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The new American challenge
"Something fundamental may be changing in the economic balance between the US and western Europe. ... If the present divergence continues, Europe, already insignificant militarily and politically, will play a declining economic role as well. ... That divergence is itself the result of the US productivity renaissance. ... Also important are hours put in by each worker and the proportion of the population in employment. ... In 2001 ... productivity per hour in the EU was as much as 87 per cent of US levels, but real GDP per head was only 67 per cent. ... the EU's shorter average working hours and ... the smaller proportion of its population at work. ... The apparently good EU productivity performance was partly caused by undesirably large falls in employment."
" ... steady divergence between the US and the EU in productivity and standards of living. This ... divergence could slow if the EU were successful in raising employment rates towards US levels. But that would take politically implausible changes in the EU labour market and fiscal structures. ... the US economy could grow by at least 1 percentage point a year faster than the EU's. Such sustained superiority is not implausible. The US does ... possess many advantages ... its greater acceptance of market forces; the superiority of its institutions of higher education ... its domination over most areas of new technology; its relatively youthful population; and its openness to immigration of the best and brightest."
"It is always difficult to discern breaks in trends. Trends in productivity growth are no exception. But we may be witnessing such an event. For half a century, western Europe did a wonderful job of dealing with le defi Americain [the American challenge]. But the challenge has been renewed. Can Europe respond?" ... [more]
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