from:
http://faculty.insead.fr/fatas/econ/Articles/Chasing%20the%20Leader.htm....
America's much-trumpeted “productivity miracle” in the late 1990s created the misleading impression that Europe significantly lags America in the productivity league. It is true that, since 1995, American GDP per hour worked has risen by an annual average of 1.9%, compared with only 1.3% in the European Union. However, over any longer period, up to half a century, Europe's productivity growth has outpaced America's. Since 1990 American productivity has risen by 1.6% a year; the EU's has risen by 1.8%. Since 1950 America's productivity growth has averaged 2%, Europe's 3.3%. According to figures from the Conference Board, an American business group, Belgium, France, Germany, Ireland and the Netherlands all now boast higher output per hour than the United States. Average productivity in the EU is still 7% less, largely because of lower productivity in Britain, Spain, Greece and Portugal—but the gap has continued to close over the past decade.
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Mr Gordon does not stop there. After adjusting GDP per head for extra leisure time, he then attacks GDP itself. Mr Gordon argues that GDP comparisons tend to overstate America's living standards and understate Europe's. For example, America's climate is more extreme than western Europe's, so more has to be spent on air conditioning and heating to attain a given indoor temperature. This extra spending boosts GDP, but does not enhance welfare. More of America's GDP is also spent on home and business security—largely because of a higher crime rate. In most of Europe, such spending is less necessary. The huge cost of keeping 2m people in American prisons (a far bigger proportion of the population than in Europe) also bolsters America's GDP relative to Europe's, but not its welfare.
Another factor is the greater dispersion of America's population in vast, sprawling metropolitan areas with few transport options other than the car. This is partly the result not of private choice but of public policy, such as subsidies to suburban motorways and a starving of public transport, or local zoning laws that limit the minimum size of residential developments. It leads to higher spending on roads and energy, and hence higher GDP. In Europe the convenience of more compact cities and frequent train and bus transport does not count towards GDP figures.
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Taking account of how Americans waste a chunk of their income on heating, air conditioning, prisons and the like, while also attaching value to Europe's superior public transport, Mr Gordon suggests that perhaps half of the current gap in living standards between America and Europe, as measured by GDP per head, is illusory. Add in the value of their extra leisure time and Europe's living standards are now perhaps only 8% behind America's, he suggests, not the 23% suggested by official data. Indeed, on Mr Gordon's broader measure, Europeans' productivity may have overtaken that of their poor American cousins.
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Also, from:
http://www.thirdworldtraveler.com/Economics/AmericanProsperityMyth.htmlThe American Prosperity Myth: Everyone knows the story by now. America may have its social problems, but its highly productive, job-generating, innovative economy is the envy of the world. Europeans, on the other hand, are in a despond of high unemployment and economic sclerosis. Europe's addiction to welfarism-its overcooked social contract-is killing the economic goose that lays the social egg. Americans may pay a price in inequality for their economic vitality, but when you take the country's extraordinary social mobility and opportunity into account the price is worth paying. You might want to reverse Bush's tax cuts for the very rich, but nobody sane is going to tinker with the essence of the great American Business Model that delivers so much wealth.
I contend-unfashionably and, I know, incredibly, given the consensus-almost the opposite. The American economy has great strengths, but it is not so all-conquering. And the American Business Model, with its ruthless focus on shareholder profits, has profound weaknesses. Indeed, American industry is at its strongest where it has not observed antistate, pro-greed precepts and operated in more European ways. Smart action by the state, a viable social contract and efforts by companies to harness human capital and serve a purpose larger than short-term profit maximization turn out to be indispensable components of successful American capitalism as well-though America's public conversation hardly concedes these points. It's a gaping omission that is costing the country dearly.
Signs of trouble are everywhere. For a start, the United States is experiencing an alarming and unsustainable growth of international indebtedness. By the end of this year the country's net liability to the rest of the world will approach $3 trillion, and it is growing exponentially. At the current rate, liabilities will double again over the next five to seven years, taking the United States into banana republic territory. At some point foreigners will cease holding dollars and instead buy the alternative world currency-the euro. The dollar will crash and interest rates will jerk upward in response.
America has been running a trade deficit for so long that it has ceased to be worthy of note. Yet the consistent inability | of so many American companies in so many sectors to compete against their foreign rivals surely exposes faults in our approach to investment and productivity. From cars to aerospace, industrial gases to cell phones, American companies lag behind their European competitors in technology, production savvy and rate of innovation. Ford and GM are a decade behind Volkswagen in the sophistication of their production techniques. Nokia has 39 percent of the world mobile phone market, more than twice that of Motorola, its nearest rival- despite Nokia's being based in the highly taxed, highly unionized, generous welfare state of Finland. Boeing's government subsidies through its military contracts, grants and tax breaks comfortably match the diminishing support proffered Europe's Airbus, but it is Airbus that is pioneering the next generation of civilian aircraft and whose market share is larger. British Rolls Royce is the trailblazer in aero-engines. And so on. Beyond the sheltered world of America's defense industrial complex, where fat Pentagon contracts helped create outstanding technological leadership in weapons and the Internet, there is scarcely a high-tech sector where US companies can claim systematic leadership over their European competitors-a truth you would scarcely know from a casual inspection of the American business press.
America's once proud culture of business building has given way to a culture of financial engineering, a doctrine of shareholder value maximization and a cult of the takeover. The game is to keep the share price up, and every sinew-of the organization is bent to that end; shortcuts are ever tempting, and inevitably some companies resort to straight fraud. Nevertheless, the conservative inclination is to overlook one or two bad apples like Enron and WorldCom and to celebrate the rule of America's capital markets. It is Wall Street constantly holding corporate managements to account that drives up innovation and productivity, or so runs the conventional argument, with companies that fail to keep up facing a takeover.
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