If Sweden was a U.S. state, how rich would it be?
Two Swedish economists recently published a study that asks how European countries would fare if suddenly admitted into the American union. The results? If the UK, France, or Italy became U.S. states, they would rank as the fifth poorest of the fifty, ahead only of Arkansas, Montana, West Virginia, and Mississippi. The richest EU country—Ireland—would be the 13th poorest. Sweden would be the 6th poorest. In fact, the study found that 40% of all Swedish households would classify as low-income in the U.S.
This means that poorer U.S. states enjoy affluence comparable to that of richer European states—Denmark is equivalent to Kentucky—whether measured in terms of home ownership, or number of microwaves and cars possessed. “Material prosperity,” the authors write of the U.S., “is high and not associated with the material standard of living which many people in Europe probably associate with poverty. Good economic development, in other words, results in even poor people being relatively well off.”
By the 1880s, the U.S. had become the world’s richest nation (measured in per capita GDP). In the 1990s, U.S. growth was twice that of Europe’s, and three times that of Japan’s. The U.S. per capita income is now 55% higher than the EU-15 average, and 50% higher than Japan’s.
Here’s the not-so-secret recipe for achieving European-style stagnation and decline. First, combine high unemployment and aging populations to ensure that welfare costs far exceed worker contributions. Then, stuff with generous entitlements, massive tax burdens, rigid labor markets, and regulation-mad bureaucracies. For flavor, add dashes of socialism and right-wing paternalism. Bake. (For additional recipe ideas, consult Joy of Administrating by Ted Kennedy, or English departments everywhere.)
Joey Tartakovsky is assistant editor of the Claremont Review of Books.
(Here's the study's preface - the entire document is 49 pages)
PREFACE
IF THE EU WERE A PART of the United States of America, would it belong to the richest
or the poorest group of states?
At the beginning of the 1990s, there was no need to ask. Europe’s economic future was
a subject of growing optimism. Productivity growth had for some decades been higher
than in other countries of similar standing, and that growth was now going to be hugely
accelerated by the elimination of trade barriers and the closer economic integration resulting
from the Single Market. The EU as an institution was – and was undoubtedly seen as
– a vehicle for growth and economic liberalisation. In other words, the EU was able to do
what politicians in several member countries had wished for but had failed to achieve: to
increase economic openness, to strengthen the process of competition, and harness the
political process behind a liberal reform agenda.
Today, the perspectives on the EU, and the outlook on its future, are radically different.
Economic growth during the 1990s never became what many had wished for. Some
countries performed reasonably well, most notably Ireland, but on the whole the EU
was lagging far behind other countries during the whole decade. Productivity growth
decreased and by mid-decade the EU was running behind the US in this respect. The
process of convergence in productivity, a much talked-about process since the 1970s,
had once again become a process of divergence.
The role, and status, of the EU in the economic reform process has also changed. Instead
of a clear focus on economic reforms and growth, the EU (the Commission as well as the
Council) has concentrated its ambitions on other political objectives. Hence, the EU no
longer is – or is seen as – the great economic liberator of Europe. It is generally not
performing as a vehicle for reforms, nor as leverage for policies that are needed but
impossible to accomplish in the national political arenas.
Is it possible to break the spell of economic stagnation in Europe? Yes, undoubtedly.
But, alas, it seems highly improbable. The member countries have agreed on a relatively
far-reaching reform agenda in the Lisbon accord (yes, in the modern European context it
is far-reaching). But the agenda lacks impetus. Not to say a true awareness of the need
of reforms. Worse still, many European politicians and opinion-formers seem totally
unaware of the lagging performance of the EU economies and that a few percentage
units lower growth will affect their welfare in comparison with other economies.
Such is the background to this study on the differences in growth and welfare between
Europe and the US. Too many politicians, policy-makers, and voters are continuing their
long vacation from reality. On the one hand, they accept, or in some cases even prefer, a
substantially lower growth than in the US. On the other hand, they still want us to enjoy
the same luxuries and be able to afford the same welfare as Americans can. Needless to
say, that is not possible. But the real political problem is that lower welfare standards –
as with inequality in general – are a relative measure for most people. They are always
viewed by comparison with others, and rarely in absolute terms. People would rather
weep in the backseat of a new Mercedes than in the backseat of a second-hand
Volkswagen.
This study is based on a widely acclaimed and thought-provoking book – Sweden versus
the US – that was published earlier this year in Swedish by the same authors – Dr. Fredrik
Bergström, President of The Swedish Research Institute of Trade, and Mr. Robert
Gidehag, formerly the Chief Economist of the same institute, and now President of the
Swedish Taxpayers’ Association. The study presents important perspectives on European
growth and welfare. Its highlight is the benchmark of EU member states and regions to
US states. The disturbing result of that benchmark should put it at the top of the agenda
for Europe’s future.
Fredrik Erixon
Chief Economist, Timbro
thks to Tim Fowler |
