London Briefing/Chris Johns: The occasion of the World Economic Forum's annual get-together in Davos has prompted an outpouring of commentary on the theme of Europe versus the US. Partly political but mostly economic, the protagonists in this debate occupy one of two positions.
In the pro-US corner we have those who point to the obvious economic successes of the US (lots of growth) and the failure of Europe (no growth).
The pro-Europeans typically delve a little deeper into the statistics and point out that transatlantic economic differences are not as great as they seem, particularly when we look at measures like output per hour worked (very similar between Europe and the US) and output per person (much higher in the US).
The europhiles happily conclude that sophisticated continentals, less driven by mammon, work far less hours than the US but are able to be as productive during the hours that they do work. US growth, they argue, is driven as much by a strange desire to work extremely hard and the fact the US working population is still growing, thanks in no small part to immigration. The factors underlying these work/leisure choices and the inability or unwillingness of people to move to Europe is rarely discussed.
I suspect that the hours-worked argument holds up until we realise that there are few incentives for Europeans to work as hard as their US counterparts. European firms, often using US technology and business processes, operate along the up-slope of the productivity curve and then stop, fully aware of how quickly things would fall off if they went any further.
In addition, faced with a choice, would-be immigrants always opt for the US - for reasons of available economic opportunities - every time. Europe's much vaunted social and cultural superiority cuts little ice with people seeking a job. These sorts of argument underpin the emerging Davos consensus that the European social-market economic model is doomed and that the EU's ambition to be as productive as the US by 2010 is a joke.
When I recently asked a leading London-based strategist whether he thought Europe has given up on growth, he surprised me with his reply. I thought I would hear all of the usual complaints about structural rigidity and policy paralysis. Instead, I was told I was asking the wrong question. The real issue, according to a growing number of analysts, is whether Europe has given up on capitalism. Clearly, the two issues are linked.
Could Europe be making a conscious decision to stop growing? Could disenchantment with the American model now run so deep that growth-minimising policies are now the norm? Or is it simply the result of years of muddled thinking and hopeless policies? In one way, it doesn't matter: the result is the same. And, most likely, more of the same. Given the political divide between Europe and the US, there is little chance that we will see the continent adopting US-style pro-growth policies.
The strategic issues facing the UK are clear. Geographic proximity to Europe runs up against economic and political ties with the US. The avalanche of negative EU-related stories has further reduced the number of pro-Europeans in Britain.
The latest scandal involves members of the European Parliament fiddling their expenses and proposing a pay rise for themselves. Another recent story: Oxfam last week published a report showing that the British recipients of aid under the CAP are the richest people in the country. It is now accepted in Britain that the CAP is an obscenity: it ruins the environment, enriches the wealthiest farmers and adds to Third World poverty. And yet the French love it.
This would all be very strategic and of not much import, at least over the short term, if it were not for the biggest economic shock in history: two billion workers in China and India willing to work for less than a euro an hour are in the process of being added to the world economy. That this is having immediate consequences is evident from daily headlines about outsourcing of jobs.
That these consequences are only going to grow should also be obvious. It is also obvious that countries with inflexible labour markets, non-existent service sectors, hopeless infrastructure and muddled policies are not well positioned to cope with this shock. If you thought the OPEC crises of the 1970s were a big deal, you won't have long to wait before you see the first headlines comparing that era with the modern shock of Asian competition.
