Europe Could Bridge the Economic Gap with the US - but There's No Way without the Will ; BUSINESS

Article excerpt

Most European countries are still losing ground to the US in economic terms and most of those that are closing the gap are doing so very slowly.

That is the somewhat dispiriting conclusion of the latest report from the Organisation for Economic Co-operation and Development (OECD), GoingforGrowth, which looks at comparative international performance within the developed world and what might be done to lift the laggards.

The benchmark is the US because it remains almost the richest country in the world in terms of gross domestic product (GDP) per head and has almost the highest productivity per head. Only Luxembourg, which is tiny and has a special position within the EU, and Norway, which has oil, have higher GDP per head.

As for productivity, those two plus the Netherlands, Belgium, France and Ireland, are the only ones that have higher productivity per hour worked. Among those, Belgium and France have high unemployment (thereby excluding their less productive workers from the statistics), the Netherlands has high concealed unemployment and Ireland has benefited from massive high-productivity inward investment.

So the big picture remains that somehow or other the US is more productive than everywhere else. There is a further debate about whether GDP per head should be the principal gauge of economic performance, or whether we should take instead General Well-being or some other measure that takes into account how satisfied people are with their lives. That is a very reasonable point. The UN report this week about the condition of the developed world's children should be a good counter-balance to this emphasis on GDP. It reminds us that the welfare of children in the UK has been neglected and needs to be improved.

Nevertheless GDP per head, for all its flaws, does remain an easily-available measure and labour productivity remains the most important single determinant of GDP per head.

There are further objections to the OECD work. These include the points that they do not take into account environmental costs and that they exclude India and China. The environmental aspects of economic growth are tackled elsewhere, and as for India and China, they are not in the study because they are not members of the OECD - they are not yet fully-fledged developed countries. But there is plenty of meat in the statistics we have to try to improve Europe's performance.

To top graph shows the big picture. It is a simplified version of the OECD's table, showing selected countries, comparing the rest of the developed world to the US. On the vertical axis there is growth - countries above the line have been growing faster than the US over the decade to 2005, those below growing more slowly. On the horizontal axis there is the absolute level of GDP per head, with those on the left poorer than the US, while those on the right are richer.

Most large European countries, with the exception of Spain and the UK, are not only poorer but have been losing ground - the UK is only barely catching up. The rest, including Italy, France and Germany, are not only poorer but becoming even more poor in relative terms. …