The website of the French newspaper L'Echo recently published an article entitled "The productivity gap between Europe and the United States continues to widen", compiled below:

　　Productivity is rising in the United States, but not in Europe. This phenomenon is due to too little investment in technology and R&D in Europe, an inelastic job market, overly strict market controls and economic policies that are not favourable to growth.

　　There is an urgent need to increase productivity in Europe. Productivity in Europe has been declining over the last year, while across the Atlantic it has been rising in the United States. According to the Danish bank, productivity in working hours in the eurozone shrank by 1 per cent in 2023, while in the US it improved by 1.5 per cent. In the fourth quarter of last year, working hours productivity in the U.S. even surged by 2.7 per cent year-on-year, its best performance in nearly a decade.

　　As Nobel Prize-winning economist Paul Krugman put it, "Productivity isn't everything, but in the long run it's almost everything." In a report published at the end of March, McKinsey experts noted, "Today the world needs productivity more than ever. It's the only way to raise living standards in the face of aging populations, energy transitions, supply chain reconfigurations and soaring debt."

　　What is to explain Europe's declining productivity and the persistently widening gap with the US since the mid-1990s? Economists at the Bank of Denmark suggest three reasons.

　　First, "Europe has failed to capitalise on the productivity-boosting potential of information technology and communications technology." Since 1995, the total amount of capital spent on these technologies in the United States has increased by 900 per cent, compared with 200 per cent in Italy and only 300 per cent in France and Germany.

　　Second, "European capital and commodity markets are very tightly regulated, limiting the competitiveness of European firms compared to U.S. firms and constraining productivity gains." Venture capital investment in the US totals 20 times more than in the EU, and the market capitalisation of listed companies in the EU as a percentage of GDP is only half that of the US, even though the savings rate is roughly the same on both sides. According to the Danish bank, start-ups in the US are more likely to innovate and force existing industry players to adapt, as evidenced by higher productivity in the US than in Europe.

　　Lack of public investment and declining levels of schooling have also contributed in part to Europe's poorer productivity. Since 1995, public investment in the United States has doubled, while in the euro area it has increased by only 40 per cent. In the United States, only 10 per cent of 15-64 year-olds have not completed high school, compared with 40 per cent in southern European countries.

　　Finally, economic policies on both sides of the Atlantic and the war in Ukraine, which has had an even greater impact on European countries, also explain the very different short-term trends in productivity in Europe and the United States. In the United States, the unemployment rate has remained at just under 4 per cent for two years, mainly because of a very loose budgetary policy.

　　Full employment has made companies more willing to invest in automation of production in order to save on the wage bill, and wage increases are the order of the day. Companies are also more willing to train their staff. This explains why the US is now the only developed country with such high productivity, according to economists at the Institute of International Finance.

　　As McKinsey analysts point out in their report, investments that are critical to productivity "work better in economies with strong demand, high growth, and low unemployment". The five largest U.S. high-tech companies are spending $350 billion in 2022 on research and development.

　　Job market resilience also plays an important role. Economists at Pantheon Macroeconomics Research in the UK highlight the fact that back in 2009, in the wake of the financial crisis, working hour productivity in the US grew by almost 3% year-on-year, while in Europe it shrank by 1% over the same period. They explain: "This difference comes from the resilience of the US job market and, by extension, the different behaviour of firms during the recession. It is clear that US firms were able to scale back their costs more quickly than European firms."

　　Faster adaptation can lead to a faster rebound. Schumpeter's theory of creative destruction may very well apply. But the difference lies in the choice of social model, as one saw during the New Crown epidemic.