This is on the other hand, the portfolio opinion section. This is on the other hand, the portfolio opinion section.
The articles reflect the opinions of the authors, which do not necessarily coincide with the views of the Portfolio editorial staff. If you would like to comment on the topic, send your article to [email protected]. The published articles can be read here.
The difference between productivity growth in the United States and Europe presents a stark – and depressing for Europeans – picture. In the two decades since 2004, U.S. productivity growth—as measured by the value of output per hour worked— more than double was the indicator of the eurozone. While the productivity of the Eurozone has stagnated since the outbreak of the Covid epidemic, and even slightly decreased, the output per hour in the USA (excluding the agricultural sector) increased by more than 6% in the same period, which is more than adequate compared to the US data so far can be called
Something seems to be working very well in the US and something very badly in Europe.
Some analyzes in this regard point to the powerful budget incentives introduced in the USA since the outbreak of Covid. For Europeans, this explanation can be comforting, because it suggests that lagging behind the USA is only a temporary phenomenon. After all, the USA will not be able to maintain a huge budget deficit indefinitely, spending beyond its means.
While strong spending stimulus can trigger rapid output and employment growth, it is not clear why this should also lead to faster productivity growth. On the contrary, with strong employment growth and tight labor markets, one would expect US companies to be forced to hire less productive workers, which would adversely affect output per hour. It is more likely that the tightness of the American labor market may mean that companies, since they cannot find an adequate amount of labor, are forced to invest in labor-saving (labor-supplementing, substituting) technology.
In bank branches, Americans encounter many ATMs, but sometimes not a single teller. Even in high-end restaurants, they order food with a QR code. Guests of Parisian restaurants shuddering at the thought may say that this is actually a cultural difference between France and the USA. However, it is hard to deny that the tight labor market also plays a role in this.
However, consider that the rate of growth of American productivity was already faster compared to the European indicator in the decade before the epidemic, when the labor market was not yet so tight. Following the global financial crisis of 2008, both the USA and Europe implemented fiscal consolidation. Europe may have been slightly more committed to austerity, but the difference in demand was not large enough to explain the different productivity figures.
In addition, although American companies were able to make money faster through the use of digital technologies, this does not provide a sufficient explanation for the differences in productivity, because America’s superiority over Europe in computer manufacturing and computer user sectors was the largest in the decade before the global financial crisis, not in the period since then.
As for the latest wave of new digital technologies, companies are just beginning to discover how big language models and generative artificial intelligence can be used to increase productivity. In other words, artificial intelligence and related developments do not explain why America has achieved such unusually strong productivity growth over the past four years. In fact, historical experience shows that taking advantage of radical new technologies requires companies to reorganize their business activities, which is a time-consuming, experimental, learning process. Errors are inevitable in this process, which means that productivity is likely to decline before growth begins, which economists “productivity J-curve” are called
And it’s not that European leaders aren’t aware of the labor-saving and productivity-enhancing potential of digital technologies.
Strong European trade unions may resist the introduction of these technologies for fear of job losses, although Germany, with its strong trade union tradition, has the world’s its most robot-intensive factories some of them.
The restrictive rules of the European Union can also hinder the use of new technologies. EU data protection rules and regarding artificial intelligence now proposed regulationif strictly enforced, can slow down the development of AI-based applications.
Finally, it can also be said that Europe has simply had bad luck, which was particularly evident in connection with the policies of Russian President Vladimir Putin and the energy price shock. The US, being self-sufficient in terms of energy, has not been as vulnerable to energy disruptions as Europe. European companies, on the other hand, were forced to suspend their most energy-intensive activities or had to carry out costly reorganizations, which did not benefit productivity.
Mario Draghi, Europe’s leading economic expert, will present his package of proposals for increasing productivity for the EU this year. He will definitely recommend it european capital market union completion so that companies can more easily finance investments in new technologies. Draghi will also propose eliminating factors that hinder competition, which would increase the pressure on companies to innovate in order to survive. He will advocate for greater energy efficiency and self-sufficiency in the field of energy, so that Europe can avoid confusions like the one caused by Putin.
Analysts like myself can confidently predict what Draghi will propose, as such proposals have been known for years. Europe should now take steps to realize these old ideas. In addition, there is a great need to come up with new ones.
: Project Syndicate, 2024.
Barry Eichengreen
He is a professor of economics and political science at the University of California (Berkeley). Between 1997 and 1998, he was a senior adviser to the International Monetary Fund (IMF). His research covers issues such as exchange rate policy, European and Asian economic integration, and IMF policy.
