**: CBN.
Author: Zhou Ziheng.
[ What is particularly concerning is that with the conflict between Russia and Ukraine that has lasted for nearly two years, the European manufacturing industry has worsened, energy security has been impacted, energy policy is full of holes, and it has become a major trend for enterprises to move out of Europe. ]Over the past few decades, the U.S. economy has grown about twice as fast as Europe. At the beginning of the century, Europe's economic aggregate surpassed that of the United States. Since the 2008 financial crisis, when the GDP of the EU and the US were about the same size, the gap has been widening, with the eurozone economy growing by just 6 percent compared to the cumulative 82 percent growth in the United States over the same period. The rest of the world outside Europe has been booming for the past decade or so, while the European economy has stagnated. Now, in terms of GDP, the US economy is 8 times larger than the EU$6 trillion; In terms of GDP per capita, the US economy is more than twice that of the European Union. As the population of many EU countries is shrinking, the fertility rate is generally lower than that of the United States, and the impact of its per capita GDP lagging behind the United States is increasing, and the economic gap between Europe and the United States will continue to widen.
At present, statistically, the US economy is in good shape, the unemployment rate is at a record low, and the fight against inflation seems to be basically on the right track. The economic situation in Europe is very dire, with Germany, the continent's economic powerhouse, seemingly in recession, inflation still high, and the French economy surprisingly strugg......ling
There are different views that the economic comparison between the United States and Europe is greatly influenced by exchange rate factors, and is even misleading. In addition to the fact that the current exchange rate is not suitable as a unit of measurement, it was suggested that Europe should be fully recognized as a better performer than the United States in terms of social security and work-life balance. Although the United States is stronger than Europe in terms of economic prosperity, Europeans live less stressful and more relaxed, and their health care systems are better than those of the United States. There will always be arguments of different opinions, and each with its own merits. The problem is that if Europe does not emerge from its prolonged economic stagnation, the situation will get worse, and the narrative that Europe's economy feels better than the United States pales in comparison.
[ What is particularly concerning is that with the conflict between Russia and Ukraine that has lasted for nearly two years, the European manufacturing industry has worsened, energy security has been impacted, energy policy is full of holes, and it has become a major trend for enterprises to move out of Europe.
How to explain the continued economic gap between Europe and the United States.
Europe is a diversified economy, ranging from a highly competitive, innovative, and cutting-edge Western European economy to a fast-growing, fast-paced and catch-up economy in Central and Eastern Europe. Over the past 20 years, the new CEE member states have experienced rapid economic growth and have generally outperformed Western and Northern Europe. For example, Poland's economic performance is better than Germany's, and it can even be seen as an intra-European version of the rise and fall of the West. The developed economies of Western Europe have all but lost the ability to replicate their successes, while Central and Eastern Europe are replicating the economic successes of Western Europe to some extent, with the problem that this replication can be seen as coordination and balance within the larger economic system, and does not show originality. As a result, the overall performance of the EU economy has been unsatisfactory or even sustained.
Undoubtedly, since the turn of the new century, the growth of European productive forces has mainly come from the deepening of capital, that is, the proportion of capital per worker has increased. However, the EU's total factor productivity (TFP) growth was stronger in the 90s of the 20th century, which can be considered as a benchmark for the growth rate of economic technology and innovation; Since then, it has been declining. In the same period, the United States was on the rise. Over time, productivity growth in the United States has continued to grow faster than in Europe. Productivity levels are more convincing and decisive for economic growth and social prosperity than lifestyles.
The slowdown in productivity growth in Europe does not appear to be driven by major structural changes in the economy, such as the long-term share of the larger share of total European output in the services sector, a trend that has remained stable and has had a positive impact on employment, leading to higher levels of productivity. The level of productivity in Europe is undergrowing or declining, and the problem is within the various industrial sectors. What is particularly striking is that in manufacturing, there is a long-term trend of productivity slowing in virtually all companies of all sizes, and indeed in all market segments.
Productivity growth is essential for sustained economic growth. It is partly driven by higher R&D, technological innovation, and investment growth. In general, the contribution of individuals, companies, and markets to economic growth trends is more decisive in adopting new technologies, new products, and new businesses.
The policy trend after 2008 has caused a major divergence between the European and American economies.
In the aftermath of the 2008 global financial crisis, unprecedented austerity in European countries led to a decline in the overall investment rate. Currently, the level of public investment (as a percentage of GDP) in the eurozone is lower than in any other advanced economy or economic bloc. Vulnerable groups are struggling in times of economic hardship due to less support, and austerity policies have more strongly inhibited investment expansion. In the United States, the use of quantitative easing in response to the financial tsunami has had its after-effects, but it has continued to support economic expansion and put the United States** in a long-term prosperity unprecedented in history. In contrast, Europe has sharply reduced public spending when private spending has fallen, and European countries** have accelerated the pace of decline in total income, and the effect of economic contraction is obvious.
Private consumption in the EU has been declining since 2008 and is currently at an all-time low, while private consumption in the US is increasing and is at an all-time high. The increase in private consumption in the United States indicates that households and individuals have more disposable income and are confident in their finances. The U.S. economy has been fueled by the continued expansion of debt, which has led to increased demand for goods and services. Insufficient personal or household spending and the uncertain outlook for Europe's population have led to a general underconsumption. Relatively speaking, the demand in North America is strong, and companies from consumer goods giant Procter & Gamble to luxury goods empire LVMH and other companies have an increasing share of North American sales in the world. As a result, European companies are not optimistic about the European market and are looking to meet the needs of a more resilient international market.
Europe's lack of innovation is a drag on its economic growth across the board.
In 1990, Europe produced 44 percent of the world's semiconductors, but now it produces only 9 percent, the United States produces 12 percent, and China produces more than 15 percent. New energy batteries, artificial intelligence, and digital technologies that drive economic growth and business innovation have all moved away from Europe, and Europe seems to be politically more inclined to green energy, but its economic investment in green technology has disappointed and failed to promote economic development, which also makes Europe's green proposition more ideological than a practical economic path. Not long ago, Europe embarrassedly chose to retreat or even abandon its carbon neutrality goal.
The reality is that, when put together, the United States is superior to Europe in terms of new or cutting-edge technologies that have opened a new path for the economy. For example, in computing and artificial intelligence, the United States has more patents than Europe, making the new economy stronger than Europe, and its R&D investment is better than Europe. Research shows that the United States has left Europe far behind in terms of firm-level R&D spending and the resulting profitability of corporate output, and the gap between Europe and the United States in technological innovation is undoubtedly huge and will widen.
According to research by McKinsey, from 2014 to 2019, European companies grew on average 40% slower than their U.S. counterparts and spent 40% less on R&D. However, in terms of materials technology and clean technology, Europe is traditionally strong and superior to the U.S. technology category, and the EU is still ahead of China in most technology categories. But China and other developing countries in Asia are digitizing and adopting new technological innovations so rapidly that Europe could be left far behind in the coming years.
Europe's businesses and populations are getting older.
Tech giants such as Apple, Google, and Amazon represent the global reach of American companies, leading the way in shaping technological innovation and influencing global consumer behavior. Its global economic influence has allowed it to invest heavily in R&D, contributing to advances in areas such as artificial intelligence, cloud computing, and e-commerce. U.S. companies dominate the global corporate rankings, followed by China. The global influence of European companies such as Mercedes-Benz, BMW, Siemens, and Fiat is declining, and there are fewer and fewer European technology giants that are important participants in the global economy in the new century.
In addition to the declining and aging global influence of Europe's established companies, Europe's population is also getting older. Overall, Europe has the highest life expectancy in the world, averaging 803 years old, 79 years old in the United States, 77 years old in China. Europeans prioritize leisure time and job security over higher incomes, which has led to a slowdown in economic and productivity growth.
In addition to the aging of its business and population, Europe is heavily dependent on external markets, and its energy is more dependent on international markets. Europe's heavy dependence on exports, which account for about 50% of the eurozone's GDP, is becoming a major weakness, compared to 10% for the United States. The Ukraine-Russia conflict and the Red Sea Route crisis have exacerbated the fragility of the European economy, and high global inflation has dealt a heavy blow to the international competitiveness of European goods. The United States can achieve energy self-sufficiency, and because of its special status such as the dollar, it can gain an advantage in the international world.
Of course, Europe also has its advantages over the United States, such as being 2 percent less CO2 per capita than the United States in terms of sustainability4 times, the unit of carbon dioxide emissions is lower than the United States 18 times. Europe is an international leader in inclusivity such as equality, social progress, and life satisfaction.
For the foreseeable future, Europe will continue to maintain and even expand its advantages in these areas. However, Europe may still lag behind the United States in terms of prioritizing enterprise development, improving enterprises, and strengthening innovation, and weaknesses and even vulnerabilities will continue to be highlighted or even worsened. How can we ensure that Europe remains competitive in business and technology, overcoming weaknesses and boosting the European economy? The challenges remain, and the task is enormous.
The author is the chairman of Zhejiang Modern Digital Financial Technology Research Institute).