Broback's Blog

Broback's Blog header image 2

Why Hasn’t Europe Caught Up?

December 8th, 2012 · 3 Comments · Economics

My pal Steve reminded me of his thought-provoking post he made a while back asking the question “Why Hasn’t Europe Caught Up?”

Gallup may have a partial answer in this report issued in 2007.

The results echo what the class concluded in an Economics course I took years ago. The overarching topic was an evaluation of the root cause(s) of America’s economic success. Natural resources featured prominently, as did solid infrastructure (transcontinental railroad, etc.) But those factors don’t explain very well why Europe lags today.

The conclusion we reached after 10 weeks (with the helpful hand of the professor) was that the key to our success was that as a nation of immigrants, our population had an unusually high proportion of risk-takers. The thinking was that those who would uproot from everything they knew and loved to forge out to new opportunities, were also more inclined to be entrepreneurial. This mindset endures apparently.

These from the Gallup report:

“When it comes to a choice between being employed or self-employed, Europeans still prefer the former, while across the Atlantic, the entrepreneurial urge still predominates. In fact, there has been a slight decrease in the gap between the EU25 and the United States, with 3% more Americans (up from 34% in 2004) now preferring to be employed. However, the percentage of Americans wanting to do their own thing (61%) is still higher than in any of the other 27 countries under review (see Chart 1 and the Annex Tables for answers to Q.1).”



3 responses so far ↓

  • 1 Steve Roth // Dec 11, 2012 at 12:12 pm

    Yeah, I think “national character” has a lot to do with it. Talking to those two French women really showed me that — the mental freedom from cultural constraints that they talked about. The “I never thought of starting a business” percentages support that in spades.

    On the causal density and big trends front, just came across this excellent Noahpinion post from last summer asking a question that keeps nagging at me: what happened in the 70s, and why has growth by most measures been weak since then? (I used to attribute that to the Reagan revolution, and I still think it made things worse than they could otherwise be, but I’ve largely abandoned that belief at least in its simplest form.)

    I’ve been thinking a lot about the Bretton Woods answer. The shift to pure fiat currencies combined with (mostly) free-floating exchange rates and the eradication of almost all international capital-transfer restrictions changed everything. This of course combined with rising technology/productivity and widespread globalization…

  • 2 Steve Roth // Dec 13, 2012 at 9:28 am

    Back to national character: I’m becoming more and more convinced that a (the) key necessary condition for rapid growth is widespread confident optimism.

    This new UBS paper shows that in equity valuations.

    When inflation is in a middling range — 2 to 6% — equity valuations are optimized (earnings yields are low).

    Below that, the low inflation signals (and hence causes) low growth expectations (pessimism), so equity valuations suffer.

    Above that, it signals volatility /causes uncertainty, so equity valuations suffer as well.

    America’s confident optimism has certainly been one of our key assets over the centuries. That decayed in the 70s, but despite Reagan’s efforts to talk it up, it’s never really been the same as it was in those immediate postwar decades, just after we’d kicked Germany and Japan’s asses in four short years…

  • 3 Steve Roth // Dec 13, 2012 at 9:45 am

    And: *who cares* if that American confident optimism seems naive and adolescent? It works! It’s self-perpetuating! So anyone who (successfully) pooh-poohs that adolescent enthusiasm is effectively chipping away at that key, treasured national asset.

    Got “malaise”?

    OTOH, can chipper up-beat-ism countervail against the realities of shifting global economic power? Is viewing those rather inevitable realities with clear eyes necessary to best adapt to those changing realities?

    IOW, has all that confident optimism been largely a result and reflection of our historical and geopolitical situation (whole new continent, all that)? Is naive, confident optimism our best strategy as that historical reality, inevitably, shifts?

    Je ne sais pas.

Leave a Comment