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What make EU so much poorer than US?

Discussion in 'Off-Topic' started by Denkt, May 25, 2020.

  1. Denkt

    Denkt Reader

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  2. Hrothbern

    Hrothbern Deity

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    you have to add in the comparison the PPP conversion and the numbers of hours worked per capita to get a better comparison.
    then there is in the EU average the bunch of East-European countries in their catch up phase after the USSR stagnation since WW2

    There will stay however a difference
    And explaining that is difficult in fairly objective quantitative terms
     
  3. Cutlass

    Cutlass The Man Who Wasn't There.

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    It's a fairly complicated question. So you have to sort of take it country by country, as each country has a different experience. There's a book named Why Nations Fail which tries to explain why some countries became more developed than others. Economists debate this subject a lot, but the WNF thesis is well respected and considered at least a major part of the answer. But the economic development literature doesn't have a clear consensus.

    Before the First World War Great Britain had the highest GDP per capita. But the US was overtaking them. WWI badly exhausted the wealth of the richer European powers at the time, and the US emerged the world leader. But then you get the Great Depression, which may have harmed the US more than other countries. Still, going into WWII, the US was clearly the dominant economic and industrial power. By war's end the war had done so much damage to Europe's economic capacity that the US had around half of world GDP.

    Now that's your starting point. But recall that that starting point was 75 years ago, and everything can change in that much time. Every nation which fell under the Warsaw Pact and Soviet control under performed those which did not, with only like Greece and Turkey, maybe Spain, as exceptions. And they had their own problems during the era.

    The shorthand for the Why Nations Fail narrative is "institutions". That is, does government policy support economic development? And this is not "free markets" as current conservative orthodoxy insists. But rather free and fair elections, public education, public infrastructure, a reasonably honest legal system, expansive human rights, fair taxation, basic competence to government functions, and most importantly, a government which is not enriching the people running the government at the expense of the population.

    The biggest roadblock to a nations becoming, or remaining, wealthy is for the people running the government to be running it for their own best interest, and not for the best interest of the public as a whole. And that is the experience of all of the nations which have joined the EU since the end of the Cold War. The communist governments imposed on those countries may have created a basic foundation of a modern economy, but as time went on they drained too many of the nations resources for purposes other than economic prosperity, and they also made too many bad decisions which they thought benefitted themselves. So that drags down their prosperity even now.

    So, short answer, lower base, plus lower rate of growth over the long run.

    Which isn't to say that the US never made policy errors which cost it growth as well. It has, it continues to do so, in many ways. Racism, as one example, lowers economic growth.
     
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  4. Denkt

    Denkt Reader

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    The richest countries in EU are quite small and some of these are similar or richer than US. The richest of the large counties in EU is Germany which is still like 10%-15% behind US in real GDP per capita, but the gap between like UK and France vs US is significantly larger.

    I suspect stuff like colonization can be a factor here, but there is probably alot of stuff that make the large EU countries doing economically worse than some of the smaller countries as well as USA. Another thing with France, UK and maybe Italy is there economy is very centralized with one very rich area and the rest of the country perfoming significanlty worse. Germany on other hand seems to have a more well rounded spread on its economy.
     
  5. really

    really Deity

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    We spend too much on cheese.
     
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  6. Hrothbern

    Hrothbern Deity

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    Germany swallowed one of those East-European countries that were underdeveloped from the USSR regime.
    IF that unification would not have happened and the DDR would have stayed one of the separate East-European EU members, the GDP per capita would have been 5-10% higher, and more likely 10%.
    (the average now lower from low GDP per capita in formere DDR and from the win-win from massive German investments in the DDR the win for West-Germany would just add to the GDP per capita of west germany. Also the migration West-Germany needed would stay roughly the same)
    Now.. if you now add the PPP conversion effect and the amount of hours worked per capita, West-Germany would have probably a higher GDP per capita than the US.
     
  7. Denkt

    Denkt Reader

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    PPP is not a good messure of economy Power since it is affected by many things like taxes and stratification of society which in turn affect prices.
     
  8. Hrothbern

    Hrothbern Deity

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    oh
    and don't forget the informal economy
    One is the legal informal economy mentioned: work less hours and instead of for example buying pizza's... make your own home cooked pizza's.
    The other is the petty criminal informal economy. Is everywhere. But markedly less in AngloSaxon (and NW Europe) countries like the US.
    The difference is good for around 5% in some, and sometimes 10% in European countries.
     
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  9. Hrothbern

    Hrothbern Deity

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    Well
    perfect or not, just like the McDonalds hamburger index... the difference is clearly there !
    And if you compare you will have to use the best comparison that is not ad hoc produced, but made over many years in a systematic way in transparance and scrutinising.
    Not using it is the bigger deviation to reality.
     
  10. Denkt

    Denkt Reader

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    However in EU the richest countries are rather small, like Sweden, Switzerland, Liechtenstein and so on and these countries are richer than US in real terms. The question is why most other EU countries fail to reach that level, given the above countries are not really that special.
     
  11. Hrothbern

    Hrothbern Deity

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    Forget the 35,000 people of Liechtenstein.
    There are also small countries that do not have high GDP per capita in West Europe, and did not have that for more than a century.
    Small countries can have many perks or little perks, A random effect.
    Bigger countries have usually less bandwidth in perks.

    Take Belgium, just after Napoleon the French speaking South part had the most important perks to get heavy industry developed and the higher GDP per capita there
    With now heavy industry less important and trade more important the Flemish North part with the Port of Antwerpen has the better perk and has the higher GDP per capita there.
    The two states added together as Belgium score that whole period 1800-2000 well though not excessive.

    A good way to look at GDP is to look as well to the regions.
    Here a map with GDP in PPS per capita per region of the EU
    The "music" is basically along the old Hanseatic Spices Route from the Italian City States, along the Rhine to the Sea. The subroute is from the South of Germany to the gate of East Europe Vienna (near Prague, Bratislava, Budapest) and going to Timisoara-Sibiu-the Black Sea will emerge back over time as well as higher GDP area.. The other old route in South Poland the Silesia route to the East.
    And do note, comparing 2004 and 2014, that the 2008 GFC and subsequent Eurocrisis had a differing effect on the regions. You always need to prepare for storms, but that cannot be by staying safe in your harbors. The defenses you build up in the good times must be both static (absorbing the blow) as dynamic (what to do now). How you come out of the storms counts !!! Because storms are inevitable.
    And if getting back goes to slow the next storm will hit before you had your defenses up again.

    Schermopname (821).png

    https://brilliantmaps.com/regional-eu-gdp/
     
    Last edited: May 25, 2020
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  12. EnglishEdward

    EnglishEdward Deity

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    The thing I like about you @Hrothbern is that you are really fast on the draw with that deadly weapon: the "graph".
     
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  13. DJNotNice

    DJNotNice Warlord

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    Looks like somebody finally invested in Eastern Poland
     
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  14. Hrothbern

    Hrothbern Deity

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    My mind is filled with graphs to compensate my rectangular eyes from Excel tables :goodjob:
     
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  15. innonimatu

    innonimatu Deity

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    European masochism: the Euro and all the economic fetishism around it hindering investment.
     
  16. Grisu

    Grisu Draghetto Retired Moderator

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    there's no such thing as spending too much on cheese.
     
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  17. yung.carl.jung

    yung.carl.jung Hey Bird! I'm Morose & Lugubrious

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    GDP per capita is pretty meaningless. Average wages are pretty meaningless. Median wages are pretty meaningless, but they're much better than average wages, so probably the best to go after. A more meaningful metric could be established by looking at median wages while considering social welfare, healthcare, state-led incentives, and many other factors.

    Your average slave worker in Oman does not give a flying **** that "his" country has some of the highest GDP in the world. He is not even recorded in that statistic. Your average romani cleaningwoman in the Vatican does not give a flying **** that "her" "country" has some of the highest average wages in the world.

    In the end, people mostly don't die in Europe because they're too poor to go to get surgery, or even go to a doctor, or even afford their pills. or from gun- or hatecrimes. so yeah, for what it's worth, the USA could have 5 times the GDP of Europe and I doubt it would be very meaningful, as long as these aforementioned things stay the same. These are some metrics I personally find meaningful.

    If all you want to talk about is "economic power", then you might be correct in your assessment, but I don't see how that is really interesting (or why it is surprising that the US has so much economic power, it really shouldn't be to anyone with a basic grasp of the last 100 years of history).

    Ask yourself this: What gets documented for GDP, what gets left out? Who gets documented, who does not? Which countries deal better with informal labour? How much of a countries GDP is organized crime? How much is lost due to tax havens (or keeping work entirely off the records)? Uncritical belief in numbers is, simply put, pure ideology.

    I have a pretty cool hypothesis, it goes as follows: Those countries that had assloads of money pumped into them by the US, Nato and friends after WW2 somehow ended up doing pretty well. Those that don't somehow ended up not doing well. It's pretty far fetched, I know :lol:

    Or, to be a bit hyperbolic, what do Germany and South Korea really have in common, aside having a weird sense of humor?

    Sorry to rain on your informative post, I quite enjoyed it. I feel like sometimes there's just a pretty simple explanation, and me being German and all it's pretty easy to question the common narrative of how our wealth came about (we worked super duper hard and rebuilt everything and.. stuff). My historical and cultural research into S. Korea revealed a strikingly similiar history.

    I believe this is demonstrably false. Not only is slavery one of the most lucrative enterprises in all of history, but also a great amount of western wealth is directly based on colonialism, racism and slavery.

    Much of our current "outsourcing", which is an insanely lucrative enterprise for the few at the top, is based on racism and a complete disregard for human rights and safe workplaces.

    Racism might be bad for your mom and pop store, or for your blue-collar construction enterprise with 15 employees, but it sure as hell is profitable...

    Even more, I would say. As someone who was worked a lot of gastronomy, I can tell you that there are entire segments of our economy that almost exclusively run on black/informal labor. And sometimes for good reason.

    Because Liechtensein is not a real country?! Have you looked at a map of Europe, mate? Are you surprised that Spain and Italy are doing worse than Monaco or the Vatican in terms of GDP? :D
     
    Last edited: May 25, 2020
  18. Tee Kay

    Tee Kay Justice guaranteed

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    you've just named two of the most important factors in a country's economy
     
  19. FriendlyFire

    FriendlyFire Codex WMDicanious

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    At least it is Cheese and not Panzer Divisions
    The US had advantages of having the US dollar being the worlds reserve currency, a solid foundation post world war and large energy reserves
     
  20. Marla_Singer

    Marla_Singer United in diversity

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    An important thing to know is that, it hasn't always been the case.

    After world war 2, European economies are in ruins and the US comes out of the conflict with a GDP per capita three times bigger than in Europe. Then, from the 1960's to the 1980's, Europe actually generated more growth than the US, with the EU GDP even outgrowing the one of the US. What made the success of Europe in that period of time was essentially the creation of a giant European single market offering an easy access for European companies to several hundreds of millions of consumers.

    Then we reached a major turning point in the 1990's. The market being already well-integrated, European countries reached stagnation. In order to find new perspectives of growth, Europe had to change its economic model.

    A big move was first to open the single market to the rest of the world, through free trade deals, in order to offer new markets for European companies. After 30 years of such policies, it appears it particularly benefitted to high-end industries, whereas it's been destructive for low-end and middle-range industries. Germany beneffited the most of it, considerably boosting its exports, whereas industries regressed in all other major countries: Spain, Italy, France and the UK. This was particularly damageful for Italy, which relied a lot on its industrial sector. France could more or less survive thanks to its largest groups which maintained their competitiveness, but it's been as damageful for its smaller businesses. As for the UK, industries took the same massive hit, but the country found another growth engine in the financial sector, which concentrated in London at European scale.

    Meanwhile, there's been also the enlargement of the EU to the East which brought new players in the game. Spain and Portugal hadn't yet fully catched up that they were already facing new competitors with even cheaper wages than them. The gravity point of the EU moved Eastward, giving to Germany a central place in the EU. Germany was geographically in the best position to benefit from an integration of supply chains with its Eastern neighbours.

    Regarding access to capital, Europe massively opened its capitalization at global scale in order to attract private investors from financial markets. This triggered a race to competitiveness between EU members. Being located within the EU offering the same access to the single market, countries were incited to lower their taxation in order to make themselves more attractive than their immediate neighbours.

    In a nutshell, this led to a situation in which European countries were no longer economic allies, but competitors. And at that game, some kind of vicious circle took place to only make the gap wider between winners and losers, a situation which could only lead to the European debt crisis. And that's where things turned really ugly. Basically, Northern and Eastern Europe forming a coalition to protect their interests against those of Southern Europe.

    I believe that policy, favouring competition, open trade and open capitalization proved itself a failure. Not only it severely damaged entire countries, but it also didn't offer that much growth in countries supposedly successful. As such, the overall growth at EU level remained in the last 20 years a lot slower than anywhere else in the world. Economic giants were formed in the rest of the world, with continent-size countries dominating more and more the global economy. Those new giants don't hesitate to play all their cards in order to defend their interests, whereas European countries fundamentally think small and don't take advantage of their cumulated size as a block to better defend their mutual interests.
     
    Last edited: May 26, 2020

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