Magazine article Insight on the News

Europeans Continue to Struggle in Global Economic Competition

Magazine article Insight on the News

Europeans Continue to Struggle in Global Economic Competition

Article excerpt

The tough economic restructuring that taxed the United States during the last decade has given America an economic advantage over Europe when it comes to competing in the free market.

When Chancellor Helmut Kohl in October tried to cut 10 billion Deutsche marks from the generous health-care package enjoyed by German auto workers, union members responded with wildcat strikes that imperiled production for days. President Jacques Chirac suffered similar humiliation when he attempted to reduce France's ghastly 12.6 percent unemployment rate with changes in wages and regulations. Left-leaning union leader Marc Blondel denounced the idea, decrying the arrival of an "ultra-free market" in Europe.

While the United States has undergone wrenching economic restructuring -- during the last decade, companies such as AT&T, Boeing and U.S. Steel eliminated high-cost, low-productivity jobs and installed computer systems intended to enhance the effectiveness of remaining workers -- Europeans have remained attached to the social-welfare state. The contrast is reflected in the two economies. The United States has generated a pair of lengthy economic expansions, first under President Reagan in the early 1980s and then under Presidents Bush and Clinton. Europe, on the other hand, has stagnated.

Indeed, American corporate earnings continue to grow at a rapid clip and there are record numbers of initial public offerings of stock on Wall Street. The market's Standard & Poor's 500 index rose 38 percent in 1995 and 18 percent so far this year. Written off as moribund by left-wing pundits such as Labor Secretary Robert Reich, the United States has regained global economic leadership.

"We are years ahead and gaining an edge," Eugene Muscat, associate dean of business at the University of San Francisco, tells Insight. "We want and need to create wealth in the U.S. They want to keep jobs in Europe."

What's more, Europeans will have a hard time making the transition to a more competitive economy, according to John Kutler of Quarterdeck Investment Partners, a Washington-based consultancy. "Can the Europeans downsize?" asks Kutler. "I think the answer is yes. But it is certainly going to be on a lot longer time frame than the U.S." E. Han Kim, director of the Mitsui Life Financial Research Center at the University of Michigan, basically agrees. "You have to create value for shareholders," says Kim.

There are cultural reasons why the Europeans aren't competing as effectively as Americans. …

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