October 04, 2002
IMF Economists Wrestle with the Problem of Slow Productivity Growth in Europe

Worth reading...


From the September 2002 IMF World Economic Outlook

Box 1.3: Reversal of Fortune: Productivity Growth in Europe and the United States

Manmohan S. Kumar and Maitland MacFarlan.

The surge in labor productivity growth in the United States since the mid-1990s has attracted significant attention—not just for its beneficial effects on output performance, earnings, and inflation, but also because it has not been matched elsewhere, particularly in Europe. This box assesses the level and growth rate of productivity in the United States and four major European countries in recent years and shows the following: (1) the persistent differences in GDP per capita between the United States and Europe are due much more to differences in labor utilization than those in labor productivity (as measured by output per hour); (2) productivity growth in Europe exceeded that in the United States up to the mid-1990s, but since then European performance has slackened while the United States has picked up and taken a lead; and (3) there is a consensus that high tech sectors have played an important role in the acceleration of productivity growth in the United States; these benefits are yet to be fully realized in Europe.

Following rapid catch-up in the three decades after World War II, GDP per capita in Europe since the late 1970s has generally settled at about 65–70 percent of the U.S. level (see the table). This persistent gap does not appear to be due to differences in productivity (output per hour); rather it reflects marked differences in the operations of labor markets and in labor utilization. Three elements stand out: labor force participation rates, especially of females and of individuals aged 55 and above, are substantially lower in continental Europe; unemployment rates are much higher in Europe; and average annual hours worked per employee are about 20 to 30 percent lower than in the United States. These three elements more than account for the gap in GDP per capita between the United States and the major continental economies; output per hour in France, Germany, and Italy is similar to, or exceeds, the U.S. level. The United Kingdom has similar high rates of participation and employment to the United States but, as on the continent, hours worked are lower; overall, output per hour appears to be lower than in the United States.

The past decade reveals some striking differences in the factors driving growth in output per capita across the two regions. For much of the 1990s, U.S. GDP growth per capita exceeded that in Europe. In the first half of the decade, however, growth in output per hour in the United States lagged substantially behind that in Europe.

This continued the trends that had been evident since as far back as the 1960s, with the average annual growth in U.S. productivity per hour less than half that in Europe (as well as in Japan). (See the figure.) Indeed, it was this persistent shortfall in U.S. productivity growth that led to pessimistic assessments of U.S. productivity and growth prospects in the 1980s and even as late as the mid-1990s (see, for instance, Gordon, 1996).

Over this period, however, the United States was able to maintain its lead in terms of GDP per capita through higher utilization of labor, as noted above. Moreover, during the first half of the 1990s, the relative weakness in hourly productivity growth in the United States was more than offset by stronger employment growth and total hours worked, leading to a widening differential with Europe in terms of GDP per capita.

In the second half of the decade, there was a marked and surprising acceleration in U.S. productivity growth. In sharp contrast, productivity growth slowed substantially in Germany, Italy, and the United Kingdom and showed no change in France—in all cases falling well behind that in the United States. Rising productivity growth in the U.S. was accompanied by an acceleration in employment growth: even though European employment growth also picked up strongly over this period, it still lagged behind that in the United States. As a result of higher growth in both productivity and employment, growth in GDP per capita in the U.S. exceeded that in Europe even more than in the first half of the 1990s.

What accounts for these divergences in relative productivity performance in the second half of the decade? In the United States, the bulk of the acceleration in productivity growth reflects the production and use of information technology. The take-up of new technologies has been slower in Europe, which meant that—at least until very recently—Europe did not benefit to the same degree from the productivity boost that came for the technology revolution. But in addition, there were a number of other developments —particularly in labor markets—that may have contributed to the pickup in employment growth in Europe, but that also probably contributed to the slowing in productivity growth.

In particular, the relatively rapid employment growth in the euro area in the second half of the 1990s resulted in part from strong wage moderation as well as from steps taken to liberalize labor markets. These entailed reductions in tax wedges (especially in France and Italy), and provision for more flexible employment contracts, which opened up employment opportunities, especially for temporary and part-time workers. Over this period, the long-standing trends of falling participation and rising rates of unemployment were reversed. It is striking that for much of this period part-time employment, especially of females, accounted for the bulk of the employment gains. For some countries such as France, this employment growth may have been concentrated primarily among lower skill workers; in general, though, much of the gains occurred among higher skilled nonmanual workers. (See, for example, European Commission, 2000.) But even there, growth was concentrated in sectors typically associated with low productivity— notably the service sectors, including health and social services. In addition, the increase in youth employment, likely to reflect relatively lowerskilled workers, may also have contributed to the weaker productivity growth. (See Kumar and MacFarlan, forthcoming.)

The downturn in labor productivity growth in Europe may have been just a temporary side effect of the labor market adjustments noted above: there is some indication that productivity growth picked up in 2000, before the current cyclical downturn. More broadly, however, the weakness of labor productivity growth may also reflect slower growth in capital-labor ratios in Europe, which had been unusually high. This slowdown in the growth of labor productivity in itself need not be a cause for concern, as it would normally be associated with some concomitant increase in capital productivity, which may leave total factor productivity broadly unchanged. Recent data suggest, however, that total factor productivity growth in Europe may also have declined somewhat, while in the United States it may have increased.

There is a great deal of uncertainty about the future evolution of productivity growth, not least reflecting the recent turmoil in the high tech sector and its longer-term implications. However, the fact that, in the United States, high rates of productivity growth have been maintained even during the recent period of weak activity—when productivity would normally have been expected to decline as employment reductions lagged behind the fall in output— augurs well for the sustainability of the robust performance of recent years. For Europe, there is some evidence that the information technology diffusion is following similar patterns to that experienced in the United States, but at a somewhat slower pace. This, together with a cyclical pickup, should support a rebound in productivity growth, but, to take full advantage of the benefits of new technologies, it is essential to broaden structural reforms in labor, product, and financial markets. Such reforms would also help accelerate participation and employment growth more broadly in these economies, setting up a virtuous cycle of higher productivity, higher domestic demand growth, and higher GDP per capita.

Posted by DeLong at October 04, 2002 06:09 PM | Trackback

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Comments

Well, speaking as an American married to a French woman and living in Paris, the IMF comments pretty much support the European lifestyle. Europeans may not have a higher GDP, but they are wealthier, if you count leisure time towards wealth.

"Three elements stand out: (1) labor participation rates, especially of females and of individuals aged 55 and above, are substantially lower in Europe; (2) unemployment rates are much higher in Europe; and (3) average annual hours worked per employee are about 20 to 30 percent lower than in the United States."

(1) Yes, my 72-year old mother is still working in the U.S., while my French mother-in-law stopped at 60.
(3) I'm on a 35-hour week, which means I get around 10 weeks of holiday a year. (When I said that to an academic Stateside, he exclaimed, "That's almost as good as me!")
(2) Right or wrong on this one, Europeans (in general?) have the idea that it's better to be idle than to make particular efforts to get work (moving from their native region or taking an uninteresting job).

OK so US GDP is better off, but that's only because no one includes the value of leisure time in GDP statistics. Which continent is really better off?

When it comes down to it, the US lead in GDP means one thing: it has money to spend on its military. Only by adding this to the balance can one possibly tip it towards the US system.

Posted by: Andrew Boucher on October 6, 2002 07:39 AM

>>Europeans may not have a higher GDP, but they are wealthier, if you count leisure time towards wealth. <<

More complicated I'm afraid, we have a lower GDP, in each and every case. Of course in numbers like these there is something for everyone. Those who want to make the argument, which Andrew eloquently does, that Europeans live better because they put a higher value on their time can point to these figures and say 'told you so'. Paraphrasing the late lamented Rudi Dornbusch, the German worker doesn't seem to work very often, but when s/he does, by god s/he's productive.

Of course this apparent higher value on personal time (which is at least partially true, and strongly counter-intuitive from a reductionist economic point of view since American hours seem to have a higher dollar value) also masks a multitude of other problems like the continuing high unemployment rates in the EU. This isn't increased leisure, but increased misery. Again the lower levels of female participation can reflect two things, either a generally less emancipated condition here in Europe, or a relative inferiority of care facilities for the aged in some areas. This (rather than lack of child care), in an aging society without baby-booms, can be a much stronger influence on female participation rates over 45, since most of the burden of aged persons family care falls on women.

Which brings me round to the main problem, what can we really learn from aggregate figures like these. Perhaps, stealing a line from Abramovitz, how ignorant we are. Having the numbers is one thing, the real problem is how to interpret them.

Many economists drew the conclusion from Robert Solow's early growth work that, absent technological change, economic growth would come to a halt. Well perhaps from these figures we could possibly turn this round to saying absent labour supply growth (which in the end means population growth), then economic growth would virtually grind to a halt. Turned on their head, the GDP per capita numbers are just another version of the economic dependency ratio - working to non-working population. Outside the labour market participation numbers what we have are youth and old age dependency ratios. Clearly the former has similar associated costs, but one big advantage - todays children are tomorrows workers. The US has a milder aging problem and a bigger under 16 population than Europe. The message for Europe turn on the immigration taps.

That being said, these are only labour productivity figures, and these alone can be a highly misleading measure. Look at the US figures right now. Labour productivity is booming as firms expand production without taking on extra workers. But what is happening to capital services. The real answer is I don't know, but a quick look at the stock market, and all those profit warnings, might just serve us as some sort of proxy indicator.

In the end, wherever we look - CPI, productivity numbers, money supply and velocity in global capital markets - we trip over the same issue, measurement problems. If we made a fraction with all the economic numbers we have coming at us as the denominator, and all the things we really understand as the numerator, could we christen it the diminishing rate of economic intelligence. index?

Posted by: Edward Hugh on October 6, 2002 10:25 AM

Has anyone yet come up with a convincing explanation for the dramatic fall in productivity growth in the US and major European economies during the early 1970s?

Posted by: Bob Briant on October 6, 2002 05:06 PM

I was under the impression that the problem with the productivity growth slowdown in the mid-1970s was not the lack of a convincing explanation, but a surplus of convincing explanations...

Julian

Posted by: Julian Elson on October 6, 2002 06:11 PM

heh, I love economics:

>>Again the lower levels of female participation can reflect two things, either a generally less emancipated condition here in Europe, or a relative inferiority of care facilities for the aged in some areas<<

You know you're talking to an economist when you hear that these are the only two things which could explain non-participation in the wage labour economy ...

In related news, the title "IMF Economists Wrestle with the Problem of Slow Productivity Growth in Europe " is somewhat misleading given that the bulk of the article is quite clear in pointing out that it is by no means assured that such a problem exists.

Posted by: Daniel Davies on October 6, 2002 11:27 PM

Julian,

>I was under the impression that the problem with the productivity growth slowdown in the mid-1970s was not the lack of a convincing explanation, but a surplus of convincing explanations...<

OK. The standard line so far has usually been - repeat after me - that the reasons are not well-understood.

Posted by: Bob Briant on October 7, 2002 03:45 AM

Someone please defend the IMF's contention that Italian workers produce 17 percent more per hour than their American counterparts; that French workers produce 15 percent more per hour.

Posted by: Jim Harris on October 7, 2002 05:16 AM

>>Someone please defend the IMF's contention that Italian workers produce 17 percent more per hour than their American counterparts; that French workers produce 15 percent more per hour.<<

Basically, it's not a "contention". It's the operation of division applied to output and hours worked in those three countries. It can't be "defended", because it can't be "attacked" unless you're going to claim that either the output numbers or the hours worked numbers are systematically misreported.

Posted by: Daniel Davies on October 7, 2002 07:22 AM

I think I can do the math.

My implicit point, which I now make explicit, is that it is difficult to accept the conclusion that Italian workers produce nearly one-fifth more per hour than their American counterparts. Let us forget for a moment where the denominator and numerator come from and ask instead if this seems reasonable.

I don't think so.

Posted by: Jim Harris on October 7, 2002 09:20 AM

>>I don't think so.<<

Why not?

It strikes me that one would have to know a *very great deal indeed* about patterns of industry in the USA and Italy to have an informed opinion on whether the per-hour numbers quoted were wrong or not. Otherwise, this instant assumption that the numbers must be wrong seems to me to be close to jingoism.

We've known since Leontief's Paradox that the USA's exports are surprisingly in their degree of labour-intensity; why should this not just be another surprising fact?

Posted by: Daniel Davies on October 7, 2002 09:39 AM

I'll add that high employment rates would normally be associated with lower productivity per hour, on the basis that the least productive workers are the last to be drawn into the market. A lot of the discrepancy can be explained by this simple fact.

Posted by: Daniel Davies on October 7, 2002 09:41 AM

In fact, the more I think about it, the more it makes obvious sense. Take the economy of Italy, take the materfamilias out of the home and into the wage-employment sector and see what happens average output per hour in Italy.

In general, it is a worrying characteristic of economists that their first instinct when faced with cognitive dissonance is to deny the facts rather than to explain them ...

Posted by: Daniel Davies on October 7, 2002 09:45 AM

Thinking about it, this is amazingly obvious and not even a threat to American workers' machismo or amour propre. If you took the country of Italy and put 66% of the female population out of the home and into service industry jobs, what would happen to output per hour worked? It would plummet, and that (higher participation, lower unemployment) is what's happening as you move from Italy to America. The report even spells it out, I see.

It is worrying that the reaction of denying the data rather than explaining it is entirely typical of the economics profession ...

Posted by: Daniel Davies on October 7, 2002 09:52 AM

Stephen Roach has long questioned American productivity numbers. We tend to work long hours, often putting in for lees time than worked. European hours are far more carefully controlled.

When in Japan, we marvel at the use of robotics and the efficient delivery of services to older women and men. Japanese agriculture uses most advanced techniques, but is not the vast corporate farming of America. What then is productivity? What is the productive worth of homemaking?

X spends long hours in medical practice, there are emergencies, some billed, some not, there are consults, there are research assignments. X is considered terrific, but how productive is X?

My X by the way....

Posted by: on October 7, 2002 10:01 AM

I certainly think leisure happily counts for wealth. We simply do not find families in France or Germany or the Netherlands "poorer" than Americans though productivity numbers may be skewed in our favor.

Posted by: on October 7, 2002 10:05 AM

DD

Please explain your interesting comments on employment further. Why should productivity decline if there are more parents in the work force? Is it lost home productivity?

Posted by: on October 7, 2002 10:38 AM

In terms of output per hour, the Italians are not only more productive than the Americans, they are more productive than the Germans, the French, and they are 37 percent more productive than the lowly British, according to the IMF. Remarkable.

I will take a look at some OECD sources and try to discover the explanation. McKinsey, which done research in this arena, is also worth a look, but has reached the opposite conclusion if I recall.

Cheers.

Posted by: Jim Harris on October 7, 2002 11:31 AM

You know it's an economist talking when the "only" possible explinations for low female participation lies in economic reforms. This is of course not true, cultural explinations are also something worth bringing up. For example in Scandinavia female participation is very high, if I'm not mistaken higher than in North America too. This is of course not only because child care and kindergartens are financed by the state, but also because the gender equality has come further in Scandinavia than in most Central European countries.

Then again I must comment on the debate Europe vs. US, since even if we only include the Western European countries the differences are so big I don't know if it's worth discussing these countries as one unit.

Jim Harris>> Why can't an worker in Italy or Germany be more productive per hour than an american one? Do you have something to back up this opinion or is it only your own ignorance speaking?

Sincerely, Mikael S

Posted by: on October 7, 2002 01:20 PM

While I don't remember all the details, the McKinsey Global Institute studies from the early 1990s, which looked not only at aggregate data but also at industry-specific productivity, found that absolute productivity in the US, especially in non-traded sectors, was substantially higher overall (both labor productivity and total factor productivity). Japan showed super-US productivity in its main export industries, but far sub-US productivity in areas like food processing.

In general, I am dubious about all such comparisons for the many reasons adduced in the previous comments. Hedonic adjustments for the value of output, differing markups due to differing levels of competition, leisure tiime valuation...it's a mess. The McKinsey industry-specific studies at least tried to make an apples-to-apples comparison of things we can concretely conceptualize, such as how many man-hours it takes to get an airliner turned around. With aggregate stats, we're kidding ourselves both cross-sectionally and in time-series if we think that small differences are easily interpretable.

Posted by: steven postrel on October 7, 2002 03:52 PM

>>Why should productivity decline if there are more parents in the work force? Is it lost home productivity?<<

Because, whatever economists say, "productivity" is not the celestial measure of virtue and prowess which some commenters on this board seem to regard it as. It's outputs divided by labour inputs, and that's all!

Therefore, because it's an average measure, it can be very misleading if you change the population over whom the average is calculated. Here's the simplest possible way to think about it:

Take economy A. This consists of 100 steelworkers and their wives. The steelworkers work 50 hours a week, 50 weeks a year for a wage of $4/hr. Assume for the time being that the rate of profit is zero, so the productivity is equal to the wage; it's $4/hr.

Now, let's change the social organisation slightly. The steelworkers' wives all get jobs sweeping the factory floor at $1/hr. This frees up the steelworkers from having to do this job, and this efficient division of labour allows them to produce much more. Assume still a zero rate of profit for simplicity, but the extra production pays the wives' wages and allows the steelworkers' wage to rise to $5/hr.

Now in this second economy, more is produced in total, and the steelworkers themselves are more productive, but average productivity is only $3/hr ($6/hr of production, but twice the labour inputs).

In other words, if you add labour to the economy, then the average productivity of labour will fall so long as the labour you're adding has a lower productivity than the average. Therefore, higher participation rates and lower unemployment will always be associated with lower measured productivity per hour. Do you get it now, Jim? Or is it more comfortable for you to continue to deny the facts, in which case you have a fine future ahead of you in the profession.

You might very well say that in this case, "labour productivity" is a pretty freaking useless thing to be caring about so much. To which all I can answer is, wait till you see what a mess the theory of the productivity of capital is in!

Posted by: Daniel Davies on October 7, 2002 11:30 PM

Hi Brad,

This article is quite interesting. Labour productivity is also a big issue in Canada at the moment... living with high US productivity is especially hard when you're right next door.

Just as in your analysis, some of the Canada-US gap can be explained in terms of growth in the labour force: unemployment in Canada has fallen from over 12% in the early ninties to 6.9% a couple years ago. Job growth has continued since then, but participation has grown faster.

This isn't enough to explain the whole Canada-US gap though. Many of the positions created were full-time, relatively well-paying jobs. So the situation is somewhat unlike the one you describe in Europe.

My sister's opinion (she works with this stuff) is that while the high-tech industry is important to the US productivity numbers, there is something else going on: imports and foreign direct investment.

It is well-known (I think?) that foreign firms are often more productive than domestic ones (else they couldn't afford an expansion outside their home market). The productivity boom in the US happened at the same time the trade and current account defecits surged: one might have caused the other, or they might have been interrelated.

Could the US boom have more to do with foreigners than Sam Walton? One reason this might sound compelling to Canadian economists is that we already have WalMart and tech-savvy financial institutions (hmmm... but we don't have Land's End yet...)

Posted by: Amit Dubey on October 8, 2002 05:36 AM

I have yet to find the sought after hourly productivity data for Italy. But in browsing the OECD site, I did happen upon the executive summary of the report "The New Economy: Beyond the Hype." It is interesting mostly for what it has to offer in the way of country comparisons of many variables, including ICT spending, growth, TFP, and the like. Among other things, Italy ranks at the top of the list of countries that maintain barriers to entreprenuership. Italy is absolutely the worst in terms of erectiong administrative barriers to starting a new business. Other indicators are similarly chilling, though I suspect some reflect mere demographics.

So I can only repeat my suspicions of the assertion that Italian output per hour worked exceeds that of the US by 17 percent, the UK by 37 percent, as well as outpacing Germany and France.

The link is here:

http://www.oecd.org/pdf/M00018000/M00018624.pdf

Posted by: Jim Harris on October 8, 2002 12:01 PM

Any comments on the effect of foreign labor outsourcing on productivity? It seems to me that the effect of outsourcing labor on parts/materials has the effect of adding (at least a portion of) the financial benefits of the labor to the outsourcing country without counting the hours involved. Does this have any non-negligible effect on the equation? If not, why not?

Posted by: Pontif on October 8, 2002 12:40 PM

Jeebus.

>>So I can only repeat my suspicions of the assertion that Italian output per hour worked exceeds that of the US by 17 percent, the UK by 37 percent, as well as outpacing Germany and France.<

Well, I've already repeated my explanation of why this is bound to be the case, for reasons which have nothing whatever to do with "barriers to entrepreneurship", five times, so I don't think I'll bother with a sixth!

Posted by: DD on October 8, 2002 12:52 PM

The outstanding correlation between economic statistics in Europe is the correlation between the move to a common European currency anhd unemployment and other labor market statistics.
First, their was the reduction of European deficit spending to no more than 3 percent of GDP. Clearly, short run effects would lead to lower growth. Unlike in the US central banks in Europe inflation targeted and did not offset the deficit in the US. The the European central bank likewise inflation targets, meaning relativel high rates. Now we have rigid labor markets as a hypothesis?
Lawrence

Posted by: on October 9, 2002 12:19 PM

Jim,

Just accept that those Italians in work are more productive -- person for person and hour for hour -- than those Americans in work. It doesn't make the US a lesser country.

Daniel has already explained a lot of the difference. In the UK it is sometimes called the Batting Average problem. In our game of cricket, if you only send out your batsmen they will get a higher average score (score per person) than if your whole team bats. But your total score will be lower, just as Italian GDP per head is lower than the US's.

Posted by: RJ Thompson on October 9, 2002 03:40 PM

Oh that's fantastic! I'd never thought of it that way, but I will always use that analogy. On a productivity-per-hour basis, Gough being injured is a good thing!

Posted by: Daniel Davies on October 10, 2002 02:35 AM

RJ Thompson:

Yes, in a couple of countries that is correct. In Italy, France and Germany unemployment is very high, in comparison to the US. So yes, bnp per hour would certainly go down in these countries if unemployement went down. But there are still other countrie, with lower standardised unemployment rates than the US, and higher BNP per hour worked...I'm thinking of for example the Netherlands, and some Scandinavian countries.

Posted by: Mikael S on October 11, 2002 04:02 AM

>>In the UK it is sometimes called the Batting Average problem. In our game of cricket, if you only send out your batsmen they will get a higher average score (score per person) than if your whole team bats. But your total score will be lower, just as Italian GDP per head is lower than the US's<<

Bingo, we got it. So we can either have an elitist system, like the Italian one (I'm not really convinced but let's accept the argument) where a few super stars get to play (of course this explains the obsession with football in Italy) and the lame and feeble (not to forget the women) get to stay at home to take care of their 'supermen'. Or we can have an equal opportunities model US/UK style where even the most humble get to wield the bat (interesting both of the notorious anglo-saxon cultures use their hands not their feet).

So forgetting the fact that the higher GDP per capita could mean that everyone is better off, high participation rates could also be justified on Rawlsian type social justice grounds. Fine, I agree.

>>You know you're talking to an economist when you hear that these (a generally less emancipated condition here in Europe, or a relative inferiority of care facilities for the aged)are the only two things which could explain non-participation in the wage labour economy ...<<

I'm pleased to be considered an economist, actually I majored in philosophy, but I guess in Daniel's book that's probably worse. The English word can has a fairly precise meaning, not to be confused with for eg have to, or must. I guess I just tried to answer the substantive part of the argument above.

High labour market participation rates are possible, either you want them or you don't. Right now participation rates are way down in Argentina, we could all go down there and see how they feel about this.


Posted by: on October 11, 2002 04:11 AM

Sorry, the above piece is mine. I forgot to identify the post.

Posted by: Edward Hugh on October 11, 2002 04:14 AM

While it is true GDP only manages transactions, it is not true that factoring in leisure makes Europeans wealtheir than Americans.

The value of leisure is essentially hourly wage (ie hourly productivity). Real productivity is not only higher in the US than in Europe, but it is also growing faster. This means that even if you include leisure in GDP (which you should), the US still comes out ahead.

Posted by: Zimran Ahmed on October 11, 2002 11:07 AM

"Or we can have an equal opportunities model US/UK style where even the most humble get to wield the bat (interesting both of the notorious anglo-saxon cultures use their hands not their feet)."

- It's really amusing to see someone define the two most unequal countries (among OECD) and also the countries in the rich world with the highest poverty rates to be a model of "equal oppourtunities".

As I stated before, there are several countries in the European Union with lower unemployment rates than the US, and still higher GDP/hour worked than the US, and also...by far lower poverty rates. Even though it's not only American economists that debate the European Union as one "unit", it's not really appropriate if you want to analyze the different economies. Italy, France and Germany are three countries that's not only known for their size in the EU, but also for their severe unemployment problems.

I'm biased in this issue of course (as well as you American commentators are), but I definitely think the economic model of the Benelux and Scandinavian countries are to prefer ahead of the American or UK one. We have lower poverty rates, higher GDP per hour worked, higher social equality, higher mobility between social classes etc. And we have definitely very different economies compared to the Italian or French ones.

Posted by: Mikael S on October 12, 2002 03:01 AM

>>It's really amusing to see someone define the two most unequal countries (among OECD) and also the countries in the rich world with the highest poverty rates to be a model of "equal oppourtunities".....I'm biased in this issue of course (as well as you American commentators are)<<

Thank you Mikael for being honest. I'm afraid I'm not American though, I'm British and I live in Spain. (Incidentally, living in Spain, I don't see how anyone can describe the UK poverty rate as among the worst, but this is another point).

In part the difficulty in seeing what is happening arises from the fact that poverty is a relative and not an absolute concept. But I think it is very dangerous to go about thinking think 'how good things are here where I live', without really opening up to other alternatives. There are so many prejudices involved, and it doesn't really serve any useful purpose simply throwing mud at those with a different system. On the problem of well-being and equality, being more equal doesn't necessarily mean being collectively better (see for eg recent work by Xavier Sala i Martin). In the end it depends what you want, it's just that I think many of the defenders of the anti US/UK position are rather hypocritical because they are not making a real choice for a low-growth more-equal society, they are simply defending what they have got.

If I was being ironic in the above quoted post I think it was because I was trying to respond to a rather silly and simplistic argument.

But when I call the US and UK the lands of "equal opportunities", I am referring to something rather specific: the policy approaches to diversity and equality of opportunity in employment. Part of this problem relates to how you treat the idea of the 'other', regardless of whether the other is disabled, gay, of a different ethnic or cultural origin etc. I work professionally in the area of diversity and identity, and for me it is just a fact that the US, the UK and Canada are the three countries who have taken social policy furthest in this area - and this is, I think reflected in the employment participation rates (eg the interesting increase in participation of single parent mothers under the Clinton administration). I was, you may remember, talking of Italy, where Bossi (minister with responsibility for immigration) was just recently threatening to sink a boatload of Kurds in the open sea.

Clearly Holland and Sweden also have something to teach us all in this area.

Posted by: Edward Hugh on October 12, 2002 11:39 AM

>>Edward Hugh:

I agree that it is a problem in comparing poverty. When I say that Britain and US has among the highest poverty rates in the developed world I'm refering to the poverty rate used by the UN. This is a relative measure and of course you could say it is more a measure of inequality than poverty. On the other hand it is interesting numbers because several psychological experiments show that the "satisfaction" or "misery" people tend to feel comes from their relative status or income, not their absolute level. Of course though it is also a moral/political question how we approach this issue and what we want to do about it, if anything.

I don't write these messages for trying to tell how good it is where I live (I'm a Swedish citizen though living in Italy), but I wrote my initial statement because I wanted to tell another story than the common pro-american one, that is the mainstream told here.

Further I don't agree that me, and others that don't want the "US kind of society" have to accept lower growth because we want more social equality than in the US/UK. I think my home country is a good example of this, between 1960-1980 Sweden averaged good growth numbers, and still being a very equal social society. On the other hand, the US had quite miserable growth numbers up until the 90's when their big boom began.

Concerning female participation and so on, I'm not sure about the figures, but I think that the Scandinavian and some Benelux countries have at least as good numbers as the US. If I don't recall wrong I think also that the wage-gap between male and female workers are among the lowest in Sweden/Denmark/Norway, and still quite high in the US, even if you scale away such effects as different amounts of hours worked and working in different branches. (Here I can definitely not support my current home country, Italy or the whole southern Europe for that matter, where gender equality to say the least is very far behind).

As I said before, I'm truly biased here. There is no doubt that I prefer the Scandinavian (and Netherland) social welfare economy ahead of the US/UK more market based system. I don't want to live in a society where income gaps are so large and urban poverty is such a common thing as in the US, and with my previous comment I was merely trying to give another perspective then the very patriotic american comments seen above.

Posted by: Mikael S on October 13, 2002 03:36 PM
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