EU-Style Capitalism Part II – The Dynamism Gap

A dynamic economy is not an end in itself. Rather, it is the consequences of
dynamism that make the American brand of capitalism a better choice than our own
“stakeholder capitalism”. The main benefit of an innovative economy is a higher
level of productivity, resulting in higher hourly wages and a higher quality of
life.

Productivity is still 17% higher in the United States than in Europe. What is
most alarming about this productivity gap is its relative novelty. While the gap
narrowed steadily between 1945 and 1995, it has remained steady in the past
eleven years, with Europe’s productivity growth averaging 1 percentage point
lower than productivity growth in the United States.

Enhanced productivity is not the only advantage to having a dynamic economy.

Dynamism produces other substantial benefits. The creation of innovative
products is a challenging process which provides for intellectual stimulation,
personal growth and a feeling of ownership that leads to high employee
engagement. The American system therefore affords its workforce an opportunity
for self-realization that most EU countries lack.

Some may think that emphasizing the value of self-realization is
idiosyncratic to Americans. In truth, however, the idea that leading a good life
entails using one’s mental faculties is a fundamentally European idea which was
first articulated by Aristotle and has been reinforced time and again by Old
World economists, artists, writers, and philosophers.

Since innovation is the key not only to enhanced productivity but also to a
more satisfied workforce, the U.S. and kindred economies are much more likely to
be winners in the contest for global talent and economic power than countries
with lesser degrees of economic freedom.

Europeans need to overcome their fear of change. Instead of being daunted by
the challenges that globalization brings with it, we should be thinking about
the best ways to exploit the opportunities it affords us. It is time to stop
pretending that we can isolate ourselves from what is happening in the rest of
the world – and it is time for European policy-makers to rid themselves of the
belief that they can somehow shut out globalization by taking it upon themselves
to make decisions that should be left to the marketplace.

As German Chancellor Angela Merkel remarked at the World Economic Forum in
Davos in January 2006, “