Follow Europe's Laggards? No Thanks

Investor's Business Daily Editorial, January 22, 2010

For the past year, Democrats have used the "European model" as their template for change in the U.S. A new report on productivity shows why that might not be such a hot idea.

The Conference Board reports that U.S. productivity rose 2.5% last year, thanks in large part to fewer hours worked during the recession. This year, the respected business research group says, productivity will likely gain 3%. Meanwhile, Europe's productivity dropped 1%, "falling far behind the United States."

Why is this the case? A clue came the same day the Conference Board released its productivity data.

France announced it will impose stiff new taxes on carbon dioxide output, burdening its domestic companies and consumers with billions of dollars of new costs and further eroding the country's competitiveness. All in the name of curbing "global warming," a dubious theory that has come under increasing scrutiny in recent months.

France isn't alone. Indeed, it's part of a shared welfare-state culture that threatens the existence of the European Union. And it didn't start with the Conference Board's report on productivity. It's been going on for a long time.

A study in 2005 by the Association of European Chambers of Commerce and Industry shocked many people in the EU, though it got little attention here in America.

That study found the European Union was roughly 20 years behind the U.S. in terms of economic performance. As far as productivity is concerned, it would take Europe until 2056 to reach U.S. levels of productivity in 2005.

Don't dismiss productivity as an important measure. When it comes to international comparisons, it's the entire game. Rising productivity directly influences a nation's standard of living. No country is made better off by having shrinking or slow-growing productivity.

As for standards of living, the most recent data for the Organization for Economic Cooperation and Development nations show that the average U.S. citizen consumes 52% more than the average inhabitant of other OECD nations and 47% more than citizens of Western Europe.

The productivity gap becomes even clearer when looking at the separation between U.S. output and European output (see chart), as measured by real gross domestic product per person. Clearly, the U.S. is growing faster than the EU. The average income in the EU is below that of Mississippi - one of America's poorest states.

Yet in any conversation with members of the left, Europe is cited as an example for us to follow. New York Times columnist Paul Krugman, for one, has talked up the European model. And the latest book by Steven Hill of the respected New America Foundation carries the bullish-on-Europe title:

"Europe's Promise: Why the European Way is the Best Hope in an Insecure Age."

Really, why would we want to copy Europe? Its failed health care systems? Its cradle-to-grave welfare states? Its lack of innovation and job creation? Its relatively declining standard of living?

Bad as things are for Europe, they're about to get worse. The Lisbon Agreement - which goes far toward creating an unelected European superstate ruled by bureaucrats accountable directly to no one - goes into effect this year. It gives the bureaucrats in Brussels and elsewhere on the Continent unprecedented power over the EU's economy. This will only make its problems worse.

Europe is no model for the U.S. Indeed, its growing lack of cohesion, inability to defend itself and increasing lack of competitiveness make it an object lesson of what not to do in economic policy.

As University of Michigan economist Mark Perry noted recently on the American Enterprise Institute's blog:

"Most European countries have lower per-capita GDP than even many of the poorest U.S. states, suggesting that Europe has a lot more to learn about economic growth, dynamism and success from the U.S. than vice versa."