Towards Integration or Fragmentation?
Edited by Henri Delanghe, Ugur Muldur and Luc Soete
Chapter 12: Does the ‘European Paradox’ Still Hold? Did it Ever?
12. Does the ‘European Paradox’ still hold? Did it ever? Giovanni Dosi, Patrick Llerena and Mauro Sylos Labini Since the second half of the 1990s, labour productivity growth has been lower in the Euro area than in the US, as shown in Table 12.1. Small gaps end up producing large differences and policy-makers are rightly concerned about the EU’s poor economic performance. What went wrong with the European economy and how can the poor performance be explained? Classical economic growth theory stresses the importance of capital accumulation and savings rates. Unfortunately, however, this approach is not very helpful here since the capital–labour ratio and investment rates are still higher in Europe than in the US. A different often-mentioned explanation refers to Europe’s failure to reform its product, service and labour markets. Though such reform can be important, differences in market regulation between the two sides of the Atlantic are not new and already existed when Europe was growing much faster than the US. Another very popular interpretation of the widening EU–US gap is the one that inspired the so-called Lisbon Agenda. One version of this story can be summarized as follows: by the late 1980s, after a long phase of catching up, Europe could no longer rely on capital accumulation and technological imitation as its principal sources of economic growth. At the same time, the information technology revolution was finally producing positive effects on the US economy. Nevertheless, European countries’ institutions and policies did not allow them to...
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