Why was Europe Left at the Station When America's Productivity Locomotive Departed?
AbstractAfter fifty years of catching up to the United States level of productivity, since 1995 Europe has been falling behind. The growth rate in output per hour over 1995-2003 in Europe was just half that in the United States, and this annual growth shortfall caused the level of European productivity to fall back from 94 percent of the United States level to 85 percent. Fully one-fifth of the European catch-up (from 44 to 94 percent) over the previous half-century has been lost over the period since 1995. Disaggregated studies of industrial sectors suggest that the main difference between Europe and the United States is in ICT-using industries like wholesale and retail trade and in securities trading. The contrast in retailing calls attention to regulatory barriers and land-use regulations in Europe that inhibit the development of the big box retailing formats that have created many of the productivity gains in the United States. For many decades, the United States and Europe have gone in opposite directions in the public policies relevant for metropolitan growth. The United States has promoted highly dispersed low-density metropolitan areas through its policies of building intra-urban highways, starving public transit, providing tax subsidies to home ownership, and allowing local governments to maintain low density by maintaining minimum residential lot sizes. Europeans have chosen different policies that encourage high-density residential living and retail precincts in the central city while inhibiting the exploitation of greenfield suburban and exurban sites suitable for modern big box retail developments. The middle part of the paper draws on recent writing by Phelps: economic dynamism is promoted by policies that promote competition and flexible equity finance and is retarded by corporatist institutions designed to protect incumbent producers and inhibit new entry. European cultural attributes inhibit the development of ambition and independence by teenagers and young adults, in contrast to their encouragement in the United States. While competition, corporatism, and culture may help to explain the differing transatlantic evolution of productivity growth, they reveal institutional flaws in both continents that are inbred and likely to persist. The final section of the paper identifies the roots of the favorable environment for innovation in the United States compared to Europe. Elements include an openly competitive system of private and public universities, government subsidies to universities through peer-reviewed research grants rather than unconditional subsidies for free undergraduate tuition, the world dominance of United States business schools and management consulting firms, strong United States patent protection, a flexible financial infrastructure making available venture capital finance to promising innovations, the benefits of a common language and free internal migration, and a welcoming environment for highly-skilled immigrants.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10661.
Date of creation: Aug 2004
Date of revision:
Publication status: published as Gregory, Mary, Wiemer Salverda, and Ronald Schettkat (eds.) Services and Employment: Explaining the U.S.- European Gap. Princeton, NJ: Princeton University Press, 2007.
Note: EFG PR
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Gordon, Robert J, 2004. "Why Was Europe Left at the Station when America's Productivity Locomotive Departed?," CEPR Discussion Papers 4416, C.E.P.R. Discussion Papers.
- N0 - Economic History - - General
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-31 (All new papers)
- NEP-EEC-2004-08-31 (European Economics)
- NEP-EFF-2004-10-21 (Efficiency & Productivity)
- NEP-ENT-2004-08-31 (Entrepreneurship)
- NEP-HIS-2004-08-31 (Business, Economic & Financial History)
- NEP-INO-2004-08-31 (Innovation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bresnahan, Timothy F. & Gordon, Robert J. (ed.), 1997. "The Economics of New Goods," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226074153, March.
- Goldin, Claudia, 1998.
"America's Graduation from High School: The Evolution and Spread of Secondary Schooling in the Twentieth Century,"
2664307, Harvard University Department of Economics.
- Goldin, Claudia, 1998. "America's Graduation from High School: The Evolution and Spread of Secondary Schooling in the Twentieth Century," The Journal of Economic History, Cambridge University Press, vol. 58(02), pages 345-374, June.
- repec:hal:wpaper:halshs-00289168 is not listed on IDEAS
- C.J. Krizan & John Haltiwanger & Lucia Foster, 2002.
"The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade,"
02-18, Center for Economic Studies, U.S. Census Bureau.
- Lucia Foster & John Haltiwanger & C.J. Krizan, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," NBER Working Papers 9120, National Bureau of Economic Research, Inc.
- Eric Bartelsman & Andrea Bassanini & John Haltiwanger & Ron Jarmin & Stefano Scarpetta & Thorsten Schank, 2002. "The Spread of ICT and Productivity Growth: Is Europe Really Lagging Behind in the New Economy?," CEPN Working Papers halshs-00289168, HAL.
- Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, Ekim.
- Dale W. Jorgenson & Kevin J. Stiroh, 2000.
"Raising the Speed Limit: U.S. Economic Growth in the Information Age,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
- Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: US Economic Growth in the Information Age," OECD Economics Department Working Papers 261, OECD Publishing.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.