Why are the large European countries doing rather lackluster in real gdp per capita?

[Kouvb593kdnuewnd]

I use World bank numbers here: https://data.worldbank.org/indicator/NY.GDP.PCAP.KD

Real mean that you adjust for inflation, otherwise it is called nominal and that do make a big difference for certain countries.

First we can start with US, which is not European but represent a large country with a large population and it have a gdp per capita of 54 580$

The large European countries:

• Germany: 47 500$
• France: 43 630$
• UK: 43 320$
• Italy: 35 430$
• Spain 32 950$
• Russia: 11 730$

Compare this to some smaller European countries:

• Denmark: 63 870$
• Neatherlands: 55 020$
• Sweden: 57 920$
• Finland: 48 750$

What is really keeping the large European countries economies so far behind the US economy, let alone some of the smaller countries like Sweden who manage to reach or even eclipse US economy productivity. Sweden also have had alot of immigration and probably no serious advantage in terms of natural resources nor good climate for agriculture. Even somehow large mean more inefficiencies, US is a good counterpoint that a large country can still have very high gdp per capita.

I live in Sweden and Sweden is maybe pretty close to being laissez faire (economy focused around small businesses) but also with a strong social protection which maybe give it the advantage of an effecient market economy with the support structure of a socialist country and without the drawback of neither given that Sweden have a low gini coefficient (low income inequality) but have also seen massive growth in prosperity lately.

Real wages in Sweden is not stagnate by any means, they was stagnate in the period of 1979 to 1995 which was quite diffcult time for Sweden with high inflation and restructure of the economy, but in 1995 inflation have been kept at a very low level. Wages after 1995 increased from 168% of 1960 level to 280% in 2019 meaning the population of Sweden have become much richer in the 21th Century.

 

[Colon]

Per hour worked France and Germany have output that are basically the same as the US. (GDPs are estimates so a few % difference is meaningless) The difference in GDP/capita is because American workers work more hours.

And you're just comparing the richest small countries to the big countries, there are many more European countries that are (much) poorer. Of the 4 you mentioned only Denmark also has an output/worked hour that's noticeably higher than Germany's or France's.

Here are detailed tables: https://stats.oecd.org/Index.aspx?DataSetCode=PDB_LV#

 

[Kouvb593kdnuewnd]

It however use PPP which is a different measure from real GDP per capita and generally PPP tend to be more convergent so rich countries generally do worse in PPP while poor countries do better in PPP given that stuff in poor countries tend to be much cheaper and some countries like Sweden have a tax system that likely reduce their PPP making them look poorer then in reality they are much richer when you look at real GDP per capita.

Countries like India and China would look much richer than they are in reality if using PPP, in that messure China is already ahead US but not in terms of real GDP, it is still poorer than US and much poorer per capita.

PPP is basically how much a person can purchase, so if a country put taxes on stuff it can reduce its PPP. Real GDP is the real value of all Products and services in that country so countries like Sweden or US produce or atleast make more transaction with valuable goods and services per person than seen in the larger European countries.

 

[Hrothbern]

Per hour worked France and Germany have output that are basically the same as the US. (GDPs are estimates so a few % difference is meaningless) The difference in GDP/capita is because American workers work more hours.

And you're just comparing the richest small countries to the big countries, there are many more European countries that are (much) poorer. And of the 4 you mentioned only Denmark has an output/worked hour that's noticeably higher than Germany's or France's.

Here are detailed tables: https://stats.oecd.org/Index.aspx?DataSetCode=PDB_LV#

Yes
total hours worked is key
+ productivity per hour

UK and France have roughly the same GDP per Capita, and over time not that differing in development, but France works less hours at higher productivity than UK.
(and yet there all the time people who think that France needs drastic reforms in the direction of the UK laissez-faire )

And ofc you have PPP per capita for better comparison for what you can buy in that country
You really need that to compare countries like Italy, Spain, East-Europe etc with for example the US.

 

[Colon]

Actually, my answer wasn't entirely complete: the difference between the US and France is also explained by France's poor employment level.

In terms of working hours there isn't all that much difference between the UK and France.

 

[Kouvb593kdnuewnd]

Yes
hours worked is key
+ productivity per hour

It is not about working long, but working smart. Countries generally want the most effective business and stuff like manufactory and agriculture is now associated with poor countries due to not require much education or infrastructure and thus pretty much the only thing to compete with is wages. Rich countries like US do stuff like research and other advanced job which much higher productivity per person with agriculture and industry being only a small part of their GDP.

Countries like South Korea went from poor to rich because they focused alot on education and getting the right business, countries that are still poor have had a hard time to advance due to various issues.

It look like countries that had good land for agriculture ended up poor because they had Little reason to move into more productive stuff early on and the rich countries nowday are often countries that should not really be rich due to having not valuable natural resources nor good Agricultural land. Sweden for example went from one of the poorest countries in Europé to one of the richest countries today, only really behind stuff like energy states and city states which is very impressive to think about.

 

[Hrothbern]

It is not about working long, but working smart. Countries generally want the most effective business and stuff like manufactory and agriculture is now associated with poor countries due to not require much education or infrastructure and thus pretty much the only thing to compete with is wages. Rich countries like US do stuff like research and other advanced job which much higher productivity per person with agriculture and industry being only a small part of their GDP.

Countries like South Korea went from poor to rich because they focused alot on education and getting the right business, countries that are still poor have had a hard time to advance due to various issues.

yes
that working smart you say is that higher productivity per hour I used.

And the US is in fact, just like the UK, a country where the over supply of very cheap labor, legal and in the US also from illegal has hindered to improve the productivity per hour with better investments in capital assets and skill education. Together with low cost to fire someone it is both cheaper as less risk to hire a few hands more than improve the productivity of your existing employees.

 

[Kouvb593kdnuewnd]

Sweden have strong unions but no minimum wage if I'm correct but still the low tier workers in Sweden seems to earn quite well compared to US and Sweden have from what I know significant higher social mobility than US (which have one of the worst social mobility of a western nation), I suspect free universities combined with better wages for the poor help alot and higher social mobility likely mean more long term productivity. I think UK is more similar to US with a focus on prestige degree from top tier super expensive universities which lead to basically an aristocracy but I'm not sure about that.

Generally education is one of the things that pay of long term for a country, the benefit of an educated workforce greatly pay of the cost of investing into education in first place, maybe the issue is to keep the educated workforce as richer countries can offer better wages and other advantages.

 

[Hrothbern]

It look like countries that had good land for agriculture ended up poor because they had Little reason to move into more productive stuff early on and the rich countries nowday are often countries that should not really be rich due to having not valuable natural resources nor good Agricultural land. Sweden for example went from one of the poorest countries in Europé to one of the richest countries today, only really behind stuff like energy states and city states which is very impressive to think about.

Don't forget that Sweden has very good quality iron ore in the ground (I mean with low contamination fron elements that worsen the steel grade qualities) and has build up over time (centuries) one of the few really high grade tool steel centres in the world.
In Europe it is Uddeholm (Sweden) and Boehler (Austria) with ofc the lesser high grade more for mass like Thyssen (Germany) and many others.
Whereas many more Centree and Southern countries had textile as primer for industry, for Sweden this was engineers with steel.

 

[Kouvb593kdnuewnd]

That is true, having some sort of natural resource that is good for industry is very helpful, UK had alot of coal and also textile which was easy to industrialize while countries that failed to industrialize probably focused on stuff that is not easy to increase productivity off and once you are behind, it is really hard to Catch up because of uncompetetive industries and the fact the successful countries can simply encourage your workers to immigrate to them, leaving developing countries in a perpetual state of poverty. Poverty in turn cause alot of other problems like crimes and violence which encourage people who can migrate to migrate and thus make it hard to ever see any sort of development.

Most countries try to become richer but it is not easy to make a poor country into a richer country as pretty much all poor countries have major social issues to deal with first and dealing with these issues is not easy.

 

[Hrothbern]

Sweden have strong unions but no minimum wage if I'm correct but still the low tier workers in Sweden seems to earn quite well compared to US and Sweden have from what I know significant higher social mobility than US (which have one of the worst social mobility of a western nation), I suspect free universities combined with better wages for the poor help alot and higher social mobility likely mean more long term productivity. I think UK is more similar to US with a focus on prestige degree from top tier super expensive universities which lead to basically an aristocracy but I'm not sure about that.

Generally education is one of the things that pay of long term for a country, the benefit of an educated workforce greatly pay of the cost of investing into education in first place, maybe the issue is to keep the educated workforce as richer countries can offer better wages and other advantages.

On your workforce
Yes the trade unions
but also that very collective thinking, orginally paternalistic
I remember a story that long time ago in Sweden the dunghouse was so that people can sit next to each other.
But back more serious to now and that workforce
If you consult with almost everyone relevant in your workforce before introducing changes, you get ofc better changes. If you offer stability and skill growth, everybody is more inclined in joining putting his shoulders beneath it.
Here Sweden has imo a better culture than many other countries.

 

[Zardnaar]

Lots of reasons most of those countries were still in the top 20 100 years ago.

Russia's fairly self explanatory.
Italy has never been run that well.
Similar deal with Spain.

UK didn't make the best decisions after the war.

As for most if the rest they benefit from being in Europe and small populations with well run high tax government's. They haven't really had a lot if immigration until recent decades so don't really have slums in the sense larger nation's do.

Higher amount of social cohesion, different cultural values.

They probably avoided the extremes of Reaganomics which were really only good shirt term and should have been abandoned mid 90's.

Well educated workforce via that social security net.

 

[Kouvb593kdnuewnd]

Interesting is if you look at the gini coefficient of some former communist countries you will find it is very low, in the long run these countries may eventually become richer than many western European countries and maybe would already been so if the communists had been better at economic management, but they seems to have done a decent job at stuff like building up the infrastructure to become rich, like strong focus on education, some of these countries have seen major economic growth and if you have the infrastructure in place it should continue to grow and surpass richer countries that have worse infrastructure.

 

[Moriarte]

It’s either about resources or influence. Or both. There is no point comparing US with France, to give an example. One is a European-level economy with good industry and central location. The other - global economic powerhouse, which controls world currency, multiple fleets and miltitary bases to project influence in any direction. Apples to oranges. Should compare France and Germany. US and China. Luxembourg and Malta. There are historical developments, clusters of resources, social-economic formations to consider when comparing one economy to another. Also - political stability, efficiency of local clusters of capital. Sudden interest and inflow of foreign capital (S. Korea). There is no simple answer. Fairly low population (say Sweden and Netherlands), progressive, amazing central location with lots of ports. Abundant resources in Sweden.

 

[Aiken_Drumn]

Size isn't everything.

 

[Samson]

GDP is a mean, and means are a poor way of describing the position of skewed distribution. Medain is better, though for the purposes of this discussion it makes little difference.

Here is GDP per capita, median income (or expenditure, depending on country) as well as size of country. I have included the countries in the OP as well as a few other small countries that are more distributed around the continent. It does not obviously support the thesis.