LProductivity is perhaps the closest thing to an economic panacea. It allows economies to produce more from the same inputs. It improves living standards and reduces budget deficits. It puts countries in a better position to combat climate change and ensure their national security. Unfortunately, Europe is currently far less productive than it should be – and it is falling further behind the United States. Mario Draghi has just proposed a plan that is both broad and ambitious, yet pragmatic and entirely feasible, to address this problem and close the gap with the United States while accelerating the green transition and strengthening national security. Europe, and the world as a whole, would be in better shape if his proposals were taken seriously.
Between the end of the Second World War and the end of the 1990s, European productivity levels tended to converge with those of the United States. This resulted in a rapid improvement in living standards while allowing the extension of social inclusion policies that ensured a broad sharing of the benefits of this increase in productivity. But the arrival of the Internet coincided with a surge in American productivity that was not matched in Europe. The gap has only widened. Since 2019, productivity, or the average output of a worker in one hour of work, has increased at an annual rate of 1.6% in the United States compared to 0.5% in the European Union (EU).
One of the main sources of productivity is the size of the economy, which both the United States and China benefit from. This explains why both countries have seen the emergence of huge digital platforms that require vast numbers of users to interact with each other. Or why the United States has been able to become a world leader in artificial intelligence (AI), which also requires vast scale in terms of data and processing. And why China has managed to dramatically reduce the cost of producing solar panels and batteries and electric vehicles – which it now produces on a massive scale.
European fragmentation
Europe has been unable to match or surpass this performance because its fragmented markets and institutions limit its scale. The EU does indeed ensure the free movement of goods, services, people and capital. But in many cases, including some of the most critical for productivity growth, national borders have not completely disappeared and are holding back progress. The digital economy, telecommunications, energy, banking, stock exchanges, defence companies and others operate under different rules, different buyers and different regulators. This complicates the emergence of viable European digital platforms, increases the cost of financing for companies, hampers the effective provision of venture capital for innovative start-ups, increases the price of energy and weakens national defence.
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Source: Lemonde
