The non competitiveness of the European Union

TODAY, one mentions frequently the failure of the Lisbon Agenda that is the European Union Prime Ministers meeting in Lisbon (2000), which “decided” to make of Europe the most competitive world region within ten years.

It is important however to look into the numbers of such a failure. For three reasons:

First, as Einstein stressed, when we have a number, we know something about the subject (even if that number is only a mere approximation).

Second, because present numbers are facts and facts are, as Lenin noted, obstinate: unless one works upon them, they will simply not go away, disappear. They will remain.

Third, European numbers and its facts are worse then one could imagine.

So let’s take a look at those numbers, dividing them into three categories:

– the result (gross domestic product per capita)

– the immediate causes; and

– the initial, original causes (the causes of the causes).

Figure one presents the Gross Domestic Product (GDP) per capita of the three major economic blocks: US; EU; and Japan.

While the world average is 8236 dollars, the EU average is more than 3 times (324 per cent) that value; Japan is 342 per cent and the US is 454 per cent (4,5 times).

There, as figure two shows, the EU per capita is 30 per cent below the US level and Japan is 25 per cent below. So Japan is 5 per cent better off than Europe.

But this is the… good news. The bad news is that at the rates of growth of the last 25 years (1980-2005), Europe will never converge with, that is reach, the US average: for the simple reason that it grows yearly less than the US.

And Japan, given the last 25 years, will take 225 years (over two centuries!)… to reach the level of US prosperity. Provided the rates of growth of the last 25 years are indicative of the future growth.

So, not only are Europe and Japan poorer, but also they will never, or require over 2 centuries, to catch up with the US.

Why? To find the causes, let’s turn to the next section.

The Gross Domestic Product (GDP) per capita is the product of four variables:

1 – The GDP per hour (productivity per hour);

2 – The number of hours worked;

3 – How many people are in the labour market (either working or looking for a job: the active population); and

4 – The rate of employment (100 per cent minus the rate of unemployment).

What happens is that the US is better off than Europe, regarding all four variables. Indeed, Americans:

1 – Produce more per hour;

2 – Work longer hours;

3 – Have a higher per cent of its population in the labour market; and enjoy

4 – Lower rates of unemployment.

And so, it is the joint effect of all four variables which makes Americans 30 per cent more competitive than Europeans.

Indeed, in terms of productivity per hour (figure three), Europeans are 16 per cent less productive than Americans. And Japanese are almost 30 per cent below.

Then, not only do Americans produce more per hour, but also they work longer hours (figure four): 1792 per year against 1599 in the EU, less 11 per cent in average (the champion here is Japan).

But, then again, the US still benefits from a larger per cent of working force: 50,3 per cent against 49 per cent in Europe. Again, the champion here is Japan (52,3 per cent): figure five.

And finally (figure six) the per cent of unemployment is lower in the US (6 per cent = 100 per cent – 94 per cent), than in Europe (7,7 per cent = 100 per cent – 92,3 per cent). Again, it is minimal in Japan: 5,3 per cent.

So, when we ask ourselves: why is the US so much better off than Europe, the answer must be: because America

1st – Is more productive per hour;

2nd – Works more hours; and

3rd – Has more people working (due to both a higher per cent of active population and lower per cent of unemployment).

So far, so good. But then arises a new question. Why is it so? Does this happen by accident or are there some root causes? And in such a case, which are they? The answer is given in the next section.

The initial (original) causes

No, it is no accident that the US works better and more than Europeans. The reasons are immersed in US society and can be found in the fabrics of its population and culture.

It would take too long to go over all causes, so let us concentrate in just a few.

First: Americans are younger than Europeans. The median average is 36 years against 39 years in Europe and 42 years in Japan.

Second: a larger per cent of women are in the active (working) population in the US than in Europe or Japan (46 per cent against 43 per cent and 41 per cent). That is important. It happens that women are different (not better, not worse) from men. So they bring to the working place different attitudes and qualities. And diversity is a source of wealth.

Third: such diversity is further reinforced by a higher per cent of migration (immigration minus emigration) in the US: 0,45 per cent per year of the total population, against 0,25 per cent in Europe and 0,1 per cent in Japan.

Fourth: then, the American mind is… different. That is what Alexis de Tocqueville in the 19th century called: the American exceptionalism.

Americans are more motivated. When asked (by the Pew Research Centre): are you very proud of your nationality? 80 per cent of Americans answer yes.

The British? Only 50 per cent. The French? 38 per cent. Italians? 25 per cent. Germans? Less than 20 per cent (one in five). This is obviously important. It is harder to be motivated, when you believe you were born in the wrong place.

Fifth: Americans believe in themselves. They have self confidence. When asked (again, by the Pew Research Centre): does your success depend upon yourself? 65 per cent of Americans answer yes. But in Europe only 39 per cent agree (59 per cent say it all has to do with forces “outside” their control). So, Americans are inner directed. Europeans are outer directed.

Sixth: the US is the reign of freedom. Commercial freedom. Fiscal freedom (low taxes). Investment freedom (openness to foreign investment). Market freedom (low regulation and low black market). Property freedom (strong property laws). Banking and prices freedom.

And freedom is at the root of economic development. The Heritage Foundation (in Washington) prepares a ranking of the countries with more and less economic freedom.

The World Competitiveness Forum (in Switzerland) has another ranking, this time of the more and less economically competitive countries.

How both rankings compare? Not surprisingly the countries which top one list, also top the other (the degree of correlation is 0,62): Singapore; Iceland; New Zealand; Australia; Switzerland (which is not an UE member); Canada; and of course the US.

As it happens, some European Union countries are well placed in both lists (United Kingdom; Denmark; Ireland. But then others destroy the average: France, Italy, and of course, Greece and Portugal).

So, it is (among other variables) the conjunction of A) youth; B) diversity (women and immigration); C) motivation; D) self-reliance; and E) freedom, which explains that Americans are nearly 1/3 more competitive than Europeans (the GDP per capita is 30 per cent above – see figure two).


The creation of the Euro raised the expectations regarding the Competitiveness of the European Union. That was further enhanced by the Lisbon Summit in 2000 where and when the Prime Ministers of all EU-15 countries announced their aim of making of Europe, within 10 years, the worlds most competitive region.

Reality however is far different from either the citizens expectations, or the government objectives.

Indeed, not only is Europe far from the US in terms of competitiveness, but also (what is far more serious), it is not closing the gap (figure two).

If the past (1980-2005) is prologue, never will the EU 15 GDP per capita reach that of the US.

Meaning that more of the same is not the solution, for Europe. And so, structural reforms are necessary. Even because, the best guarantee of a social state is the productivity.

What those structural reforms must be, dear reader, are subject for another opportunity, later on.