Italy, Maryland Comparison Shows Why Europe Lags the U.S. in Productivity

Bloomberg ^ | 08/05 06:09 | By Steve Scherer

[Jordi]

Felice Carola and his wife, Rosita, have much in common with Paul and Karen Highbarger of Hagerstown, Maryland.

Both are two-income, home-owning couples living an hour from a large city. Both have a child in college and both husbands work in the automaking business. Both couples anticipate retirement.

[Jim Noble]

>>Decades of liberalizing trade barriers, opening borders and creating for 12 European nations a single currency have brought Europe no nearer to U.S. levels of economic output<<

Why on earth would any of those things increase output?

[Jordi]

A bigger home market is supposed to increase competition , M&A, the development of bigger companies => efficiency.

[Jim Noble]

>> increase competition , M&A, the development of bigger companies => efficiency<<

I am not at all sure that M&A activity resulting in bigger companies increases output.

In the case of Europe, in order to increase output, the workers have to work more.

[Forgiven_Sinner]

>>Decades of liberalizing trade barriers, opening borders and creating for 12 European nations a single currency have brought Europe no nearer to U.S. levels of economic output<<

Why on earth would any of those things increase output?

Reduction in tarriffs increases trade, which increases demand. A single currency reduces currency conversion costs, which reduces transaction costs, which increases demand. Allowing people to move freely from country to country to get jobs reduces unemployment and increases productivity.

[Jordi]

Each of the 380 million residents of the 15-nation EU produced $25,200 in goods and services last year, while 287 million Americans produced $35,500 apiece,

Notice that given the trade figures, the $35,500 apiece produced by Americans aren't enough to match their needs.

[AmericanInTokyo]

Figure in a "Hiroshi and Takako Nakamura from Tokyo" or a "Tae Ho and Sun Ae Kim" from Seoul, and you'd have an entirely different perspective in this article, and the Americans would start looking like slacking saps!

[Bigg Red]

I think this quote from the Italian sums it up:
``What's the need to work and work and accumulate stuff if you lose sight of what's really important?'' he asks. ``It's much better to just spend time with your kids.''

Maybe a little more "slacking" could be beneficial here.

[Jordi]

Figure in a "Hiroshi and Takako Nakamura from Tokyo" or a "Tae Ho and Sun Ae Kim" from Seoul, and you'd have an entirely different perspective in this article, and the Americans would start looking like slacking saps!

Not to discuss the moral value of hard working people, but the engine of economic growth shouldn't be the simple adding of hours/days of work.

[general_re]

Figure in a "Hiroshi and Takako Nakamura from Tokyo" or a "Tae Ho and Sun Ae Kim" from Seoul, and you'd have an entirely different perspective in this article, and the Americans would start looking like slacking saps!

Not really. For all the vaunted work ethic of Asian workers, comparing worker productivity in terms of output per worker, or per worker-hour should be quite interesting to you.

I'll spoil the surprise and give away the punchline - the American worker is, and has been for the last twenty years, the most productive and efficient in the world. Even better than the Japanese or Koreans. That's the real secret behind the highest per-capita GDP in the world - we don't just work more than most everyone else, we work better than everyone else...

[AmericanInTokyo]

In terms of productivity, you are correct of course. What I am referring to is the vacations taken, long commutes, overtime, general hours worked, weekends enjoyed, recreational outlets, transit times to and from the same, etc., in comparision to the US by Korea, Singapore, Japan, etc. The biggest gap appears between Asia and Europe in terms of a work ethic, IMHO. It is like going to a pressure chamber with an entirely different PSI.

[general_re]

Yeah, that I believe. There is tremendous value placed on one's working career there, and an emphasis on hard work that is reinforced by what is basically a closed, insular, homogeneous society. I don't know how long you've been in Tokyo, but in a sense it doesn't really matter - no matter how long you've been there, I think we both know you'll always be an outsider in some sense. ;)

There are enormous advantages to a society structured like that, of course, but there are also huge pitfalls - the same keiretsu system that enabled the rise of industrial Japan in the 60's, 70's, and 80's, has proven to be a real drag in the 90's and beyond - that same closed society that is a tremendous advantage for presenting a unified front to the outside world turns out to be incredibly inflexible once the rest of the world figures out how to compete. All that talk from the Japanese in the 80's that they had "reinvented" the capitalist system...people who should have known better bought into that hype back then, and it's proven to be just that - hype. ;)

There's that, and also (oracle hat: on) I have a suspicion that the lack of space in Japan causes Japanese investors to have a tremendous psychological attachment to real property as an investment - witness the buying sprees of the 80's. Which was fine at the time, but when the global real estate market collapsed in the late 80's, the Japanese paid far more dearly than most.

The Japanese are a very clever and resourceful people, and it would be unwise to underestimate them by counting them out just yet, but they have a lot of structural problems to deal with before Japan begns to rise again. They are only now, I think, beginning to figure out that giant Keynesian-style public-works projects don't work to stimulate the economy, but there is no real supply-side lobby that I can see that could impel them to do what needs to be done in order to cause the average Japanese consumer to loosen his death-grip on his wallet.

In the end, they need the Japanese version of Ronald Reagan more than anything else right now - we'll see if they find one ;)

[chilepepper]

You need to be a bit careful comparing Europe with the U.S. -- there are things that are more important than statistics...

the European standard of living (where STANDARD is NOT a number, rather than what these peoples lives are really like) is very good - in subjective terms - at least for now. The social problems that are arising from the Muslim immigrants are/will destroy the rich culture, history and tradition that made Europe such a neat place...

As for productivity, Europe is STAGNANT: since their way of life tends to be very comfortable, they don't see much reason to change things...

On the labor front, the short work week (35hrs) and early retirement (55 or so) is to cut down on the huge unemployment problem caused by the socialist tradition of EVERY European country... a tradition that murders innovation.

Want an example? In W.Germany it used to be that to have a modem, you had to RENT it from... the W.German POST OFFICE.

It was VERY EXPENSIVE and this helped keep Germany YEARS behind the U.S. in the earlier days of computers...

[1rudeboy]

I enjoyed this article.

[NYer]

For his part, Paul Highbarger says the more demanding U.S. system is fine as long as it helps him buy the things he wants.

This article neglect to point out the Italian VAT (Value Added Tax) structure, that applies to all consumers. That tax is set at 20%. Each time an Italian consumer purchases a pair of shoes, a VAT tax is added. Needless to say, the average Italian consumer has a limited number of shoes and clothing articles in their "armadio" by comaprison to their American counterpart.

Socialism has a price tag!

[Jordi]

This article neglect to point out the Italian VAT (Value Added Tax) structure, that applies to all consumers. That tax is set at 20%. Each time an Italian consumer purchases a pair of shoes, a VAT tax is added.

You are right, nonetheless i found many Italian goods cheap. (Yes, gas price is over the roof). I bought a Brioni suite for a price i never found in the US. My cousin pays 24,99€ monthly for the DSL,he is always at the cellphone and seems free from any worry about the bill.

[NYer]

I bought a Brioni suite for a price i never found in the US

I just checked the exchange rates. Right now, $1 = 1973ITL! No wonder the suit seemed so inexpensive! That's nearly 1/2 price, purchasing with US$. How many Italians were in the same shop purchasing Brioni suits?

The reverse applies to Americans who wish to purchase Italian merchandise in the US. Italian export and US import taxes take a toll on purchases in the US. You were also able to recuperate all VAT taxes, prior to departure from Italy. The locals are stuck.

[Jordi]

What puzzles me is that Luxembourg has a pro capita GDP of 49,500$ ,according the same OSCE. Of course Luxembourg is a fiscal paradise,but i suppose people are quite good there.

[fogarty]

Exactly. So many Americans work themselves to death - to get a bigger house, a bigger boat, another car.

It is to bad we are unable to be content with what we have.

My mom always told me "no one ever went to their deathbed wishing they had spent more time at work." All the regrets when life has passed seem to be related to why they didn't spend more time with their children or why they hadn't shown their family more love.

[general_re]

Hmph - the World Factbook puts per cpaita GDP for Luxembourg at $36,400, PPP-adjusted, but the OECD lists numbers near what you have. Anyway, it's a country of less than half a million people, in which the major industry is banking and 30% of their workforce consists of foreigners - not the sort of thing that's likely to be duplicated elsewhere ;)