FAIR TRADER

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Wednesday, October 11, 2006

Europe vs. the U.S.

Interesting chat on the strengths and weaknesses of both flavors of capitalism, in the context of the competition between Airbus and Boeing:
...Steven Pearlstein: Every system has its strengths and weaknesses, and in each place, the two are often inseparable parts of the package. You can't just take the best of our system and the best of theirs and put them together. But when you consider, overall, the competitiveness and dynamism of the two systems, the US is winning -- and the gap is getting wider. I think the evidence on this, much of it anecdotal, is unambiguous now. And the Europeans are now going to have to rejigger their system. Government ownership has largely given way to government interference, but it is still a drag on large, global companies. And you see it in the investment pattersn of European based global companies, which now invest disproportionately outside their region, in part because of the desire to have the freedom of action that they don't have when work is done in Europe. Its not the whole story, by any means. But it is an important cultural and political change that business people know has to happen -- that government officials know has to happen -- and yet they just can't let go.

...Flat wages: I've worked in Europe for years, France in particular. Even smart young professionals, with good education, are stuck in a lockstep income system. There's no way for the really hardworking, bright, and energetic people to reap any rewards from their contribution. And it's tough to be an entreprenuer there too. The French equivalent of the SBA is a joke. There's a significant internal brain drain from France & Germany into Ireland and the UK, where it's easier to set up a new business.

Steven Pearlstein: This is such an important point, and one Europeans don't want to listen to, because it offends their egalitarian sensibilities. If you think this is unimportant, look at what happened in Israel, another socialist paradise of the 1960s. Lots of people lived on kibbutz's then. Now, not so many. Why? Because gradually, in a society where people have choices, the most talented people left the "income averaging" kibbutz so they could enjoy the full economic benefits that come from being a high achiever. And gradually, the kibbutz's became unable to compete economically against free standing businesses in providing stuff for the market or even for their own residents.

Maybe its cruel to say some people are more valuable econoically than others. But its true, just as it is true that some are better at music, at sex, at drawing, at sports. Why is it so terrible to accept different "results" in economics but not in those other areas.

...Silver Spring, Md.: How can you say the U.S. is 'winning' regarding the economic competitiveness of the two systems. This strikes me as American chauvinism at its worst. First of all, stop comparing GDP and start comparing GDP per hour worked

If the U.S. is 'winning' regarding the economic competitveness of the two systems, why is that France is more productive per hour worked than the U.S.? This figure is far more relevant per capita GDP since Americans work more hours per week than Europeans.

Steven Pearlstein: France is not more productive per hour worked when you are comparing auto worker to auto worker, journalist to journalist, etc. The reason we have lower productivity per hour, in an overall statistical sense, is that we have many, many, many more low-skilled jobs in our official economy. These jobs just do not exist in France (babysitters, gardeners for middle class people, housekeepers for middle class people, baggers at grocery stores). The labor and minimum wage laws don't permit it. As a result, they have more unemployment but higher average wages. Its a tradeoff -- and one, by the way, that makes their economy less efficient and discourages economic growth.

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