Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Rebuilding confidence in our economy

by Jerome a Paris Thu Jun 30th, 2005 at 06:29:45 AM EST

The current malaise in France and Germany has a number of causes, including deep dissatisfaction with our current leaders, especially in France where our president is seen as totally incompetent, impotent and rudderless, as befits a fin de règne. But a few clearly unsatisfactory headline numbers (unemployment and growth) have made it possible for the English speaking world, which increasingly sets the tone for all business and economic news coverage, to crow about the superiority of their "flexible" and "dynamic" model as opposed to the "rigid", "stagnant" and "declining" continental economies.

Perceptions matter. That permanent barrage of criticism about our countries and systems defines what everybody thinks about the economy, and increases the feeling of malaise and drift, which in turn decreases our own confidence in the ocuntry. With confidence and moral plummeting, it is harder to invest and plan for the future.

It is important to say hard and loud that most of these perceptions are, quite simply, false.

I intend to use the tribune as an opportunity to trumpet another version of economic "reality", to encourage a change in perception. I hope that you will help me in this endeavor by being as critical as possible, so that only the best arguments seep through...

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First of all, I'll start by bringing up again an argument which was kindly provided by afew in an earleir diary started by Colman (What's really wrong with the eurozone labor market?), and which is the translation of an article in the lefty, but well respected, French economics magazine Alternatives Economiques (full disclosure - they have published an article by me 2 years ago):

Hardly a day goes by without its elogy of the British employment model. Indeed, the British jobless rate of 4.6% (2nd quarter 2004) is enough to make the French dream. Ten years ago, in 1994, the two countries showed similar, poor performance: 12% for France, 9.7% for the UK. So France should be red-faced today.

Not so sure. Over the same ten years, the number of jobs in the UK increased by 11%. In France, by... 14%. That's because of a rise in the number of government employees, reply the free-marketers. Well, no, because the UK is clear ahead of France in this race: since 1997, 45% of newly-created jobs (861,000 out of a total of 1.92 million), are public-sector, while in France, the number of new non-private-sector jobs (including public sector plus ONGs, trade unions, religious bodies) increased by 300,000 during the same period. Doctors, teachers, policemen, nurses... These are the jobs that have been created on the other side of the Channel. Not surprising, since public services were particularly badly treated by the ultra-free-market governments of the '80s and '90s.

If job creation in France has been superior, how come the unemployment level remains stuck so high, while it keeps going down in Britain? Quite simply because of the increase in the active (working-age) population. The number of job-seekers rose by 12% in France over ten years, as against 6% in the UK. So France needs to create two jobs to Britain's one to bring the unemployment statistics down.

But to confess that a rise in active population might have an effect on unemployment goes against the fundamental free-market assertion: all candidates on the job market will find a job... unless prevented by government interference (minimum wage, constraints on firing, high unemployment benefits).

Denis Clerc, Alternatives Economiques, n° 235, April 2005

And interestingly enough, the Financial Times publishes something similar today:

Public spending explains Britain’s jobs growth

Recent data from the Organisation for Economic Co-operation and Development illustrate the difference between the UK approach and the European social model. The UK has the lowest benefits for the first year of unemployment of any OECD country. Employment protection is lower in the UK than anywhere else in the rest of the EU-15. (...)

Alongside this flexible labour market, the UK’s level of product market regulation is the lowest of any EU country – lower even than the US. If the deregulators are right, Britain should have a vibrant private sector, with uninhibited private business enthusiastically recruiting additional workers.

The reality in recent years has been rather different. (...) France and Germany, despite higher unemployment rates, have done much better than the UK in maintaining employment in manufacturing. Between June 1997 and the end of 2004, France and Germany each lost between 5 and 6 per cent of their manufacturing jobs. These figures compare with a reduction of nearly 22 per cent in the UK.

While the troubles of manufacturing are well known, it is not widely appreciated how much weaker overall private sector employment has become in recent years. In the three years to 2000, private sector employment went up by about 900,000; in the four years after 2000, the increase was only 300,000. What is even more striking is that this slowdown took place while the government was creating more work for private companies through a substantial increase in public spending. Since 2000, the government has commissioned construction companies to build new hospitals and schools, spent more on drugs and school books and employed more catering, cleaning and other private service contractors.

(...) calculations suggest that, between 2000 and 2003, some 550,000 extra private sector jobs were created as a direct result of public spending. (...) the public expenditure programme of Gordon Brown, the chancellor, has been responsible for all the growth in private sector employment between 2000 and 2003. (...) together [with the increase in public sector jobs] it is clear that Mr Brown’s public expenditure programme has been directly responsible for all the growth in UK employment since 2000.

The experience of the last four or five years certainly does not support the idea that the UK’s recent jobs growth has been the creation of a deregulated and vibrant private sector. A good old-fashioned Keynesian expansion seems much closer to the mark. Perhaps this is the lesson Europe should learn from the British experience.

John Edmonds is a research fellow at King’s College, London and former general secretary of the GMB trade union. Andrew Glyn is fellow in economics at Corpus Christi College, Oxford

So, France has created more jobs, and more private sector jobs than the UK, despite not benefitting from the same debt-fuelled housing bubble nor of the oil price windfall (I'll write separately about that one later).

It's time to adjust our perceptions, and to stop worrying about how irremediably fucked up our system is. It has problems, real ones, I certainly won't deny it - but let's focus on solving these problems and not on bringing piecemeal some totally different rules that don't even seem to work so well.

Let's trust ourselves a little bit more.

It is important to say hard and loud that most of these perceptions are, quite simply, false.

False or deliberate propaganda? An attempt to convert the heathens to the one true Church of the Free-market?

I simply don't understand where people who purport to be hard-headed realists get their bizarre faith in the magic of the free-market.

by Colman (colman at eurotrib.com) on Thu Jun 30th, 2005 at 07:00:19 AM EST
like...tax cuts for the rich?

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Thu Jun 30th, 2005 at 07:14:39 AM EST
[ Parent ]
They often make me think of Pangloss. All is for the best in the best of all possible worlds.

Where's Voltaire when you need him?

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 30th, 2005 at 08:54:55 AM EST
[ Parent ]
I think what we have to understand is that to a large extent these perceptions are being driven by a wealthy elite (and their media minions) who want to redistribute income and wealth upward.

This is exactly what has happened in the United States in the last 30 years. When the post-WWII economic boom ended and corporate profitability slowed, that's when you began to get "backlash" against taxes, "excessive" government spending, regulation and "red tape", "out of control" labor unions, etc. The goal was largely to restore the incomes of the rich at the expense of ordinary working people by removing barriers to corporate profitability. The results are clear - wages, which no longer keep pace with productivity, and family incomes have hardly grown at all in the last 30 years, economic inequality has increased explosively (none of which is true of Europe), while corporate profitability is higher than ever. The fruits of economic growth are mostly being distributed to the rich because the institutions that used to guarantee a more equitable distribution of national income and wealth - labor unions, state regulation of labor and financial markets, the welfare state -- are all under attack in this country. This sounds like conspiracy theory, but take a look at Joel Rogers' and Thomas Ferguson's Right Turn: The Decline of the Democrats and the Future of American Politics for all the gory details.

Paul Volcker once let slip in the New York Times with the following statement: "The standard of living of the average American has to decline. I don't think you can escape that." Well, if your aim is to restore 1960s levels of corporate profitability in a 1970s and 1980s economy in which the economic growth rate is only 2/3 of what it was back then, of course you can't escape it. Unfortunately there was no FDR or Walter Reuther around to reply "No, Paul, the profitability of the average American corporation will have to fall, too, if we are going to share fairly the burdens of slower growth."

I'm sure the business elites in Europe would like nothing better than to replicate their "success" over here. When people like Tom Friedman bitch about "lazy European workers" and "rigid labor markets" and "the welfare state run amok," essentially what they are saying is "The standard of living of the  average German and Frenchman will have to decline. There's just no way you can escape that."

Fortunately, it seems that these people are having a harder time convincing Europeans to go along with it than they did here in the U. S.

by TGeraghty on Fri Jul 1st, 2005 at 02:14:49 AM EST
[ Parent ]
Fortunately, it seems that these people are having a harder time convincing Europeans to go along with it than they did here in the U. S.

Great commentary, TG. Thanks. These facts make my blood boil...the wealthy are destroying the US for their personal gain. My radar is ip here on this exact subject...very sensitive to statements that are positive towards the US "rich get richer/poor get poorer" system. Bravo for the European people that they resist this trend...and must continue to do so!

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Fri Jul 1st, 2005 at 02:44:17 AM EST
[ Parent ]
You're right, in my view, about almost everything -- in particular the thirty-year period during which the prosperity of the working and middle classes has been under deliberate attack.

You're mistaken, though, to imagine that "none of [this] is true of Europe". Exactly the same forces have been at work in Europe. The rich/poor divide has greatly widened. The old industrial working class has been pretty much shafted. There is no longer the feeling -- anywhere in Europe -- that there's an upward movement, that tomorrow will be better than today for people who are willing to work. (Sorry, I forgot some parts of Europe, like Monte Carlo, Davos, Lichtenstein, etc...)

The difference, certainly, is that the safety net is better here than in the US. So we have people on unemployment benefit or other forms of "welfare", who would forced to work two low-payed jobs in the States just to survive. We have the unemployed, America has a far greater number of working poor.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jul 1st, 2005 at 03:01:16 AM EST
[ Parent ]
Your point is well-taken: social exclusion in Europe has increased in the past 30 years, it has just taken different forms, like more long-term unemployment in some countries, especially for younger workers. I never meant to deny that both the European and the US economies have their problems

It's still true, though, that wages have risen faster in Europe relative to the U.S., and income and wealth distributions are much more equal in Europe. Economic mobility is higher on the continent than in either the US or the UK. The well-paying jobs of the manufacturing base are much better preserved on the continent. If you're poor or lower working/middle class, you're better off in Europe than in the US.

by TGeraghty on Fri Jul 1st, 2005 at 03:34:11 AM EST
[ Parent ]
Fascinating discussion. I have two points to add.

Firstly, I agree that the poor/rich divide is unmistakably widening in Europe. Any numbers can be presented as desired, but everywhere I see the trend that income of the top branch has increased while income of workers has increased with virtually nill - and this during economic recession in a number of EU countries. That's a wrong trend for working moral. No one is going to like to work knowing that the CEOs decide about their fate and get an increased paycheck for it! I think this is clearly an issue to address - but I hesitate whether Brussels should.

What irks me, too, is the absence of European charity foundations, a trend that is growing for many American multi-millionaires (The Kellog Foundation, Bill Gates Foundation, etc etc.) Although a multitude of these are founded by company chairmen, an European equivalent is sorrily lacking. Because Europe a has more social safety net doesn't plead European companies free.

Secondly, the working poor are a growing phenomenon in (western) Europe - or at least in The Netherlands. There was a leading article in NRC Handelsblad (one of the major national newspapers of the Netherlands) a couple of weeks ago describing this problem. I think it relates back again to growing costs versus stagnant income/minimum wages.

On the other hand, regional government are already undertaking initiatives to support this group financially to prevent them spiralling down even further. Examples range from financing tuition fees for young children, replacing broken down washing machines at the cost of the city council, reduction in tax etc. That is a good development and a pragmatic solution, though I feel they work around the fundamental problem: the stagnancy in lower income is not addressed.

by Nomad on Fri Jul 1st, 2005 at 07:31:23 AM EST
[ Parent ]
Thank you, Jerome!!! I've been wrestling with an article in my head for a few days, trying to dig around for stats on this...so I'm relieved you dove in before me!

My train of thought has been on what would be the best go to get people back to work, through the greater Europe. It is pretty clear to me, that people want to work, and when they are working, purchase "stuff", pay taxes, and generally feel better about themselves. Bingo: confidence...and improved economy, to boot.

FDR created a jobs creation program (WPA) during the depression, that got things moving again. Wouldn't EU governments investing in job creation be an idea to explore? There's a lot that could be done: wiring up the EU for broadband, rebuilding roads, developing new 21st century industry, etc. It would be a worthy investment: in the people, and in modernizing the economies of countries. What would be the problems with this idea?

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Thu Jun 30th, 2005 at 07:13:21 AM EST
 I'd hope there wouldn't be a world war on immediately after to boost the economy like FDR had.

 The key is going to be innovation. Gods know it sounds corny, but I have empathy, having lived through one of the highest unemployment rates in postwar America - Rockford, Illinois in 1982 had an unemployment rate of 22.1 percent.

....because I would rather see us reduce the consumption of imported oil than have to send American boys to fight in the Persian Gulf. - John B. Anderson

by Anderson Republican on Thu Jun 30th, 2005 at 07:42:06 AM EST
[ Parent ]
Yes! Innovation. In a number of ways...figuring out what can be done, by way of new technologies and energy systems (to name but a few), by innovative state-business relationships, by modernizing. Something for everyone. There will probably be complaints about monies being spent, but the investment in innovation AND in job creation would bring more money in, in the long run. The "Free Market" focus is too profit only bottom line, and there needs to be more consideration of the overall social good.

Here in Switzerland, kids are coming out of school and there's no jobs...that's not right, they are our future, we should invest in them.

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Thu Jun 30th, 2005 at 08:32:54 AM EST
[ Parent ]
I think innovation is a key, especially in alternative energies and environment friendly technologies. For I quite while now, I have been believing that this will be the new big business of the future.
by Fran on Thu Jun 30th, 2005 at 08:51:50 AM EST
[ Parent ]
Yes, Europe has the lead in both wind technology, and carbon trading. These are things we need to talk about more. They are vital industries/activities, and Europe is the undisputed leader.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Jun 30th, 2005 at 09:22:27 AM EST
[ Parent ]
Also, soon-to-be leader in photovoltaics, and leading developer of both wave and tidal energy.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Jul 1st, 2005 at 05:25:47 AM EST
[ Parent ]
Europe is absolute world leader in wind power but surely not in photovoltaics. Looking at the production and companies involved it is firmly in hand of Japanese giants however, European companies are hot on heels of Japanese (Japanese hold about 50% market share, EU just about 25%, US about 10-15%).

US is doing fairly well technology wise investing to military and specialized applicationd but production rates and actual employment of photovoltaics is clearly being negleted in US.

by Nikita on Fri Jul 1st, 2005 at 05:50:36 AM EST
[ Parent ]
Yep, in 2004, it was Japan 48%, EU 26%, USA 11%, rest 15% (according to solarbuzz). But, I said soon-to-be, a prediction mainly based on the German growth. I note that in module production, the EU is closer to Japan.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Jul 1st, 2005 at 06:24:11 AM EST
[ Parent ]
Yes. I thought that this week's news, with  the twin decisions on ITER and Galileo, high tech long term pan-European projects, would be a welcome change in the incessant negative spin of recent weeks.

Energy and communications. These are the vital sectorws of the future, and it's good to see big European projects there. Big enough to change impressions.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 30th, 2005 at 09:21:27 AM EST
[ Parent ]
I'm generally not such a pessimist, but on the topic of unemployment in France, I am all but hopeless.

Explaining that England only looks pretty because she has a lot of makeup and that France is actually beautiful if you can see through her unemployment warts is not going to cheer up one single long term unemployed person, much less solve his problem.  I have no argument with the notion that perception is key in the field of economics.  However, 20+ years of massive unemployment have created a disaster which is social, human and cultural in scope and which is far beyond what mere perception can fix.  Kids are reaching working age having practically never seen their parents hold a job and with no hope of getting one themselves.  In former industrial regions, some people have been out of a job since the eighties, and have been « pre-retired » since they were barely more than 50.  During the 80s in France we « pre-retired » 50+ year old people who had been laid off and had little chance of getting a new job.  They squeezed by on meager pensions until they reached official retirement age (60 generally) when their full pensions kicked in.  Imagine industrial suburbs where every other house is inhabited by 70+ year old people who have not had jobs in 20 to 25 years: painting the door every now and then, growing a few vegetables if they have minute gardens, soaking in some TV if they don't feel too alienated by the maddeningly stupid shit that's on.  Young educated professionals who lost jobs during the dotcom crash are not finding new jobs.  Employers are able to cherry pick employees on grotesquely elitist criteria: there is nothing unusual about a secretary having a master's degree and being fluent in three languages.  Competent, hard working ex-dotcommers who are not telecommunications engineers can't even get employers to read past the formal education part of their résumés.

So how about a French « Tenessee Valley Authority » type of thing, or « les grands travaux » as they are called here?  With the government gobbling up so much of our ressources, it's hard to imagine where the money would come from but let's make believe anyway.  Construction is chronically understaffed in France so a great surge in immigration would be a prerequisite to any major construction effort.  As immigration increases, and unemployment remains high, Le Pen gets elected.

The English are not so hot?  True enough, but if their economy goes belly up, and all the French expats there come back to be unemployed in France rather than Britain well it's 15% or more unemployment in France.

I've been looking for a silver lining for the past few lines so as not to end on 100% pure doom and gloom but I'm not finding it.  I'm afraid we may have sunk a generation just as surely as we used to when we still had wars.  

I'll concur with Jérôme's last sentence which I think is the key "Let's trust ourselves a little bit more" and let's teach our kids to depend on themselves more and to expect less from the grandiose top to bottom government schemes that have failed us so miserably.  Let's make sure they don't grow up with absurd expectations about what a government can do only to be duped, disappointed, and thrown in the arms of fascist or Trotskyite parties/cults that are thriving in Europe.

by Guillaume on Thu Jun 30th, 2005 at 09:28:31 AM EST
Guillaume, your post is, as the French say, stitched with white thread, meaning you can clearly see its ulterior motives. What you want to make out is that the French economy is irremediably screwed, in particular, according to you, by the failure of grandiose government schemes.

But really, you do go on a lot...

England wears makeup, you say (which is meant to belittle critiques of the supposedly fabulous UK economy) -- but a little further on, you're ready to admit the possibility of the British economy going belly up! (This because you want to make the exaggerated point about French expats working in Britain in such numbers as to lead us to believe French unemployment would be 50% greater without it! In other words, Guillaume, the UK employs one third of the French unemployed?)

You paint a horrifying, Zolaesque picture of industrial suburbs inhabited by the over-seventies who haven't worked in years. Perhaps. But the UK is no better. You tell us it's common to find people with a master's degree and three languages working as secretaries. Really? Is that common? (I'm tempted to ask you why these people haven't buzzed off to England...)

Your points about a major government programme of public works are really specious. First you use the theme to take a dig at government expenditure. With your kind of attitude, it's no use talking about Tennessee Valley anything, you're just not on the same page. Then you make the surprising development that such programmes, meant to create jobs for the French, would in fact necessitate huge immigration (!?) Guillaume, if construction companies are understaffed at the moment (not chronically, the situation was not the same ten years ago, for example), it's because demand, particularly in house-building, is high; employers have difficulty finding enough highly-skilled workers. If immigration solved that problem, they'd be bringing in immigrants. But the truth is that migrant workers in construction are mostly unskilled. The Polish plumber is a myth. Growth in Eastern Europe will keep most skilled workers from those countries in demand at home.

This is not to say that I believe a Tennessee Valley-type programme is the right kind of response to unemployment today. But to build this strawman argument to allow you to reach the conclusion that Le Pen would take power beggars imagination.

So, by all means teach your kids independence. I'm all for it. But don't weep crocodile tears over social problems when all you've got on offer's a fairly rancid form of hatred of government intervention.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 30th, 2005 at 10:26:49 AM EST
[ Parent ]
I can understand that you might see me as a bit of a libertarian coming down hard on government intervention. As progressives go I'm clearly not of the big government variety. Not so much as a matter of dogma, whatever works floats my boat, but because I've seen so much of the failure of recent half baked measures designed, year after year, to end unemployment.

Be that as it may, my larger point is to highlight the despair that comes from massive long term unemployment.  I'm a big boy and a sportsman and can accept that my rhetoric might annoy some.  Your riposte is loyal and straightforward and I accept is as such except for your last point about my crocodile tears.  You do not know me, my family or close ones but I assure you that my feelings for the unemployed are heartfelt, not merely a prop to make a political statement.


by Guillaume on Thu Jun 30th, 2005 at 10:58:23 AM EST
[ Parent ]
I take your last point and apologize if I trod on your feelings.

You'll notice that I didn't try to belittle the problem of unemployment. I think it's huge. I'm sure we'd both agree that social problems in France like those of the "cités", or housing projects in US parlance, are mostly due to the utter lack of prospects of an entire generation. My point would be that the UK and US have little better on show. The free market tends to increase social distension and imbalance.

As for government intervention, I don't think a lot of it in France over the years has been all that inspired. That doesn't mean, imho, that we should throw out the baby with the bathwater.

Btw, you don't know me either. I'm neither well-employed nor well-off. I'm not waiting for the government to help me. However, I think a lot of people who need help have the right to expect it.


by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 30th, 2005 at 11:28:46 AM EST
[ Parent ]
So the fight is already over and I didn't even get a chance to use bad faith arguments ?!?  How unfrench Monsieur (ou Madame ou Mademoiselle)  :-)

Your apology is graciously accepted and, yes, I am a bit of a big mouth "raleur".  My reference to "pre-retireds" did come across as Zolaesque.  The people I have in mind are miners around Longwy, some of whom I know, and they clearly are not miserable because they have been rightly protected after the collapse of their industry.  What strikes me though, is the lost potential represented by the shelving of these people and the pervasive notion that if the government can do nothing, then nothing can be done.  To this you say "so start a company and employ them smartass" and I reply "touché".

I basically agree with you, there is no anglo-american miracle solution, and government intervention is not all bathwater, but, to stay with Mao quotes, a mouth is also two arms.  If we want to be able to continue feeding the needy mouths, then we may need to fight a little damn harder as individuals.

Bon courage in the job market, it's a tough racket.

by Guillaume on Thu Jun 30th, 2005 at 12:22:20 PM EST
[ Parent ]
Glad to see the piece I translated in a more prominent place, and oh how interesting it is to see the FT confirmation! (Note that it's by two academics: one wonders whether journalists today can see through the haze of conventional wisdom).

Jérôme, you mention the bubbly nature of the UK economy, also oil/gas income. What additional leverage, if any, has been created by the UK staying out of the euro? Or, in other words, to what extent has ECB monetary policy deaded down the economy of the Eurozone recently?

I'm going to touch on another aspect of the UK-brilliant-economy vs Old-Europe-out-of-touch etc match. Britain's unemployment numbers are not necessarily as good as they look. For many years now the UK has "offloaded" the chronically unemployed towards Incapacity Benefit. It would appear that far more people of working age in Britain suffer from long-term sickness or disability than in the Eurozone.  This study (pdf) from researchers at Sheffield Hallam University, estimates the diversion from unemployment to sickness benefit may be as high as 3.2% of the working-age population (August 2003). The numbers are concentrated in the former heavy-industrial areas. In the Welsh Valleys, for example, 24% (!) of men of working age are on Incapacity Benefit. (Let no one pretend the men of the Valleys are idle good-for-nothings, or afew will go into a fit of ancestral rage...) Some of these non-employed persons may be included in the ILO-definition unemployment statistics, but most are not.

The question is whether the UK is a shining example of full employment, or an imbalanced country where jobs and growth are concentrated in one region (South-East England), and the former areas of heavy industry and manufacturing have been pretty much abandoned.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 30th, 2005 at 09:39:21 AM EST
The periodic trumpeting of superior US economic statistics by the English speaking economic news feeds used to have a slightly depressing impact on my mood, until I read an article dissecting the European figures versus the US ones in an article in the July 2004 edition of The Economist (unfortunately pay-to-view). The conclusion of the article was that the economic performance of the euro zone and the US has not been hugely different over the last decade.

According to the article:

The euro zone's GDP growth is consistently below the US but adjusted for population growth in the 10 years to 2003, average GDP growth per capita was 2.1% in the US vs. 1.8% in Europe (and excluding Germany, struggling with the consequence of the reunification, the figure would have been 2.1%).

After adjustments to make the figures comparable, average labour-productivity growth over the same 10-year period has been virtually the same, despite the US productivity miracle claims.

And if it is true that GDP per capita at purchasing power parity remains 30% below the US, the difference results mostly from more worked hours in the US. Europeans have used some of their increase in productivity to expand their leisure rather than their income. The average American works 40% more hours during his life-time than the average European.
"Who is better off?" says the article.

by Minstrel on Thu Jun 30th, 2005 at 10:01:17 AM EST
"The average American works 40% more hours during his life-time than the average European. "Who is better off?" says the article."

Tell me about it!! That's the "American Way (tm)"...which I am seeing more and more creep into Europe. I say: Don't go there...enjoy and appreciate the good quality of life you have here!!

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Thu Jun 30th, 2005 at 11:31:17 AM EST
[ Parent ]
 I see too many households here who have to work two low paying jobs to make ends meet here. Don't be like that.

....because I would rather see us reduce the consumption of imported oil than have to send American boys to fight in the Persian Gulf. - John B. Anderson
by Anderson Republican on Fri Jul 1st, 2005 at 12:35:22 AM EST
[ Parent ]
Amen, indeed. I don't mind to work hard or make long days when necessary, but I've always remained skeptical during my experiences with the American working frenzy. There's a time for work, and a time for relaxation and they should come in a good balance.
by Nomad on Fri Jul 1st, 2005 at 07:42:02 AM EST
[ Parent ]
I wanted to refer to this article, too. Some more points:

  • That 1.8% for the Eurozone rises to 2.1% if we exclude Germany, which had its problems in large part due to the problematic reunification

  • (most important point in my view) European and American GDP statistics are actually incomparable: the USA makes heavy use of statistical tricks like 'hedonic price indexing', which adds the income of new technology industries into the GDP with a multiplier that is meant to express decrease of prices due to development (for example, PCs, 1995-2000: real rise from $23 to 87 billion, but with HPI, the latter became $240 billion); some stuff like companies' spending on computers is added to the GDP as investment in the USA, but substracted as spending in Europe, etc.

There is a further point about joblessness, too. After looking at the details, I became convinced that joblessnumbers are a sham: there are endless opportunities to exploit (and they are exploited) for statistical tricksery. Basically, the jobless number is the number of people without jobs who are tracked by some government agency and are recognised as such, be as people receiving benefits or applying for job-searching help. It would make more sense to look at the number of working people vs. all working-age people; and, IMO, even more sense to just look at working people vs. total population.

In effect, both in Britain and the USA, a lot of jobless people drop out of the statistics because jobless benefits are more scarce and apply for less time. The Bush-era development in the USA is particularly instructive: the jobless number is sinking for IIRC two years now, but the total workforce barely reached its early 2001 record level in total numbers, while the working-age population increased by millions.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Jul 1st, 2005 at 04:42:22 AM EST
[ Parent ]
I separate out two less straightforward points, which could be unortodox, and I make them as an amateur economist so a professional (Jerome?) might correct me where I am wrong:

Point 1: I think the Clinton-era new economy bubble was a main part of a larger, global economic bubble, which boosted the US economy at the expense of the European (and Asian) economies in real terms, not just in perceptions - but this was an effect of the above mentioned false perceptions.

The new economic bubble went like this: a lot of naive investors invested into companies with only promises, thus their stock price went up, the higher stock price made them even more popular, later the higher stock price was also recycled in the company balance sheets and quarterly profit reports due to the new accounting preferences, which in turn made these stocks even sexier, so there was a positive loopback - further enhanced by companies actively tricking to boost their stock prices further with false reports.

This alone drew away a lot of capital from the rest of the world in an unjustified way. But the above mentioned differences in US and rest-of-the-world (especially European) methods of measuring econmic performance, details ignored by most, led through the false perception of the US outperforming the rest to further capital streams into the USA - I primarily mean the securities market.And this was the meta-bubble: the FED's combined statistical tricksery and laissez-faire attitude towards the practises on the stock market (not to mention accounting) created a positive feedback for investment into the USA. The more money went in, the more superior the US economy seemed.

Point 2: This is only tangentially a US vs European economy issue. It is about the supposed demographic effect. It is commonly argued that low child numbers in a country lead to an exploding retirement budget.

I don't see how. I think, first, this calculation leaves unemployment blatantly out of consideration. For, if the problem would be a shortage of workforce, there is a simple solution: raising the retirement age. But actual policy (either officially or inofficially) is often the opposite, older people look for but aren't given jobs, and companies often 'rationalise' by sending workers into early retirement.

Which leads to the thought: if retirement funds were to be decreased by raising retirement age, jobless numbers would soar - and so would jobless benefits paid out. Which leads to the idea that retirement funds and funds for jobless benefit should be treated together, as money paid by workers for non-workers.

If we are here, one could take this one step further. Children are also inactive economically, and tough much of the money spent on them is not paid by the state, it is a cost to the overall economy nevertheless. So it would be best to treat all non-workers who 'live off' active workers together.

And this is my point. The number of children is not the problem - change that, you only shift some percentage of the money flowing from active workers to non-workers from the elderly to the children. So unless I made a fatal error above[], there is no demographic problem, there is a deeper job shortage problem. (I have my ideas on that, but that would be another post.)

[] Higher productivity of young people could be an argument - however, (a) I don't think higher productivity is specially needed in that many jobs, (b) I'm not even convinced that there is such a big difference between old and young people - much of it could be a Jugendwahn, one of the many currently fashionable mores managers catch on with a herd instict, (c) older people can have their productivity advantages too: experience, (d) productivity itself is over-hyped: in the end, for a company, what matters is total value produced vs. money spent on paychecks and taxes, that is two half as productive people working for half the pay is just as good.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Jul 1st, 2005 at 05:22:59 AM EST
[ Parent ]
i wonder how much of the post-911 economic growth in the u.s.a. would be left if one subtracted all the capital generated by soul-destroying industries like guns, mines, poisons, crowd control, uniforms, and fear-driven, bloated bureaucracies feeding at the same trough.

aren't the chinese effectively extending credit to america to finance the iraq millions-per-day jamboree?

here in my corner of italy (umbria) people grumble, (especially about the euro,) and take the tobacco money to grow tobacco which then causes health problems that cost millions in public taxes, and decreased productivity, poisoning the rivers with pesticide runoff, and the air when they spray illegally on windy days.

the good news: there is a factory building solar PV panels from cells imported from china, and water heaters as well. last week as i was being shown around the factory while buying a solar wellpump and panels, (i already have their water heater), i saw a 16-wheeler loaded with panels and similar kit leaving for germany.

every day on the radio i hear imbecilic ads exhorting me to buy agip 'greener' petrol (haha), but vested interests shut the local biodiesel plant down, and we local farmers have had to go back to dino diesel again.

heating gas prices and gasoline prices are relentlessly inching up, when will the reed snap?

vested interests are also sabotaging efforts to subsidise rooftop solar through tax credits and part-payment, i was told by the CEO of the solar factory.

i suspect this region could be energy self-sufficient through solar and biodiesel, but until people squawk loud enough to get their representatives' attention, it's bizniz as usual, with the lambs brainwashed with the most surreally idiotic media imaginable.

who are the politicians in italy and europe who care about this stuff?

germany seems the most progressive, perhaps because it had the most heavy industry and subsequent pollution?

will all countries have to pollute to that point to evolve meaningful green policy?

there is not nearly enough discussion in the media about peak oil, and the need to prepare ourselves. i'd like to see politicians coming forward and naming names as to who is blocking new models, and profiting most off the present shambles.

there should be panel factories in every decent sized community, and we should be subsidising our own cell production, researching deeply into better alternative technologies. it's fine that europe is the undisputed leader, but we are still barely scratching the surface, imo.

maybe in gaia's dna there is a reason cheap oil is ending: to save us from ourselves.

thanks jerome, excellent as usual!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Jun 30th, 2005 at 10:54:06 AM EST
Perhaps I'm being naive but it seems to me that the way to tackle unemployment is for people to start offering services and making goods that other people want to use and buy.  While big public works programs are great to get people working in a depressed economy, they are only temporary measures until the projects are built.  And reliance on government contracts for private sector manufacturers creates a cyclical business.  I would think that the way to tackle unemployment is not to rely on public sector spending but to have the public sector create incentives for growth in private sector demand. Without intent, I realize that I am sounding very "supply-side" here, but it does appear that the Europeans have a very structural problem.  It really doesn't make sense that a large increase in working age population would create a big unemployment problem in a modern, industrial, and highly educated society.  Young working age people are the biggest consumers of goods.  They spend, accumulate debt and don't save much.  While that pattern is not good for long term financial planning, it should create conditions for economic growth.  And the Europeans have a big social safety net, so they don't have to worry about growing old and not being able to make it on a pension or paying for their medical care.

So my question is how easy is it start a business in France or Germany ?  Is it easy to get capital from banks or other financial sources ? Is there a lot of bureaucracy that you have to go through ?  Is the tax structure such that it's advantageous to start a business ?  Are the societies entrepreneurial or are young people in Europe more risk adverse ?

by Grand Poobah on Thu Jun 30th, 2005 at 11:00:40 AM EST
I invite any knowledgeable person to comment on my perception of Europe:

Space: Distant Third behind United States and Russia. Japan and China can potentially surpass Europe. major institutions: ESA.

Software: Most of the software I buy is American made. India and China are low cost alternatives to America. major companies?

Hardware: The pacific region has all the powerhouses: Europe?

Robotics: Japan, USA, Korea... Is Europe even trying?

Alt. Energy: Numero Uno.

Biotech: Europe and America are virtually tied, but the long term edge goes to Europe because of an anti-science mindset in America.

Could someone name some European companies or institutions that are nearly world leaders in future technology?

by Coriolanus on Thu Jun 30th, 2005 at 12:01:18 PM EST
Jeremy Rifkin is someone has been and is a huge proponent of Europe, and I believe he may have some interesting answers to yours (and others) questions.  Here is the website to his foundation:

Foundation on Economic Trends


I'll contact him/them, and see if they have any interest in dialoging with us, or have references/resources to suggest

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Thu Jun 30th, 2005 at 12:16:36 PM EST
[ Parent ]
Space - Europe world leader for commercial space with Arianespace and lead likely to increase with Galileo, which is private sector run, as opposed to the Pentagon-run GPS.

Software - good position. SAP (Germany) n°2 worldwide. France second exporter worldwide after USA

Hardware - not high tech, now a commodity.

Robotics - I am sure the Germans are building the machines that help manufacture the robots...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 30th, 2005 at 12:35:40 PM EST
[ Parent ]

Space: as others mentioned, Arianespace is the leading commercial launcher. A lot of space probes you may know as a NASA probe are actually NASA-ESA(+ others) coproductions (even the Hubble Space Telescope). Europe has the technological edge in some future technologies, like ion drives. On the other hand, note: in space technologies, there is almost always international cooperation, so establishing who dominates is not a straightforward exercise.

Software: "Buy" is a keyword: European-based Linux is free, and increasingly applied worldwide even with Micro$oft's dominance. SAP was also mentioned; let me mention that the best anti-spy-software (Ad-aware) and the most popular anti-virus software (Antivir) is German.

Hardware: hardware is less important than its main constituents, semiconductors. In that field, Europe has three companies in the revenue top ten (just as many as Japan or the USA): Infineon (German), Philips (Dutch), STMicroelectronics (French-Italian).

Robotics: hell yeah, there is. But more practical-oriented (not Asimos or robot football).

Alt. Energy: indeed, except for photovoltaics - but Europe is about to overtake Japan even in that. In this field, world leaders are: Vestas (#1), Enercon, Gamesa (among the next 5), in effect GE Energy's subsidiary (developing and producing in Germany) in the wind sector, RWE, Isofoton, BP Solar, Shell Solar, Q-Cells, Photowatt are some of the large producers.

Europe also dominates or is level with far Asia in passenger ship building, in mobile phones (Nokia; Ericson, Siemens and Alcatel), in bridge building (in this field the US's technological fall-behind is the most apparent, and tough most construction is in Far Asia - specifically China - a significant part of that by Europeans), in tunnel building (TBMs: Herrenknecht, Wirth-NFM), (not so much to my happiness) in car building (you should know these companies), (to my limited pleasure: not enough orders) in train and railway construction (Siemens, Bombardier's most factories, Alstom), and of course in passenger plane production (Airbus).

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Jul 1st, 2005 at 04:20:50 AM EST
[ Parent ]
RWE, Isofoton, BP Solar, Shell Solar, Q-Cells, Photowatt are some of the large producers

...of solar cells.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Jul 1st, 2005 at 05:41:17 AM EST
[ Parent ]
I completely agree with your observation about the US falling behind in bridge building and other infrastructure areas. It seems that bridges are no longer seen as legacy projects, but as simple conveyances.

There was recently a large row in San Francisco around the replacement of the Bay bridge. They ended up raising tolls to pay for the more beautiful, advanced design; but it was amazing how many people just wanted to throw up any old bridge design to speed traffic.

I lived in Boston  while the Big Dig was nearing completion. It was messy, noisy, inconvenient, and wasteful; but the final project seems quite amazing. I have only been back once recently, but I am dying to go drive it. It is almost certain that a similar project would not even get off the drawing board today. In the current environment too much of our highway funds are spent on museums and rest stops to fund truly amazing feats.

"Where there is no vision the people perish" (Prov. 29:18)

by toad on Fri Jul 1st, 2005 at 12:04:13 PM EST
[ Parent ]
Robotics: Japan, USA, Korea... Is Europe even trying?

Robotics is not high technology, it is a commodity for manufacturers.

World's largest robot manufacturers are either Japanese (Daihen, Denso, FANUC, Kawasaki, Yaskawa) or European (ABB, COMAU, KUKA, Staubli and Valk). ABB is huge engineering company, it has sold over 100K robots in its history. German KUKA is third largest in the world. US leading producer is FANUC (140K installed) but it is actually Japanese-US co-operation. Rest of US suppliers are peanuts.

As far as use of robots is concerned, US is not terribly developed as far as manufacturing is concerned. (number of robots in use per 10000 people employed in manufacturing industry in 2003):
322 Japan (not comparable to others)
148 Germany
138 Korea (not comparable to others)
116 Italy
99 Sweden
93 EU (I think is is for EU15)
78 Finland
72 Spain
71 France
63 USA
54 Austria
53 Benelux
50 Denmark
39 UK
36 Australia
24 Norway
15 Portugal
12 Czech Rep

The Japanese peak was in 1998 so perhaps the 300+ robots per 10000 manufacturning workers is some kind of natural limit?

by Nikita on Fri Jul 1st, 2005 at 04:26:59 AM EST
[ Parent ]
It seems the problem is that your youth are not crazy consumers armed with credit cards. If you want consumerism to spread you should focus on increasing credit card debt/use. I obtained my first credit card when I left home for college, now less than a decade later I could go out and run up tens of thousands in debt. In addition, I receive 2-3 credit card offers a day. Seriously, the US economy is all about debt. Don't compare yourself to it, or measure yourself by it, unless you want credit card debt to be part of your cultures. There is no economic miracle, we simply spend more than we earn every year

On the question of labour: If there is a shortage of skilled labour, why don't you encourage your unemployed youth to pick up a hammer or take up a trade. Everyone seems to want to work in an office. Perhaps, we should  focus less on "high-skilled" jobs and seek to expand employment in things like farming and construction (this goes for the US as well).

by toad on Thu Jun 30th, 2005 at 12:34:22 PM EST
but I don't think there is a lack of trades and crafts people here...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Thu Jun 30th, 2005 at 12:49:29 PM EST
[ Parent ]
Unfortunately, I can't read the comments in this thread using Opera browser.
by Greco on Thu Jun 30th, 2005 at 01:02:52 PM EST
I'm gonna harp on a theme I used to play over at MoA.  one road to fuller employment and a number of other bennies is land reform and the revival of family/smallholder farming using sustainable practises (i.e. less petro intensive, IPM/organic, diversified cropping, shorter haul to market).  it is a win/win/win paradigm shift with lots of positive spinoff:  reduced water usage per acre, increased productivity per acre, regional food self-sufficiency (cf this interesting finding by a Japanese bank on the economic benefits of a one percent increase in food self-sufficiency for Miyagi Prefecture), reduced pollution of rivers and lakes, higher food quality for local markets, preservation of diversity in cultivars, hence reduced vulnerability to crop diseases and pest outbreaks, preservation of soil quality, repair of damaged topsoil, reduced dependency of regional populations on fossil-intensive truck transport, and yada yada.

right now we are running out of cheap oil, but we have an oversupply of unemployed people.  yet our industrialised ag policy (unwritten but pervasive) on the American model is to maximise "effiency" by minimising the amount of human labour needed per kilocalorie produced, and maximising the fossil fuel inputs ("energy slaves" which substitute for human labour and expertise).  this form of farming often produces less biomass per hectare than diversified organic practice, thus failing to maximise return on another precious and shrinking resource (arable land) and is grossly wasteful of water  (about to be a limiting resource in many countries).

I do not suggest that we pack the unemployed off to forced agrarian labour camps in some kind of Maoist re-education programme;  but if I were chronically unemployed and my children had only the same to look forward to, and if I were offered "40 acres and a mule" of my very own plus training in sustainable ag practise and assistance in finding regional markets, I would jump at the chance.  the yeoman farmer makes a pretty solid middle class on which to anchor a stable polity;  and with today's electronic communications networks there is no need for the rural community to be cut off from cultural and educational stimulation, news, political life etc.

there is also the fascinating potential for urban farming -- that very activity which the Mugabe government (at a time of food shortages!) recently threatened to outlaw, apparently as part of its campaign to evict shantytown dwellers and to undermine any attempts at local food security in urban areas.  if the government is paying for unemployed persons to sit idle, why not pay them to produce food for local consumption?

just a thought...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Jun 30th, 2005 at 05:56:44 PM EST
Sorry the Japanese link got broken and I don't seem to be able to edit the comment. Let us try again

The 77 Bank, Ltd., headquartered in Miyagi Prefecture in northern Japan, recently announced the results of a study...

that's much better.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Jun 30th, 2005 at 08:19:54 PM EST
[ Parent ]
I mentioned this sustainable small-farm model in the biodiesel discussion in Jérôme's post on how much biomass went into  creating the oil we burn.

I believe it's possible to evolve towards something of the kind you mention, which could offer the benefits you mention. But it would be a huge evolution -- demanding almost Maoist intervention, in spite of what you say -- if it were to significantly reduce unemployment. What government agency, with what powers, would redistribute land? After all, "40 acres and a mule" came after a bitter civil war...

Perhaps a redefinition of the CAP in favour of small farmers might begin a slide. Currently, the way the CAP works (subsidies are paid per hectare, and based on specific fields contractually consecrated to growing a specific crop) is a thinly-disguised form of pressure towards rapidly-increasing farm size; land prices have risen as farmers borrow to attempt to attain "critical mass". Smaller farmers leaving for retirement are not replaced, their farms are gobbled up by bigger ones. If the CAP subsidized, neither the crops nor the land, but the farmer, there might be a change in the right direction.

Otherwise, I'm all for what you suggest. I was all for it thirty years ago. I just didn't get my 40 acres and a mule!

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jul 1st, 2005 at 02:07:49 AM EST
[ Parent ]
As far as I can remember, that is how it is now done, at least partially, here in Switzerland. Especially for the small farmers in mountain regions. They are more or less payed for the environmental upkeep.

If I can find some time I will look for a link.

by Fran on Fri Jul 1st, 2005 at 02:15:54 AM EST
[ Parent ]
Yes, and this kind of farming would hopefully also stop this nonsense trucking around of our food. I do not know how it is in the US, but here in Europe it is possible for i.e. cattle be shipped from the North to Italy for the slaughtering and then the meat being send to say Hungary for being cut in to pieces and then being send to a third country for emballage and then finally to return to it's origin country to be sold. Absolute nonsense in my way of thinking. Well, hopefully oil prices will stop this practice soon anyway.
by Fran on Fri Jul 1st, 2005 at 02:12:31 AM EST
[ Parent ]
I totally agree, Fran. We should be producing quality foodstuffs for local/regional consumption. Apart from any other consideration (the amount of fraud that goes on trucking livestock and meat around, for example), it's simply a criminal waste of energy transporting food over long distances.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jul 1st, 2005 at 02:43:57 AM EST
[ Parent ]
I enjoyed this commentary. I lived and worked a few years as a coffee farmer, and it changed my life. I loved it!!

What this brings to my mind to wonder, combined with another post below, is what kind of influence do the European people have in influencing decisions about CAP? What could be done to move things in the small farmer direction? (Perhaps this is a future diary!!)

Please write more on this subject, De Anander!

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Fri Jul 1st, 2005 at 02:49:02 AM EST
[ Parent ]
Bob, if you like DeAnander's comments you should also check in on Moon of Alabama. Unfortunately she hasn't been commenting as often lately, there are other good comments, but for me usually her's are the highlight.
by Fran on Fri Jul 1st, 2005 at 03:01:17 AM EST
[ Parent ]

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