10/17 – International News & Economics Story

In recent decades, both the United States and the European Union have grappled with similar economic crises, including the global financial crisis in 2008 and the COVID-19 pandemic. Yet when it comes to bouncing back from these struggles, the U.S. has managed to surge ahead. When it comes to the societal factors that generate wealth such as science, innovation, and birth rate, the U.S. consistently ranks higher than Europe.

Europe’s leaders have seemingly woken up to this fact and are now trying to do something about it. Former European Central Bank president Mario Draghi was tasked with assessing the EU’s challenges and outlining potential solutions. His extensive 400-page report, delivered after a year of work, concluded that the gap between the EU and the U.S. is widening, calling for urgent and decisive action. The numbers speak for themselves. [Politico]

Americans Have Greater Wealth
Despite ongoing debates about the relationship between wealth and happiness, Americans, on average, are wealthier than Europeans—a trend that has persisted for some time. What’s more concerning for Europe is that this wealth gap is widening. In 1990, the U.S. GDP per capita was 16% higher than that of the eurozone. By 2023, this difference had grown to over 30%.

The U.S. Invests More in Knowledge
Higher wealth often translates into greater investments in science and research. Both the U.S. government and private sector allocate a larger portion of their GDP to these areas compared to Europe. The Draghi report highlights the need to boost private investment in European research and development. Currently, many European entrepreneurs seek funding from U.S. venture capitalists and choose to expand their businesses in the American market.

U.S. Innovation Is Outpacing Europe
Although it’s challenging to measure technological progress directly, the U.S. appears to be ahead. While European innovation is still competitive, the U.S. produces a larger share of scientific and technological papers in leading journals. Meanwhile, China is rapidly advancing, leaving Europe trailing behind both.

The U.S. Benefits From Energy Resources
America’s success is partly attributable to its abundant natural resources. The Permian Basin, rich in oil and natural gas, has helped the U.S. become the world’s top producer of both. This energy abundance allows American industries to benefit from cheaper electricity than in Europe, providing a competitive edge, particularly in manufacturing.

Americans Are More Productive
American workers consistently outperform their European counterparts in terms of output per hour. Although Europe had been closing the productivity gap, it has recently widened again. The U.S.’s rapid adoption of digital technology has played a key role in maintaining its lead.

U.S. Companies Dominate the Market
In 2023, Nvidia, a California-based chipmaker, became the eighth American company to surpass $1 trillion in market value. In contrast, no European company founded in the last 50 years has reached €100 billion. The majority of U.S. companies in the trillion-dollar club are tech giants, with Warren Buffett’s Berkshire Hathaway being the only exception. On a broader scale, American firms represent 73% of the top 30 global companies and more than half of the top 500.

Americans Have a Higher Birth Rate
Europe’s economic growth was historically fueled by a growing workforce, but its declining birth rate now presents a significant challenge. Europeans have fewer children per mother than Americans, which could lead to lower tax revenue and a shrinking workforce, especially as the number of retirees increases. While U.S. birth rates are also falling, the American population is expected to keep growing, partly due to immigration. In contrast, Europe’s population is forecasted to peak at 453 million in 2026