Tuesday, August 05, 2008

Economy Model: European vs American

After reading Europeans may not be so lazy after all, I was thinking may be finally now somebody gets it. I lived in US for a while and moved to EU. and personal i can experience the difference in quality of life.

If you measure a good economy by the pay check, then american 25% richer per capita than Europeans. But if you measure wealth by quality of life, then the EU 15 passed up America at least 10 years ago in some areas. America has the best graduate schools in the world -- though there are some good ones in Europe -- but on the elementary and secondary level, students in 18 European countries performed better than American students in mathematics. America is the only industrialized country other than South Africa that doesn't offer its citizens universal healthcare -- american got 45 million people uninsured and have fewer doctors per capita. The EU 15 population lives a year longer than Americans and EU have a much lower infant mortality because they have less poverty. Europe does have serious poverty and you do see it, but it's not as bad as in the US, where one out of four kids lives below the poverty line. When it comes to leisure time, Americans get an average of 5 to 10 days off a year while Europeans get or to six weeks off as a right mandated by law. Americans often say the Europeans are not as productive, but the OECD figures show that from the late 50s to mid 90s, the EU 15 countries had higher growth in productivity per hour almost every year.

European Union is the largest exporter in the world -- it's ahead of United States and China. That will shock a lot of people. Europe's largest exporter, Germany, sells more goods abroad than either the US or China, and that's only one EU country. Europe is the largest internal market in the world; 61 of the world's largest 140 companies are based there. It dominates in banking and insurance, aerospace with Airbus, engineering, construction, and the chemical and food sectors. America leads in some pretty big industries, too--pharmaceuticals, automobile manufacturing, software and telecoms- but to say US is big economic giant and Europe's falling apart..is ignorant statement

If Europe is so moribund and America so economically strong, why is the dollar continuing to devalue against the euro? It's because the investment community says economic fundamentals are sound enough to guarantee payoff. this is what you'll get if you go with the American model. You'll get a winner takes it all system, a greater disparity in income, you'll have increased poverty. You'll get debt for your family. The only other country that has really followed american system is Britain, and it now has the worst consumer debt ratio in the world-- an achievement it has accomplished in just five years. The average Brit spends 120 percent of his or her income.

If you look at the American economy in a detached way, there's no doubt that the unfettered market produces some innovation and growth. But the truth is that the recent economic growth seen in the US has been, in large part, the result of a massive increase in consumer debt. The US came out of the 1989-92 recession by issuing credit cards. went on a huge credit binge and basically kept the American economy and the whole global economy afloat on consumer credit and American consumers continuing to buy. The cost of this was the depletion of the family savings rates of millions of Americans -- we had an 8 percent family savings rate in 1990 and it's in almost in below zero(-ve) today.

But there is no positive correlation between eliminating all your social programs and a positive economy -- there's only a negative correlation. If you eliminate the social benefits, you get negative GDP -- more crime, more prisons, deteriorating healthcare, deteriorating infrastructure and greater pollution. A lot of the European countries and their social programs are too paternalistic and they need to be streamlined the way the Scandinavians have done it. Indeed, the economic successes of the Scandinavians have shown that you don't have to eliminate your social net in order to grow your economy -- you can also find growth by streamlining the net.

There needs to be a balance between personal accountability and social solidarity. You can't be so dependent on the state that you no longer have any initiative. And you can't be so abandoned by society that you're all on your own and there's no helping each other.

Europe(certainly Asia/Africa/Latam can start trying) shouldn't look to adopt the American free-market capitalist system or to preserve the lavish social net that exists in countries like Germany and France is the wrong one. Instead, Europe should be looking for a third way -- and Scandinavia provides a good model.

1 comment:

Anonymous said...

Very interesting analysis and opinion, I agree on most points, but am rather more critic with the "European model" and think that the need of following the Scandinavian one is becoming quite urgent (instead of continuing the current ones).