It is true that the current crisis will have repercussions and take its toll on the country’s economy, but it is no less true that the United States has all the necessary ingredients to remain a global economic powerhouse – quite unlike the situation in Europe, where crises tend to be more painful and protracted.
Between 1973 and 1982, the United States experienced one of the most damaging periods of inflation in its history. As measured by the Consumer Price Index, prices more than doubled during that decade. In 1979 alone, inflation reached 13.3%, paralysing the economy with the phenomenon that became known as “stagflation”, which led many commentators to doubt whether the United States could compete on the world market. Jimmy Carter delivered a famous speech in which he warned of “the existence of a crisis of confidence that was affecting the very heart, soul and spirit of the national will, and which threatened to destroy the social and political fabric of the United States”. Also during that period, major Japanese multinationals bought some of the country’s most iconic buildings, and it was even thought that the United States would be unable to compete with Japan’s efficient economy. The outcome is well known to all.
One of the factors that should be of greatest concern to Europe in relation to the United States is its lower competitiveness compared with the US economy. Taking the aforementioned crisis as a starting point, the differences that currently exist can be clearly seen. Between 1983 and 1984, the unemployment rate in the United States rose to over 10%, whilst that of countries such as Germany, the United Kingdom and France exceeded 12%. From those peaks, the United States began a rapid economic recovery, with unemployment falling whilst GDP rose, whereas European countries were left severely affected and stuck at much higher levels of unemployment, even as their economies picked up.
There are two concepts – which I shall not dwell on at length – that explain the United States’ rapid recovery compared with Europe and its current competitive advantage. The first, known as Eurosclerosis, discusses the lower competitiveness of European labour markets, due to unemployment benefits, relative bargaining power over wages – which entails higher dismissal costs and higher minimum wages – and lower competitiveness in the goods and services market, which we will address in greater detail later. The second concept is the Hysteresis, which explains how, despite the fact that European markets and their institutions were more efficient during periods of strong growth such as the 1970s (and unemployment rates were lower than in the United States), following severe disruptions, these institutions proved incapable of responding to such shocks and did little to resolve the problem of unemployment, instead acting as a brake on recovery. Thus, a persistently high unemployment rate leads to a rise in long-term unemployment and a loss of skills amongst the unemployed, creating a vicious circle that is difficult to break.
In business terms, the differences between the United States and EU countries are also striking. On the one hand, if we look at the largest companies in various sectors, we can see that US firms occupy the top spot in the rankings, if not the entire podium. Companies such as Google, Johnson & Johnson, Intel, Microsoft, Apple, Oracle, Walmart, Coca-Cola, Procter & Gamble and a very long list of others are a clear example of this.
Furthermore, and even more noteworthy than the fact that it is home to the world’s largest companies, is the large number of small and medium-sized enterprises, on which job creation largely depends, and the much higher proportion of entrepreneurs compared with Europe. Ultimately, those small start-ups that survive will become the medium-sized or even large companies of the future. The well-known ‘American dream’ is not merely a cliché, but has its counterpart in real life.
Finally, although the American public education system leaves much to be desired, the major private universities provide a breeding ground for business start-ups and for training the best leaders – something that is hard for other universities around the world to match. The University of California, Harvard, MIT and Stanford, for example, are veritable meccas of scientific knowledge and technological innovation. By contrast, government control and regulation of universities by European authorities constitute an objective restriction on their freedom of action. It should also be noted that public universities in the United States receive only a portion of their funding from federal and state governments, unlike the situation in Europe. Consequently, the ongoing pursuit of both private and public funding acts as an incentive to maintain the highest standards of excellence by recruiting the best talent, regardless of their background. These individuals subsequently show their gratitude to the university that nurtured their professional development, by substantial donations which enable the school to carry out major projects and continue to attract talent from around the world: Cluster effect in its purest form.
Facebook, a recent mass phenomenon, was invented by a group of Harvard undergraduates, for example.
In short, the United States’ ability to respond to this multi-crisis we are facing suggests that it will be greater than that of Europe – unfortunately for us – and, with that in mind, we prefer to invest on the other side of the Atlantic, given that the investment opportunities are comparable.