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The best way for the EU in tackling modern challenges is through sustainable growth, more productive economy, as well as preserving democratic values and social inclusion. However, increasing productivity and competitiveness in the world, the EU needs radical reforms: first, accelerating innovation and finding new growth models; second, reducing high energy prices (while continuing to decarbonise and shift to a circular economy); and third, reducing all sorts of “dependencies” on global suppliers.
Background
Generally, among main competitive factors are those that influence corporate’s ability to compete effectively in the marketplace; these factors include pricing strategies, product features, brand reputation, customer services, distribution channels and GDP growth.
The share of global GDP is composed of the following “components”: the US- 26 percent, the EU and China – 17 percent each (this three make about 60 percent of the total), Asia and Pacific- 11 percent, the rest of Europe -7 percent; Japan, South and North America – 12 percent combined; Africa, Middle East and India – 10 percent combined.
Since 1950s, the four Ps demonstrated the concept of competition: product, price, place and promotion. Presently, the four Ps have altered, giving way to global challenges, climate mitigation and wellbeing.
There is no universally accepted method of measuring competitiveness; however, some indicators include: a) “relative export prices” as a country’s export prices in relation to other countries; b) a country’s trade, as balance of country’s export-import prices; c) labour productivity, which is usually expressed as GDP per worker, or GDP per hour of employment; and c) labour costs expressed in the cost of labour per unit of output.
More on competitive factors in: https://www.economicsonline.co.uk/global_economics/diverging-inflation-dynamics-a-comparative-analysis-of-the-eurozone-and-the-united-states.html/
Examples of slow European growth
The following are the main factors that affect problems and difficulties in the EU dealing with the world-wide competition:
– technological backwardness*): the US and China are presently fast growing states in techno-spheres and advanced technologies;
– best European digital specialists and talented researchers are moving to other lucrative places in the world (the productivity gap between the EU and the US is largely explained by the tech sector: the EU is weak in the emerging technologies that would drive future growth; only four of the world’s top 50 tech companies are European);
– Investments in innovative sectors and developments are too small to “make a difference”;
– the EU companies and citizens are paying twice the amounts the US partners for electricity and 4-5 times higher for gas (besides, on a per capita basis, real disposable income has grown almost twice as much in the US as in the EU since 2000). Strict rules prevent industries and households from capturing the full benefits of clean energy: e.g. high taxes and rents captured by financial traders raise energy costs for national economies.
– Bureaucratic apparatus both in the member states and the EU institutions is bigger than in the US. E.g. the EU-wide legislative process lasts more than 1,5 year to “make a new law (about 70 percent national laws stem from the EU) and before the new laws (directives and regulations) are even implemented in the member states).
– The EU member states are too dependent on critical raw materials and minerals, which endangers the EU-wide developmental security.
– Presently the growth in the EU states –for the first time in modern history – is not supported by rising populations: by 2040, the workforce is projected to shrink by close to 2 million workers each year. Hence, the need to rely on productivity factors to drive the growth.
Note*): Europe’s industry has increased its investment in research and development by 9.8% in 2023, surpassing the growth of corporate research investment in the US (+5.9%) and China (+9.6%) for the first time since 2013.
Source: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_6440
As the Commission acknowledges the recommendation for the next years include:
= Strengthening innovation, including in critical technologies.
= Improving the business environment, reinforcing access to funding and reducing administrative burden and regulatory complexity.
= Supporting public and private investment in areas of common priorities, such as the green and digital transitions and the build-up of defence capabilities.
= Promoting up-skilling and re-skilling of the workforce, while further increasing labour market participation.
= Ensuring compliance with the new fiscal framework, improve debt sustainability and monitor risks to macro-financial stability.
Source: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_6427
Comparative analysis: the EU and the US
In 1996, the US nominal GDP per capita was $29,968, the EU nominal GDP per capita was $19,752. Twenty four years later, in 2020, the US nominal GDP per capita was $63,544 while the EU nominal GDP per capita was $33,928. The EU nominal GDP per capita was about two thirds (actually, about 66 percent) of the US in 1996.
In 2020, the EU nominal GDP per capita dropped from two thirds to about a half (53%) of the US; in nominal terms, a European citizen has become 20% poorer with respect to a US citizen, over the period of 1996-2020.
Then, during about quarter of a century, i.e. from 1996 to 2020 it has become relatively cheaper for a US citizen to stay in the EU, and it has become relatively more expensive for a EU citizen to stay in the US.
Over this period of about 25 years (1996-2020), the consumer price index has increased by 65% in the US, and by 51% in the EU. According to the consumer price index then, despite livelihood expenses have grown 14% less for the EU citizen compared to those in the US; hence, during this period, the EU citizens have become, nominally, 20 percent poorer.
Source and citation from: https://en.wikipedia.org/wiki/Social_market_economy
The United States and the European Union are the two largest economies globally in nominal terms. As of 2024, both together share 44.13% and 29.4% of the entire global GDP in nominal and PPP terms, respectively. As per projections by the IMF for 2024, with $29,168 billion, the US is leading by $9,765 billion, or 1.5 times of the EU ($19,403 billion) on an exchange rate basis.
According to estimates by the World Bank from 1960 to 2023, the US has had a higher GDP for 51 years, and the EU has had a higher GDP for 13 years; 2011 was the latest year when the EU has had a higher GDP than the US. As of 2024, the US is almost double richer than the EU, and even in the purchasing power parity basis (ppp) its figure is 38% higher than that of the EU; the US had a greater GDP per capita than the EU since 1960.
The US is projected to grow above 2% in the upcoming years, and the EU might be well short of the 2% mark. The EU attained a maximum GDP growth rate of 7.03% in 1969 and a minimum of -5.65% in 2020. During the period 1960-2023, the EU economy grew by more than 5% in nine years; the US reached an all-time high of 7.24% in 1984 and a record low of -2.58% in 2009. The US has grown by more than 5% during ten years: the GDP growth rate was negative in seven years for the US; the EU showed negative growth in six years.
Source (November-2024): https://statisticstimes.com/economy/united-states-vs-eu-economy.php#:~:text=As%20of%202021%2C%20The%20per,for%20data%20available%20since%201966
Note: Out of 192 economies in the world, 11 had negative growth rates in 2024: these 11 economies account for almost 7.78% of the world economy, with an aggregate total of $2.34 trillion. Out of them, four are located in Europe, three in Asia continent, two in Africa, and one each in North America and South America. The IMF predicts that all Oceania’s economies will expand.
Source: https://statisticstimes.com/economy/countries-by-projected-gdp-growth.php
Market-type examples in the US
In the financial services, the US market consists of two major national financial securities’ entities: the New York Stock Exchange, NYSE and Nasdaq; the two major ones (Nasdaq and NYSE nicknamed “the Big Board”) are the largest stock exchange in the world by market capitalization. Presently, there are three leading stock indexes in the US: the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite.
Besides the financial sector, which is a core component of the “US capitalism”, the whole economy is guided by stock market approach. Currently, there are 13 stock market exchanges in the US that are guiding the whole economy. The US stock market sector is a group of stocks in similar industries: there are eleven different stock market sectors, according to the most commonly used classification system, known as the Global Industry Classification Standard, GICS. Stocks’ sectors make it easier to compare which stocks are making the most money, i.e. energy and utilities, materials and healthcare, industrial sectors and real estate, etc.
A vital component of the stock market system is the active use of private capital in the form of investments into different economy sectors: in this way the public and private capital can fruitfully cooperate.
For example, in top 11 most wealthy states in the EU, individual income is over $ 100 thousand; this amount is divided roughly in: 50% for housing and utilities, 30% for discretionary spending and 20% for savings and investment.
More in: https://www.fool.com/investing/stock-market/market-sectors/
Energy capacities: renewables
In 2024, 77 GW of new installed renewables have been produced in the EU, which corresponds to saving around 14 bcm of gas with 62 GW through photovoltaics and 15 GW through wind power. EU’s total photovoltaics by the end of 2024 has reached 323 GW and by the wind – 234 GW.
Source: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Electrical_capacity_for_wind_and_solar_photovoltaic_power_-_statistics
To diversify energy resources, the EU aims at using geothermal sources: in April 2024, the European Council “declared a genuine energy union” to be achieved by securing a supply of abundant, affordable and clean energy, that serves the dual objective of pursuing European energy sovereignty and climate neutrality.
Thus, the EU’s net-zero industry act (adopted on 13 June 2024) aims to ensure the EU’s access to a secure and sustainable supply of net-zero technologies, including geothermal energy, by enhancing their manufacturing capacity and supply chain. Geothermal, as a continuous “power plant” can operate at a maximum capacity throughout the year; with due incentives the geothermal energy is an important source of low-emissions electricity that could contribute to the flexibility and resilience of the electricity network.
The benefits of geothermal energy and its potential role in decarbonizing the EU-wide energy sector provide great impetus to net-zero strategy. However, by 2021 the geothermal energy provided only about three percent of renewable energy sources used for the production of primary energy in the EU in 2021, which is less than one percent of global energy demand; the EU is planning active actions to fully explore and utilize its potential. At the informal Energy Council in July 2024, the member states’ ministers agreed that geothermal energy could serve as an important alternative and sustainable renewable energy source for both heating and electricity generation. Among conclusions were measures to increase the capacity of European industries in drilling, construction and equipment manufacturing within the European Geothermal Alliance, that would bring together policymakers, industry and investors to spot bottlenecks and actions for a greater deployment of geothermal energy.
Source: https://www.consilium.europa.eu/en/press/press-releases/2024/12/16/geothermal-energy-council-calls-for-faster-deployment/?pk_source=x.com&pk_medium=social&pk_campaign=ENER+Newsletter+December+2024&pk_content=visual-card
Conclusion
The ultimate “European geist-idea” is to become more productive, be a global leader in new technologies, climate mitigation and achieve secure position on the world stage; otherwise the EU will not be able to finance its social market model and be forced to scale back some (if not all) presently declared ambitious projects. For example, if the EU’s ambitious climate targets do not matched some coherent plan to achieve them, the decarbonisation would fail; without resolute EU-wide coordinated policies with feasible market orientation the “decarbonisation plan” could run contrary to competitiveness and progressive growth.
The recent Draghi Report acknowledged:
= profound refocusing the EU-wide collective efforts on closing the innovation gap with the US (as well as that of China), particularly in advanced technologies. There are numerous components in this agenda: e.g. the burdens of so-called “static industrial structures” and lack of trained personnel.
= joint and carefully planned actions in decarbonisation and competitiveness: i.e. decarbonisation will be an opportunity for the Union’s ambitious climate targets with the coherent plans to achieve them. Failing to coordinate the policies’ implementation entail risks that decarbonisation could run contrary to competitiveness and perspective growth.
= increasing security and reducing dependencies: the EU member states heavily rely on a handful of external suppliers for critical raw materials; growing global demand for those materials is exploding owing to the clean energy transition. Besides, due to the EU-wide digital transformation, the member states are also hugely dependent on vital rear-elements’ import: e.g. for chips production, 75-90 percent of global fabrication capacities are in the Far East and Asia.
Reference to “Inspiring growth in the EU: Draghi’s suggestions” in: Competitiveness strategy for Europe. Part I. Can be seen at: https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en?filename=The%20future%20of%20European%20competitiveness%20_%20A%20competitiveness%20strategy%20for%20Europe.pdf
Actually, the ultimate issue is not about competition; the main thing is whether the growth makes people happier. The global “happiness index” shows that the best countries are, actually in Europe: Finland first, Denmark second, Iceland third and Sweden –fourth, followed by Belgium, Austria, Romania and Slovenia. The US and Canada are, correspondingly on 23 and 15th places.
Source: https://worldhappiness.report/ed/2024/