WHAT SEPARATES THE U.S. FROM EUROPE?
First Annual Vienna-Berkeley Conference
Jean Pisani-Ferry: Economic policy contrasts across the Atlantic
The economic dimension of the differences between Europe and the USA was the main topic of Jean Pisani-Ferry's speech. He traced the development of market economies in Europe and the USA. A quarter of a century ago, the EU member states were still characterised by country-specific varieties of market economies. These differences had their roots in dissimilarities as regards some of the core features of a market economy: corporate ownership and governance structures, financing patterns, the regulation of goods and capital markets, and relationships between states and markets. One could speak of alternative models or varieties of capitalism. Yet, over the last 25 years a major change has taken place in Europe as a consequence of globalisation and European integration.
The latter has proceeded through the extension of EU-wide economic legislation within the framework of the Single Market, the delegation of some major policy functions such as competition policy and monetary policy to EU institutions, and softer forms of intra-EU convergence through harmonisation and peer pressure in fields such as privatisation and fiscal policy. At the same time, US economic policy has experienced significant changes, as a consequence of the deregulation of the 1980s, the emergence of the 'new economy', the gyrations of fiscal policy in the 1990s and the early 2000s and the emergence of a new monetary policy philosophy under the chairmanship of Alan Greenspan.
This double move has brought the different models closer and there has been a considerable degree of convergence of Europe towards the US model of a market economy. European integration has been a major driving force of this convergence process and could be regarded as providing an airlock for the adaptation of European economic regimes to globalisation or as offering a shelter for the emergence of a genuinely European variety of capitalism.
Europe's convergence towards a model characterised by a stability-oriented monetary policy, non-activist, sustainability-oriented fiscal policies, free competition in products and capital markets, and a very limited role for targeted government intervention is both a product of trends affecting the world economy and of idiosyncratic developments. European integration has generally increased the weight of common rules and reduced the scope for discretionary economic policy decisions. A difference is thus emerging between a rules-based Europe and the US, where discretion remains a major characteristic of economic policy.
Peter Lindert: Europe's welfare state
What has happened to Europe's welfare states since they were so broadly attacked in the 1980s, and why? The overall OECD experience with social transfers since the 1980s shows no overall decline in the welfare state. While its growth clearly slackened after 1980, social transfers continue to take a slowly rising share of GDP. That experience does suggest that the inexorable rise of the elderly share of the population will depress the relative disposable income of the elderly. It will not, however, lower their absolute real income, nor will it lower any category of social transfers as a share of GDP. Thus the burden on taxpayers will not abate.
On the whole, the welfare state is not an endangered species among the industrialized OECD countries. Ireland and the Netherlands are the main exceptions that have cut social transfers as a share of GDP. There are a few welfare states in the Second and Third Worlds, and more of them will probably emerge as their populations age and prosper.
Bart van Ark: A comparative perspective on technology regimes and productivity growth in Europe and the US
Although the diffusion of information and communication technology (ICT) across industries seems somewhat slower in Europe than in the United States, ICT is widely applied across industries in the economy, in particular across a wide range of service industries in the economy. The biggest difference between the EU and the US, however, seems to arise from the much slower productivity effects from ICT. The fundamental question that arises is: Is this difference simply due to a time-lag effect, as was also observed earlier for electricity and steam, meaning that Europe will catch up with the US soon? Or is the EU-US differential due to other (non-technological) factors related to differences in knowledge infrastructure, general comparative advantages, the functioning of markets and organizational changes?
The latter might mean that the US advantage in ICT use over Europe would be sustainable in the longer term. The historical analysis shows that technology diffusion and the productivity effects do not always follow the same pattern across industries, over time or across countries. The reasons for these differences are related to factors which often go beyond the application of the technology itself.