0

Europe's Overdue Reformation

War and its huge cost; the falling dollar; mounting trade and budget deficits; the chicanery that hollowed out companies like Enron and WorldCom; the bursting of the high-tech bubble: capitalism American-style is both under strain and under a cloud. From left to right, many European intellectuals think that the capitalist game as played by the US is passé. An active search is on for new models.

Strong on rhetoric and fueled by a wave of anti-Americanism, that search is nonetheless thin on facts. Stories of corporate malfeasance do, of course, abound in the US. But it is facile to jump from individual corporate scandals to broad conclusions about the supposed rottenness of the American economy.

A close look at productivity growth (output per hour worked) in the US and Europe shows that US capitalism remains as vital than ever. Having grown at an average annual rate of just 1.6% since the early 1970's, annual US productivity growth in the non-farm business sector has accelerated to an average of 2.6% in the seven years since 1995, with no sign of a slowdown. In 2002, productivity grew by 4.8% - an extraordinary result, because productivity normally falls during economic slowdowns.

Now look at Europe. Annual productivity growth actually slackened in the second half of the1990's, from 2.5% to just 1.3% today.