. Despite the increasing unpopularity of this measure and its negative impact on energy costs and CO2 emissions, German elites remained captive to the vision of the early 2010s.
Regulations GDPR on data protection if it is based on laudable intentions perverse effects on Europe’s ability to develop its own technology industry. Compliance costs have favored the already well-established American giants, which are able to absorb these expenses more easily than European start-ups.
More generally, Europe sometimes seems to be a victim of ideology appreciation of economic decline. The old continent has become the global epicenter of “degrowth” research, a project more ideological than truly scientific. This trend, if it responds to legitimate environmental concerns, risks weakening Europe’s position in global economic competition.
Europe corrupted by ideology?
Draghi’s report represents a alarm welcome signal for a Europe that can no longer afford complacency.
The challenges are huge: catching up with innovation, reducing energy costs, securing supply chains, coping with demographic aging, etc.
Europe also needs to rethink its relationship with technology. Instead of simply regulating America’s digital giants, they must create the conditions leading to the emergence of their own technological champions. This goes through a increased support for research and innovationbut also through reflection on the cultural and regulatory barriers that hinder doing business in Europe.
Finally, Europe will not be able to face the challenges of the 21st century alone. AND rapprochement with the United Stateswhich, far from being a threat, represents an opportunity to be seized. In the face of China’s rise and Russia’s revisionist ambitions, the Western alliance remains more important than ever.
Between the American and Chinese models, Europe plays the card by proposing a third way that combines economic dynamism, social progress and respect for the environment. It is at this price that it will be able to remain a major player on the international scene and offer its citizens the prosperity and quality of life they desire.
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