EU/Europe vs. US Comparisons Figures and statistics have been excerpted fromEurope’s Promise: Why the European Way is the Best Hope in an Insecure Age (www.EuropesPromise.org) by Steven Hill (published by University of California Press, 2010)
From Chapter 1, The Capitalist Engine That Huffed and Puffed . . . p. 33. If you overlay most of that geography with a map of the twenty-seven nations of the European Union, you take in a half billion people, representing about 7.4 percent of the world’s 6.7 billion tenants.
Yet with only about 7 percent of the population, the European Union produces 29 percent of the world’s economy, making it a gargantuan commercial crossroads, with $16 trillion in gross domestic product (GDP)—the largest economy in the world. If we add in the non-E.U. but closely affiliated nations of Norway and Switzerland, that brings the “E.U. Plus” to $17 trillion in its gross domestic product, nearly a third of the world’s economy. Like the United States, the European Union now has the advantage of a huge and for the most part single common market. A business can reach a half billion consumers from the western shores of Portugal to the far eastern reaches of Romania and Bulgaria on the Black Sea, without worrying in most countries about borders, currency, or national approvals. European businesses and investors have their fingers in every corner of the globe, making Europe the largest foreign investor in the United States and by 2004 overtaking the U.S. as the largest trading partner with China.
By contrast, the United States has a smaller population—300 million people (4.5 percent of the world)—and a smaller economy, $14 trillion in gross domestic product, or 24.5 percent of the world’s economy. Japan is smaller still, with 128 million people (2 percent of the world) and 8.7 percent of the world’s economy. Despite all the hype, China, with 1.3 billion people (19 percent of the world’s population), is still an economic dwarf compared to Europe and the United States, producing $4.5 trillion in GDP, less than 8 percent of the world’s economy. India is smaller still, with $1.2 trillion in GDP. Thus, Europe’s economy is nearly as large as those of the United States and China combined. The fact that we hear so much more about China than about Europe as an economic powerhouse reflects a gross misunderstanding of the many ways that Europe’s continental economy is much more than the sum of its individual nations. It has many of the characteristics of a single national economy, much more so than the U.S.-Canada-Mexico free trade relationship. We are not really sure how to analyze this supranational bloc, or to measure its impact, so many journalists just ignore it, continuing to examine the component parts (i.e., individual nations) and comparing them to other individual nations such as China and the United States. But increasingly this misses the big picture and risks distorting economic reality.
While China gets the hype and the attention, Europe, along with America, is where the world still goes if you want to do business. Between 2000 and 2005, when U.S. analysts were calling Europe’s economy sick and sclerotic, inflows of foreign direct investment to just the fifteen core nations of the European Union* (known as the E.U.-15) amounted to almost half of the global total. In fact, stock market returns in Europe outperformed those in the United States. “Old Europe is an investment magnet because it is the most lucrative market in the world in which to operate,” Dan O’Brien, a senior economist with The Economist, said at the time, but few in the United States were listening. A historic moment occurred quietly on Thursday, March 29, 2007: for the first time since the end of World War I, the value of the European stock market surpassed that of the United States, a tiding that Khuram Chaudhry, a chief analyst at Merrill Lynch, called “an empire change.” Considering the U.S. view of Europe as an economic basket case, it is more than a bit ironic that Europe is corporate America’s biggest target for foreign investment, with affiliates of U.S. companies in the E.U.-15 showing profits of $85 billion in 2005, far more than any other region and twenty-six times more than the $3.3 billion they made in China. The $19.2 billion invested by U.S. companies in the tiny Netherlands nearly equaled U.S. investment in all of Asia ($22.4 billion). Observed O’Brien, if European conditions for business are so dire, why haven’t foreign investors shunned the region? “The reality is that they flock to the Continent,” he said.
From 1998 to 2008 the European nations using the euro currency saw per capita economic growth rates slightly higher than in the United States. From 2000 to 2005, Europe added jobs at a faster rate than did the United States, had a much lower budget deficit, and posted higher productivity gains and a $3 billion trade surplus. Meanwhile the U.S. economy struggled with stagnant incomes, a collapsing housing market, a plummeting dollar, declining productivity, a mountain of personal debt, staggering trade and budget deficits, and an expensive military quagmire in Iraq and Afghanistan.
A myth has been oft-repeated in the echo chamber of the American media: that European economies are not competitive because of strangling amounts of bureaucratic red tape. Yet, according to the World Economic Forum’s measure of national economic competitiveness for 2008–9, European nations took six out of the top ten spots for economic competitiveness and twelve out of the top twenty spots (with the United States ranked first). That hardly sounds like an economy that is sclerotic, one of the frequent charges hurled by Euroskeptics. One also would think, on the basis of American claims regarding the “sick economies” of Europe, that most European companies must be clinging to life support. Yet a quick snapshot of some of the European workhorses shows their raw economic power and dominance.
Of the Global Fortune 500 rankings (published in July 2009), 179 of the top 500 companies were European and 140 were American, while 68 were Japanese and 37 Chinese; of the 60 largest companies in the world, 30 were European, 18 were American, 5 were Japanese, and only 3 were Chinese. Fifteen of the top twenty commercial banks in the world were European, including the top five. The behemoth oil companies Royal Dutch Shell (Netherlands) and BP (British) were the first and fourth largest companies in the world. In food consumer products, two European giants, Nestlé and Unilever, ranked first and second in the world, and Air France/KLM and Lufthansa were the two largest airlines in the world. In the telecommunications industry, European companies held six of the top ten spots in the rankings, and in the chemical industry the German company BASF was the world’s leader, with two other European companies ranked third and fourth. In the food and drug store retail trade, three European companies, Carrefour, Tesco, and Metro, were tops in the world. In motor vehicles, Toyota was on top but Europeans owned eight of the top fourteen auto companies, with Volkswagen second.
In fact, European economic might is so prevalent that an exhaustive number of formerly American companies and products are now owned by European companies. European companies also have giant footholds in America’s cultural fabric. Bertelsmann, a 167-year-old German company, is the world’s fourth largest entertainment and media company and the largest book publisher in the world, owning the formerly American marquee name Random House. The French company Vivendi owns Universal Music Group, the largest family of record labels in the world, including Motown Records (which has produced Stevie Wonder, Michael Jackson, the Supremes, the Temptations, and others), Geffen Records (which produces Tom Petty, Nirvana, B.B. King, Steely Dan, Mary J. Blige, Snoop Dogg, and Counting Crows), and produces other artists such as Lil Wayne, Kanye West, 50 Cent, Eminem, Mariah Carey, Janet Jackson, Aerosmith, and more.
You cannot even rely on the word America in the brand name to determine if a product is American: the Radio Corporation of America name is owned by Thomson Consumer Electronics, a French company.
While American businesses have significant investments in Europe, it turns out this transatlantic investment is not a one-way street: European companies and investors are by far the top source of foreign direct investment in the United States. Contrary to the “Rising Sun” and “yellow peril” stereotypes of Japan and China buying up half the good ol’ USA, in 2004 Europeans were responsible for nearly 75 percent of all foreign investment in the United States, being the top foreign investors in forty-five states with over $1.4 trillion in investments. With the value of the dollar plunging by almost 50 percent against the euro from 2002 to 2008, U.S. assets became relatively inexpensive buys for European investors. In states such as Dick Cheney’s Wyoming, as well as Utah, Oklahoma, New Mexico, Kansas, Idaho, Alabama, and Alaska, Europeans made over 65 percent of all foreign direct investments. In George Bush’s Texas, Europeans invested over $50 billion, more than twice as much as U.S. investments in all of Asia. In 2005, sixteen of the top twenty acquisitions of U.S. firms, worth a total of $46 billion, were made by European buyers, and approximately two million U.S. workers were employed by German and British companies operating in the United States. With so much business and trade passing back and forth across the Atlantic, it is no surprise that 60 percent of all international air traffic occurs between the United States and Europe.
By contrast, Chinese companies invested a mere $3.6 billion outside China by 2005, and Japan had invested $31 billion in all of China—far less than Europe had invested in Texas. Much has been made of the fact that China and Japan are the two largest holders of trillions of dollars in U.S. debt, but as the dollar has continued its steady decline, their investment in U.S. Treasury bonds has turned out to be an unsound investment in depreciating paper. Meanwhile, the Europeans have snapped up real assets—companies, buildings, and other real estate—at bargain prices, thanks to the strength of the euro over the dollar.
European acquisitions are not well known among the American public, even while various grandstanding U.S. politicians and media pundits get agitated over China’s (and before that, in the early 1990s, Japan’s) alleged buying of the U.S. economy. But what these numbers reveal is how deeply and intricately enmeshed the American and European economies are. That in turn made the Bush administration’s tantruming over European rejection of the Iraq invasion look all the more ridiculous. Americans could no more walk away from “old Europe” than Europeans could walk away from the “cowboy Americans” without catastrophic economic results. We are joined at the hip and neck like conjoined twins, and any economic or foreign policy that does not recognize this is delusional.
So as Europe looks toward the future, trying to respond to the needs of its people in an age of globalized capitalism, as well as in the midst of a severe economic downturn, it starts from a place of advantage because it is powered by a dynamic economic engine, thriving businesses, and a commanding international presence. European-based global companies are matching and in many cases surpassing their American, Chinese, and Japanese counterparts, putting their indelible stamp on the world’s stage. In some industries, European businesses are clearly the market leaders, while in others, U.S. or Japanese companies are the frontrunners. When it comes to the global economy, the world is multipolar now, and the post–World War II era of U.S. economic dominance is over.
Page 45. Small and Medium-Size Businesses
While Europe’s robust corporations receive most of the headlines with their brand familiarity, the European economy has been boosted by a thriving small and medium-size business sector. In fact, that sector provides two-thirds of the total employment in the European Union, compared with only 46 percent of the total employment in the United States. While the American business community touts the idea that small businesses are the backbone of the U.S. economy, Europe has far more small and medium-size business enterprises than does America. France, despite its reputation of having a rigid bureaucracy with strangling red tape, created a record 322,000 companies in 2005 and set a similar pace for 2006. Germany’s Mittelstand has long been a main rail of its economic vitality. These small and midsize businesses have been able to keep pace with the profitability of large companies by being smart and efficient, light on their feet, technologically advanced, and by pooling their resources and talents in larger networks, including industrial clusters and cooperatives, to gain the advantages of economies of scale without sacrificing the innovativeness and flexibility of smaller-scale operations.
COMPARISONS OF UNEMPLOYMENT, AND MEASUREMENTS OF AVERAGE INCOME.
From Chapter 3, pg. 67-68 In comparing unemployment rates between the United States and Europe, it is important to keep in mind a couple of crucial points. First, many of the jobs created in the United States in recent years not only were part-time, temporary or paid low wages, but they also included few if any workfare supports. And once people get laid off, they lose whatever measly benefits they had at their jobs. But in Europe, the jobless still have access to health care, generous replacement wages, job-retraining programs, housing subsidies, and other benefits. In the United States, by contrast, the unemployed can—and do—end up destitute and marginalized. Being unemployed in Europe is a much different experience than being unemployed in the United States.
Second, we also have to be clear about exactly what the unemployment rate measures. For example, during the French student protests in March 2006, the Financial Times chief statistician found that a wildly inflated youth unemployment rate was reported for France as a result of nothing more than the methodology that was used to determine it. Another example is that unemployment rates typically don’t include prisoner populations. Since the United States has the highest incarceration rate in the world—2.3 million people behind bars, 1 of every 100 adults, an astounding seven to ten times the incarceration rates in Europe—excluding prisoners from unemployment estimates artificially decreases the unemployment rate much more in the United States than elsewhere. Including prisoners would have the effect of increasing the U.S. unemployment rate by about 1.4 percent and Europe’s by only about 0.2 percent.
If these increases had been added to the July 2008 unemployment rates of 5.8 percent in the United States and 6.9 percent in the European Union, that would have resulted in real unemployment rates that were virtually the same. If added to the post-crash unemployment rates, it would have resulted in a U.S. jobless rate that was substantially higher than Europe’s. It is reasonable to include prisoners in the unemployment rate because if those individuals were not in prison then jobs would have to be found for them. Moreover, people in prison tend to be individuals with the least amount of skills and education and are the most difficult to employ. So built into the way unemployment is measured is a distortion that ignores the fact that many of America’s least employable people are in prison and therefore excluded from being counted as part of the labor force, artificially deflating the unemployment rate in the United States by about 1.2 percent compared to Europe.
The criticism based on America’s higher per capita income strikes at the heart of how the European Way and the American Way conceive of a good economy. In a time of increasing economic insecurity, a middle-class standard of living is based not only on income levels but also on adequate workfare supports for individuals and families. If standard of living is assessed purely in terms of annual income, Americans are nearly 30 percent wealthier than Europeans. But if one measures the good life by the workfare supports enjoyed and the amount of vacation, the average European is much better off. Americans’ greater emphasis on work rather than more workfare supports or recreation shows up in income figures, but Europeans’ choice of universal benefits and more leisure does not. Professor Robert Gordon of Northwestern University estimates that although western Europeans work only three-quarters as much as Americans, they acquire 90 percent of what Americans have, yet with far lower poverty rates and more equal income distribution.
These built-in biases inherent in our methods of economic measurements do not allow them to account for quality-of-life considerations such as shorter work weeks and more vacation, even though such choices are fundamental economic decisions. Europe’s more modest income level mainly reflects a series of conscious policy choices that have tended to put a premium on leisure, economic security, and equality at the expense of greater wealth. Furthermore, Americans’ longer working hours are not necessarily a matter of individual choice or different cultural values; most Americans complain about their inability to balance work with other aspects of their lives. Among the increasing number of Americans who say they would like to work less are men who express a desire to spend more time with their children. Time reported that 71 percent of Americans would rather have a job that provides more workfare benefits such as health care and a defined pension benefit plan than a higher-paying job. So it turns out that average income is only one measurement of wealth, and a pretty inadequate one at that.
Page 74. America, geared to be the world’s RoboCop with huge military budgets, spends over 4 percent of its gross domestic product on defense, more than $500 billion in 2009 (and even larger amounts if you include the $1 trillion to $3 trillion for military operations in the Iraq and Afghanistan wars, and hundreds of billions of dollars for agencies doing military-related activities, such as the CIA, Veterans Administration, and Departments of Homeland Security and Energy). Europe, on the other hand, spends less than 2 percent of its gross domestic product on defense and so has vastly more resources to plow into workfare supports for its people. According to the Organisation for Economic Cooperation and Development (OECD), the United States devotes 16 percent of its $14 trillion economy (or $2.2 trillion, about $7,300 per person) to workfare supports. But European countries contribute 27 percent of their $17 trillion economy to workfare supports, a whopping $4.6 trillion, about $9,200 per person, which amounts to 25 percent more “social dollars” spent per capita (and that’s probably an underestimate, due to limitations in the spending categories used in the OECD database).[NOTE 2 here] That’s a huge difference in social spending, showing once again how the oversized gap in military vs. social spending between the American Way and the European Way is one of defining magnitude. Not surprisingly, by any objective measurements Europe has surpassed the United States in most quality-of-life categories. Even many of the new democracies in eastern and central Europe, with average incomes barely half that of the United States, surpass us in many ways.
Despite the ups and downs of the economic cycle that periodically have resulted in some cutbacks, Europeans still enjoy cradle-to-grave support in a range of areas. And the benefits are “universal,” meaning everyone in the society receives them, even immigrants—no exceptions, no excuses.
The Swedish Social Insurance Agency publishes a brochure that precisely captures the prevailing philosophy: “Social insurance is founded on the idea of people helping each other through a kind of social safety net, which is in place from birth to retirement.” Dutch Labor Party leader Wouter Bos has argued that Europe’s social state is based on “enlightened self-interest” since “We all run the same risks, so we might as well collectively insure ourselves against those risks.” As one British political analyst told me, “Europe doesn’t so much have a ‘welfare society’ as much as it has a comprehensive system of institutions geared toward keeping everyone healthy and working. Health care, parental leave, day care, paid sick leave, whilst all of these look quite generous from the standpoint of the U.S., in fact they are part of a cohesive system designed to produce healthy workers and families.” This philosophy is backed by broad agreement across the political spectrum, including from conservatives and the so-called far right, forming the basis for the oft-touted “European consensus.”
The resulting workfare support system is a core part of the European Way, centered around a distinctly European conception of “life, liberty, and the pursuit of happiness.” As we will see, the comprehensive level of workfare enjoyed by all European workers and families is a marvel of solidarity and design and is nearly entirely missing from the lives of most Americans.
In Europe, paid parental leave from work for both mothers and fathers is the norm, whether following childbirth or to care for a sick child. But the United States is one of only 5 countries out of 173 that do not guarantee some form of paid maternity leave (the others being the impoverished African nations of Lesotho, Liberia, and Swaziland, along with Papua New Guinea). Fathers are granted paid leave in sixty-five countries, including thirty-one that offer at least fourteen weeks of paid leave, but the United States guarantees fathers, as well as mothers, nothing. A majority of Americans are not even eligible at their jobs for unpaid parental leave, and the proportion of U.S. companies offering paid maternity leave fell from 27 percent in 1998 to 16 percent in 2008. Even formerly war-torn Croatia, with a per capita income less than a third of that in the United States, has paid leave for parents following a birth.
Compared to Europe, the real laggard has been the United States where child care is hard to find, of mediocre quality, and prohibitively expensive. Child care in the U.S. costs over $12,000 per year for a family with two children, $500 per month per child. "In every region of the U.S., average childcare fees for an infant in a center are higher than the average amount families spend on food…or on tuition at a public college," says Stacey Minott, from the National Association of Child Care Resource and Referral Agencies.[NOTE]
Balancing Work and Leisure
Europeans have decided that family values means having enough leisure time to actually spend time with your family. And they have structured the balance of work and leisure time accordingly. While Americans work an average of 1,976 hours per year, German and French workers average some 400 fewer hours, the equivalent of fifty extra full-time days off (about seven weeks), for the same standard of living. France officially has a thirty-five-hour workweek, and in practice French workers labor on average thirty-seven to thirty-eight hours per week compared with Americans’ average of forty-two to forty-four hours per week. Even British workers, who put in more time on the job than anybody else in Europe, work two hundred fewer hours (twenty-five days) per year than their overworked American counterparts. In fact, about 134 nations worldwide have laws establishing the maximum length of the workweek, but the United States does not have such a limit, nor does it have a limit on mandatory overtime per week. Europeans’ greater number of days off is a combination of more vacation, more holidays, and a shorter workweek. They receive anywhere from four to six weeks of paid vacation per year compared with about two weeks for Americans, prompting Europeans to call the United States the “no-vacation nation.” With the United States being the only advanced economy in the world that does not guarantee at least some paid vacation, about a quarter of U.S. workers in the private sector get no paid vacation time at all; they practically live the lives of working serfs.