Crunching Europe's Numbers

Recently, someone who had made what was apparently a once-in-a-lifetime social visit to Germany was waxing eloquent to me about how wonderful everything is there - including the bizarre claim that their standard of living is much higher than ours.  I had to bring him back to earth, and so I might as well share this here.

I make multiple business trips a year to various places in Europe, and have been doing so for many years (well over a decade).  I've learned a lot just by repeated exposure, including gaining some grasp of the difference between reality and comfortable illusions.

As everyone has probably noted, we are continually pelted with various forms of goading on this matter - that somehow “Europe” is just a much better place than the United States. This runs the gamut - from murky claims that regardless of (whatever) there is more “social justice” in Europe, all the way to flat-out claims (as noted above) that the standard of living is higher over there.

But how do these claims stack up when one looks at real numbers?

Let's get some numbers - some plain old numbers, apparently for 2007. According to this source, the United States logged a GDP per capita of $46,000, while Sweden is back at $36,900 and Germany is way back at around $34,400. We can compare that to the available data on U.S. states, such as that found here.

You can see that Sweden and Germany come in at about the very bottom of U.S. states - putting them at the level of West Virginia and Mississippi.

I actually had this sort of “debate” three or four years ago when I was on a conference panel discussion in Croatia with an EU Commissioner from Greece (I think he’s now the sitting EU Environment Minister). He started waxing eloquent about how rich and wonderful the EU is, particularly citing Sweden as being “very rich”; I had to take issue with that claim, and quoted the numbers above (in 2004 form since it was 2005). He was absolutely astonished, but the numbers speak for themselves. (He backed off and cited Luxembourg, forcing me to contend that Luxembourg isn’t a real country, but is actually a bank that’s large enough to have its own airport.)

Another factor just below the surface is that places like Sweden and Germany have become frightfully expensive. Some years back, after a business trip to Norway, I commented to a friend back home that “Norway is a country that is entirely at mini-bar prices.” That’s something that’s now afflicting Germany in particular very badly, and it’s a big contributor to its high unemployment and economic stagnation. Business is fleeing Germany (with Austria being a popular alternative choice); further anecdotal evidence is that last year Nokia closed its last remaining mobile phone assembly facility in “old” Europe, in Germany, and moved the production to Romania.

I personally understand Nokia’s decision. Some years back, our efforts just drifted naturally from western to eastern Europe. And that’s about a lot more than just “cost” (I’m not in a “low cost rules” business). The entire economic system in the east is geared toward growth and doing things - and people there actually want to work, not sit in cafés all day discussing how pleasant life is.

One final problem that always strikes American visitors to the “Germanic” (northern European - particularly Germany and Scandinavia) countries is the cleanliness and order. For decades now, our domestic socialists have always cooed over this (e.g. Sweden and Finland) and basically claimed that this is proof of the goodness of socialism. What they miss is that this situation is cultural rather than political or economic. The best summary I’ve ever seen of this is insightful but hilarious.

The example our domestic socialists tend to point to has "evolved" (i.e., "changed") over the years.  For a long time we were always hectored about the glories of Sweden.  At some point, allegiance shifted to Norway, and by now it may have shifted to Finland.  (I've lost track.)  Finland is a very pleasant place, but there is one salient aspect of Finnish culture that sets it apart.  Finns warmly embrace technological innovation and new technologies with the greatest enthusiasm.  This is a strange contrast to the cultural lethargy that afflicts most of the western European countries - and this is one aspect of Finnish culture that I'd like to see sprout in Vermont.

Can the socialists make a claim that Nordic socialism is the cause of Finnish order, cleanliness, and technophilia?  Well, just across the Baltic Sea from Finland is Estonia.  In terms of cleanliness and order, Estonia is clearly a "northern European" country.  I've been visiting there on a very regular basis for nearly a decade now.  During the early days, Estonia was cluttered with the debris trail that was the legacy of Soviet communism.  However, improvements have been strong and steady; when I was there again back in October, I could see that the post-Soviet recovery has undeniably reached the point where Estonia is as clean, modern, orderly - and technophilic - as is Finland. Yet Estonia is one of the lowest-taxed and most business-friendly jurisdictions on the planet. (That’s why I’m there so regularly.)  Now there's an example to emulate.

I guess the bottom line after more than a decade of multiple business trips a year to Europe is…. don’t be fooled….

 

Comments

[Chris Campion]

Daniel, thanks for that take on Eastern versus Western Europe. If the "old ways" of doing things in Western Europe are so smashingly grand, then why have the classically high corporate tax rates in France and Germany been reduced in the past few years? Why do we not hear our domestic Europhiliacs demonstrating on Main St., USA, to follow the European lead and reduce our corporate taxes? Surely there's someone who can speak truth to power about this new geo-political direction in Europe?

The fact is that the European Tiger sits in Eastern Europe, not Western Europe (with the notable exception of Ireland). The East European countries share the deepest scars of centrally planned economies, and they have run screaming from that model. Their example is a lesson to those in the US who continually tout a "mixed economy" plan, which is really just more government and taxation wrapped in a paper-thin disguise. We'll see more of the mixed economy message in the next 4 years. Unfortunately, many in the US will continue to scratch their heads and wonder why GDP growth is anemic, while our federal debt grows at a rate we wish our GDP would grow.

[Art Woolf]

The Swedish think tank Timbro did a very detailed study comparing the living standards in the EU with those in the US. Their findings reinforce Dan's observations.
http://www.timbro.se/bokhandel/pdf/9175665646.pdf

[Jack Harding]

I have an engineering office in Bucharest and the folks there are highly educated, have excellent English skills, they work like dogs, the retention rate is nearly 100% and you can drink the water....Great place to work and grow a business.

There are still many things to overcome. The infrastructure was antiquated but is now being updated with EU funding (from Germany and Sweden, no doubt), the airport is not what we have come to expect and the countryside is quite third world; Borat was filmed there.

That said, there is no sense of entitlement and my employees tell me all they want is a chance to work hard and move ahead in life; rings of a younger US.

[Richard]

I have never heard of a city or state that has been taxed into prosperity.

Even Old Europe has figured this out.

Recent election victories:

Germany's free-market oriented Angela Merkel over populist Gerhard Schroeder; France's free-market oriented Nicolas Sarkozy over socialist Segolene Royel; and free-market oriented Silvio Berlusconi reclaims Italy's Prime Minister post after the resignation of the former Prime Minister and his disastrous anti-business economic policies.

Vermont has and continues heading down the path of Old Europe's old ways: ever-higher taxes and ever-more regulation.

For all the talk of how "evil" the free-market has been since President Reagan ushered in an unprecedented entrepreneurial class, this past 25 year period has doubled the worldwide labor force - from 2.7 billion to 6 billion; forty million new jobs in the United States alone were created (which is more than was created by the rest of the industrialized world combined); the Dow Jones climbed from 800 to over 12,000 to its current level of roughly 9,000; in 1982, the net worth of U.S. households equaled $11 trillion, today it exceeds $50 trillion; and approximately one billion people have moved out of poverty since 1980.

These and other extremely insightful facts and commentary can be found in David M. Smick's recently published book, titled "The World is Curved."

No doubt reforms are needed but, throwing out the "free-market baby" with the bath water would be an enormous overreach and blunder.