This is fascinating on many levels. Thank you for posting. I can't help but wonder, doesn't this all suggest that the economy and economic growth depends largely now on capital-intensive industries that require scale in order to achieve a healthy business model? And doesn't that suggest we are in a phase of economic development where - even in places that profess allegiance to the supremacy of market capitalism - the conditions for true market capitalism - and its socially important efficiencies and gains - are no longer truly met? If industry consolidation is necessary to achieve innovation and growth in this era of technology and its evolution, doesn't that preclude, in fact, a true market economy? I think about this a lot in terms of my own industry, health care, where increasing market consolidation and monopolization of services in geographical areas seems a strange bedfellow with industry insistence on micro-level moves made in the name of greater efficiency.
Also, while I do understand the emphasis on macro-level growth, it seems to me there is a dearth of attention to distributional considerations. Having spent three months in Europe recently, I appreciate the profound doldrums being experienced there. That being said, I rarely ran across the levels of wracking poverty I see - and again, deal with on a routine basis in my work in health care delivery - in the United States. No easy answers here, and I know you (AT) have been involved in important work trying to think through a new economic philosophy to better suit our modern age. I appreciate you and all you do.
Also, investment in AI and software? You must be out of your mind. How is that improving people's actual lives?
And I really do not think Europeans really, really want the lifestyles of the US and Chinese worker bees as envisioned by the investors and owners - see Eric Schmit of Google (who in his life never worked the way he seems to demand his workers to perform, laughs at the idea of work/life balance) speaking to Stanford students (likely MBAs not sofware engineers): https://www.youtube.com/watch?v=AtgJhZOhFsQ
What EU lost, and Draghi's report only aludes to and this essay never mentions is the cheap Russian energy and materials and the Russian market for EU products.
I can really see the American butcher knife slaughtering, piece by piece the fat, "lazy" EU pig, with brains full of US induced parasites...
Couldn’t agree more with your remark about AI and quantum computing (and telecoms for that matter).
Can we please give up on the delusions of making EU Big Tech happen and instead invest in areas and industries that actually benefit European citizens.
Could European antitrust policy which seems to have a bias toward maintaining many smaller firms play a role in the lack of sufficient private investment to maintain EU global competitiveness?
So, the Draghi report. Correct if I'm wrong but doesn't the report show that overhead, primarily in the form of the replacement of cheap Russian gas with expensive Yankee gas, is so high that Europe cannot effectively compete economically as it did prior to the Ukraine war?
This article in the British Financial Times argues that, although US R&D has increased, it has tended to be in established big firms rather than new upstarts, and labour productivity growth in the US has actually declined. The implication is that increased big tech concentration is reducing growth.
Thanks for these two articles. Some great insights into the Draghi report. The basic point of a lack of dynamism in the EU (and UK) economies comes as no surprise but the sectoral analysis is important to understand.
One thought strikes me on the Telco/ Mobile industry. Europe led this industry from the early 90's until the iPhone launched in 2007. Nokia, Ericsson, Vodafone were world leaders and some of the continent's largest companies of any kind. We effectively missed the shift to smartphones. Now we are missing the shift to EVs. Is there some element where academic/ state intensity and dominance is causing us to late to recognise major technology shifts?
I don’t see why Prof Tooze decided to spill so much (digital) ink on the European telecom market. I seriously doubt that the state of telecommunications has much to do with the EU’a inability to produce Tech Giants like in the US or China. And in any case, that ship seems to have sailed. I’d much rather policy makers accept than instead of p*ssing away billions in an attempted to frankenstein a European tech industry.
This is not a call for austerity, just an appeal that those resources (debt) could be better spent on sectors that will benefit citizens’ lives (green energy and transport infrastructure, housing) or we actually have a demonstrated ability to be internationally competitive, even if they are unsexy “second industrial revolution” activities like pharmaceuticals or advanced manufacturing.
This is an insightful look at a pivotal issue for long-term wellbeing
I couldn’t help but wonder when I read about the EU’s fragmented industries and markets, how much of US investment has been driven by oligopolistic dominance in the U.S. that makes US consumers pay higher prices…and that unsurprisingly, our corporations keenly reinvest to protect and grow the margins
I’ve long been a fan of Apple products but have no illusions about those product innovations being driven by an 85% share of global smartphone profits
The risk of atrophy is real - see the medieval papacy as an historical example, or the Roman / Byzantine system or Soviet Russia - what follows ie a form of collapse may bring something much worse. Prosperity should be the foundation of well balanced welfare and successful
Macquarie Capital's Viktor Shvets has a less alarming pov:
Europe vs US – is panic over productivity gap justified?
Europe is good at producing well-argued reviews of challenges facing the block, with limited, if any, follow-up. Recent Draghi’s door stopper is not any different. It restated a familiar argument that whereas prior to the GFC, the Eurozone’s economy was comparable to the U.S., it is now only half of the U.S. The usual suspects are the EU’s tighter fiscal policies, complex regulatory and national rules, weaker innovation, absence of robust venture capital industry, etc. However, is the Eurozone really as sclerotic and are there a trade-offs between productivity and broader societal needs?
1. USD market prices massively overstate the size of the U.S. vs Eurozone. At a PPP, the Eurozone’s GDP per capita is ~75% of the U.S., broadly similar to its position in ‘08 vs 54% at current market prices. Although PPP also flatters Europe, it is likely that there has not been a meaningful deterioration in the actual standard of living vs the U.S.
2. The same applies to labor productivity. On an output per employee, productivity in Germany or France declined from 90% of the U.S. two decades ago towards 75% today. However, Europeans work far fewer hours. Adjusting for PPP and hours, labor productivity per hour in Germany and France is broadly comparable to the U.S.
3. When Draghi complained that gross fixed capital formation is too low, in the U.S. it is even lower. The difference is where the private sector invests. More than 55% of US private nonresidential fixed asset investment is directed towards the future (ie intangibles, technology) while European capex is mostly of conventional industrial age.
Europe has failed to catch the software train and is falling behind in many key technology applications. This might lead to lower long-term productivity and competitiveness. However, European societies also place a far greater emphasis on other aspects of life. 1. An average German or French lives five years longer than an average American, with healthier outcomes, despite spending 12% of GDP on healthcare vs 19% in the U.S. Infant deaths per a thousand in Europe is 3 vs 5-6 in the U.S. 2. While the bottom 50% of Europeans own 6%-7% of the wealth, in the U.S., it is barely 2%. Similarly, the top 1% Europeans owns 21% of the wealth vs 31% in U.S. 3. Incarceration and violence in the U.S. is five to ten times higher than in Europe. 4. Europe has a far simpler and cheaper educational system and its upward social mobility indices are better than in the U.S. 5. The strength and impartiality of European institutions is on par with many countries scoring higher than the U.S.
While my investment preference has always been with the U.S., breathless forecasts of European decline are grossly overstated. Ditto projections of inherently weaker euro and a belief that the U.S. will always maintain a significantly lower risk premia.y
this is a great breakdown of the Draghi report on Euro weakness. Of course its lacking a progressive analysis of what should be done? Certainly, we don't want to pour money into military, space, AI, pharmaceuticals just to keep up with US and China.
As others have observed, absent any discussion of Europe's dire energy situation this is all very much, "other than that, Mrs. Lincoln, how did you like the play?"
Without cheap energy Europe's economy is a corpse.
This is fascinating on many levels. Thank you for posting. I can't help but wonder, doesn't this all suggest that the economy and economic growth depends largely now on capital-intensive industries that require scale in order to achieve a healthy business model? And doesn't that suggest we are in a phase of economic development where - even in places that profess allegiance to the supremacy of market capitalism - the conditions for true market capitalism - and its socially important efficiencies and gains - are no longer truly met? If industry consolidation is necessary to achieve innovation and growth in this era of technology and its evolution, doesn't that preclude, in fact, a true market economy? I think about this a lot in terms of my own industry, health care, where increasing market consolidation and monopolization of services in geographical areas seems a strange bedfellow with industry insistence on micro-level moves made in the name of greater efficiency.
Also, while I do understand the emphasis on macro-level growth, it seems to me there is a dearth of attention to distributional considerations. Having spent three months in Europe recently, I appreciate the profound doldrums being experienced there. That being said, I rarely ran across the levels of wracking poverty I see - and again, deal with on a routine basis in my work in health care delivery - in the United States. No easy answers here, and I know you (AT) have been involved in important work trying to think through a new economic philosophy to better suit our modern age. I appreciate you and all you do.
Who's better, Airbus or Boeing?
Also, investment in AI and software? You must be out of your mind. How is that improving people's actual lives?
And I really do not think Europeans really, really want the lifestyles of the US and Chinese worker bees as envisioned by the investors and owners - see Eric Schmit of Google (who in his life never worked the way he seems to demand his workers to perform, laughs at the idea of work/life balance) speaking to Stanford students (likely MBAs not sofware engineers): https://www.youtube.com/watch?v=AtgJhZOhFsQ
What EU lost, and Draghi's report only aludes to and this essay never mentions is the cheap Russian energy and materials and the Russian market for EU products.
I can really see the American butcher knife slaughtering, piece by piece the fat, "lazy" EU pig, with brains full of US induced parasites...
Couldn’t agree more with your remark about AI and quantum computing (and telecoms for that matter).
Can we please give up on the delusions of making EU Big Tech happen and instead invest in areas and industries that actually benefit European citizens.
Could European antitrust policy which seems to have a bias toward maintaining many smaller firms play a role in the lack of sufficient private investment to maintain EU global competitiveness?
Yeah. You can’t have it both ways. Large firms do have better economies of scale when it comes to R&D.
Not one mention of the increase in energy costs for production. Remarkable! It's like you're consciously trying not to see it, Adam. Why?
So, the Draghi report. Correct if I'm wrong but doesn't the report show that overhead, primarily in the form of the replacement of cheap Russian gas with expensive Yankee gas, is so high that Europe cannot effectively compete economically as it did prior to the Ukraine war?
This article in the British Financial Times argues that, although US R&D has increased, it has tended to be in established big firms rather than new upstarts, and labour productivity growth in the US has actually declined. The implication is that increased big tech concentration is reducing growth.
https://www.ft.com/content/f8a8f753-74fa-4c03-ba5f-acb6480c6d48
Thanks for these two articles. Some great insights into the Draghi report. The basic point of a lack of dynamism in the EU (and UK) economies comes as no surprise but the sectoral analysis is important to understand.
One thought strikes me on the Telco/ Mobile industry. Europe led this industry from the early 90's until the iPhone launched in 2007. Nokia, Ericsson, Vodafone were world leaders and some of the continent's largest companies of any kind. We effectively missed the shift to smartphones. Now we are missing the shift to EVs. Is there some element where academic/ state intensity and dominance is causing us to late to recognise major technology shifts?
I don’t see why Prof Tooze decided to spill so much (digital) ink on the European telecom market. I seriously doubt that the state of telecommunications has much to do with the EU’a inability to produce Tech Giants like in the US or China. And in any case, that ship seems to have sailed. I’d much rather policy makers accept than instead of p*ssing away billions in an attempted to frankenstein a European tech industry.
This is not a call for austerity, just an appeal that those resources (debt) could be better spent on sectors that will benefit citizens’ lives (green energy and transport infrastructure, housing) or we actually have a demonstrated ability to be internationally competitive, even if they are unsexy “second industrial revolution” activities like pharmaceuticals or advanced manufacturing.
This is an insightful look at a pivotal issue for long-term wellbeing
I couldn’t help but wonder when I read about the EU’s fragmented industries and markets, how much of US investment has been driven by oligopolistic dominance in the U.S. that makes US consumers pay higher prices…and that unsurprisingly, our corporations keenly reinvest to protect and grow the margins
I’ve long been a fan of Apple products but have no illusions about those product innovations being driven by an 85% share of global smartphone profits
Especially good summary and commentary
The risk of atrophy is real - see the medieval papacy as an historical example, or the Roman / Byzantine system or Soviet Russia - what follows ie a form of collapse may bring something much worse. Prosperity should be the foundation of well balanced welfare and successful
Macquarie Capital's Viktor Shvets has a less alarming pov:
Europe vs US – is panic over productivity gap justified?
Europe is good at producing well-argued reviews of challenges facing the block, with limited, if any, follow-up. Recent Draghi’s door stopper is not any different. It restated a familiar argument that whereas prior to the GFC, the Eurozone’s economy was comparable to the U.S., it is now only half of the U.S. The usual suspects are the EU’s tighter fiscal policies, complex regulatory and national rules, weaker innovation, absence of robust venture capital industry, etc. However, is the Eurozone really as sclerotic and are there a trade-offs between productivity and broader societal needs?
1. USD market prices massively overstate the size of the U.S. vs Eurozone. At a PPP, the Eurozone’s GDP per capita is ~75% of the U.S., broadly similar to its position in ‘08 vs 54% at current market prices. Although PPP also flatters Europe, it is likely that there has not been a meaningful deterioration in the actual standard of living vs the U.S.
2. The same applies to labor productivity. On an output per employee, productivity in Germany or France declined from 90% of the U.S. two decades ago towards 75% today. However, Europeans work far fewer hours. Adjusting for PPP and hours, labor productivity per hour in Germany and France is broadly comparable to the U.S.
3. When Draghi complained that gross fixed capital formation is too low, in the U.S. it is even lower. The difference is where the private sector invests. More than 55% of US private nonresidential fixed asset investment is directed towards the future (ie intangibles, technology) while European capex is mostly of conventional industrial age.
Europe has failed to catch the software train and is falling behind in many key technology applications. This might lead to lower long-term productivity and competitiveness. However, European societies also place a far greater emphasis on other aspects of life. 1. An average German or French lives five years longer than an average American, with healthier outcomes, despite spending 12% of GDP on healthcare vs 19% in the U.S. Infant deaths per a thousand in Europe is 3 vs 5-6 in the U.S. 2. While the bottom 50% of Europeans own 6%-7% of the wealth, in the U.S., it is barely 2%. Similarly, the top 1% Europeans owns 21% of the wealth vs 31% in U.S. 3. Incarceration and violence in the U.S. is five to ten times higher than in Europe. 4. Europe has a far simpler and cheaper educational system and its upward social mobility indices are better than in the U.S. 5. The strength and impartiality of European institutions is on par with many countries scoring higher than the U.S.
While my investment preference has always been with the U.S., breathless forecasts of European decline are grossly overstated. Ditto projections of inherently weaker euro and a belief that the U.S. will always maintain a significantly lower risk premia.y
https://www.linkedin.com/posts/viktor-shvets-5aa84619_europe-vs-us-is-panic-over-productivity-activity-7240758817360154625-_RjA/?utm_source=share&utm_medium=member_desktop
this is a great breakdown of the Draghi report on Euro weakness. Of course its lacking a progressive analysis of what should be done? Certainly, we don't want to pour money into military, space, AI, pharmaceuticals just to keep up with US and China.
As others have observed, absent any discussion of Europe's dire energy situation this is all very much, "other than that, Mrs. Lincoln, how did you like the play?"
Without cheap energy Europe's economy is a corpse.
Investment in Europe is low because Europe is over-built, over-industrialized, and over-populated.