Greg Ip had a piece in Thursday’s Wall Street Journal touting the strength of our economy, especially in comparison with the European Union’s continental economy. Among other points, he had this regarding the difference between our economy and the EU’s, and this is what I want to focus on in this post.
More important is the role of technology. No EU company worth more than 100 billion euros, equivalent to $108 billion, “has been set up from scratch in the last 50 years,” while all six US companies worth more than $1.08 trillion were created in this period, Draghi said. America’s companies are also faster to adopt technology such as artificial intelligence, which explains much higher productivity in professional services, finance, insurance, and information technology services.
Ip missed, though, that that difference is from a combination of things that are not economic, but things that make an economy more or less capable, that make rapid technological advances possible. Those things are culture and the regulatory environment that puts bounds on what economic players are allowed or required to do.
Our economy has, until relatively recently, players much more willing to run risks and accept mistakes and failures on the way to grand success. That risk-taking runs the gamut from guys like Elon Musk (an outlier, to be sure, but he’s not that far extreme, except in the venues in which he’s chosen to operate) to heads of families striking out, many even before they have families to head, to start their own businesses, risking everything they have just to get started.
The EU has no one willing to run the risks an Elon Musk does. Even the Fiat acquisition of Chrysler was achieved less by a risk-taking entrepreneur leading Fiat than it was an acquisition supported, indirectly, by the US government and EU regulations, since the combined company would be governed by EU rules. Neither do EU individual families start new businesses at anything close to the rate American families do: they’re much more used to government presence in their lives and to reliance on government for their business success.
The EU’s regulatory environment is much more restrictive than ours, as well, for all the recent explosion of regulations governing our business behavior. EU’s more socialist-in-effect governance that tends to cap performance so the laggards—for whatever reason they lag, good or ill—can keep up. EU regulations are especially restrictive regarding areas that our nation would consider competition and the outcomes of competition.
Gains from a willingness, or government limits on willingness, to run risks aren’t as available to EU economic actors the way they are here.