Facts don’t support the idea that the EU is lagging behind the US

5 July 2004

Facts don’t support the idea that the EU is lagging behind the US

Netherlands Economics Minister Laurens-Jan Brinkhorst is constantly harping on about Europe’s poor economic performance relative to the US. This is a completely inaccurate picture designed to soften the Dutch people up for savage attacks on their social security and welfare system, argues Dutch Socialist Party leader Jan Marijnissen.

Jan MarijnissenIn the last ten years economic growth in the United States has been persistently higher than it has been in the European Union. The conclusion which is often drawn from this is that “we don’t do things as well as they do in the States”.

In reality, the US has experienced a more rapid population increase than has the EU, and a just comparison can only be made by looking at income per head. This gives a figure of 1.8% p.a. for the EU, somewhat lower than the United States’ 2.1%. However, take Germany away and the difference disappears. Without the Federal Republic, the EU, as well as our own country, has done just as well as has the US. Slow German growth is partly to be explained by the fact that the Bundesrepublik has, during the last decade or so, had to spend more than a thousand billion euros on reunification.

Labour productivity in the Netherlands, contrary to the impression which Brinkhorst is seeking to create, is around 10% higher than it is in the States. Germany and France also have higher productivity, while Belgium and Norway have the highest rates of productivity in the world, with the Netherlands coming in third in a table of GNP per work-hour.* All of these are European countries. Taking the continent as a whole, average GNP does indeed lag behind that of the US, but only because Europe includes the less developed economies of the South and East.

A new study from Goldman Sachs’ economist Kevin Daly demonstrates that productivity growth in Europe has been dampened during the last ten years as a result of cuts in social security and welfare. The consequent deterioration in provision has meant that more poorly educated people have been forced into employment, resulting in a lower growth of productivity per head. More or less the same process occurred in the US during the 1980s.

Daly identifies a number of other reasons why rates of economic- and productivity growth in Europe seem lower than they really are. In the US, for example, spending on computers is counted as investment, giving the appearance of higher growth. A computer which remains at a constant price whilst doubling in the speed of its operations is, according to American statistical methods, half as expensive as previously. In Europe, on the other hand, the same computer would in most cases be counted as remaining at the same price. Once again, this difference leads to an underestimation of European growth.

Average incomes in Europe are 30% lower than they are in the US. However, this difference can be fully explained by the fact that Europeans work shorter hours. Far more people work part-time in paid employment, spending the rest of their time on a range of activities, including voluntary work or trying to run a household. This is surely something to be proud of, rather than seen as a way in which we “lag” behind America.

Some economists argue that Europe is in fact much better off than the States. Europeans have lower heating- and air-conditioning costs, because in general the climate is milder. This also contributes to apparently lower growth, as does the fact that we spend less on police officers and less on prisons. Lastly, Europe enjoys a generally higher level of social provision, better public services which are not reflected in the statistics. There are, in conclusion, plenty of grounds upon which we can insist that Europe has something of a lead over the US.

High economic growth in the US is, moreover, extremely fragile. Enormous military spending, boosted by Iraq, as well as tax cuts, have allowed the Bush administration to stimulate the economy, whilst the Federal Reserve has lowered interest rates far more than has the European Central Bank. The result is that, from a surplus of 1% left by the Clinton administration, the US has acquired a 2004 budget shortfall which will reach almost 5%. Because of low interest rates Americans save only a sixth of the average for Europeans, and debt per head is far higher than it is over here. US growth is in reality financed from the 2 billion dollars poured into the country every day by foreign investors.

Not long ago the Intelligence Unit of The Economist gave the Netherlands a mark of 8.62/10 for its economy! This puts us top of the class in Europe and second only to Canada globally. There is therefore absolutely no justification for pessimism. The right-wing cabinet of Premier Balkenende systematically exaggerates the problems of the Netherlands’ economy in order to create the conditions under which it can carry out a programme of draconian cuts in social provision. It is remarkable to witness with what ease the cabinet is able to generate a sort of national inferiority complex. If anything stops us from addressing the real economic problems which exist, it will be a lack of hope and of confidence in ourselves.

This is a translation of an article which appeared in the leading centre-left daily, De Volkskrant, on 5th July 2004.

*Figures from Kwartaalbericht 2003 van De Nederlandsche Bank, the national bank’s quarterly report.

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