Interesting article but it falls down by the time it starts to put forward causes and suggest solutions. I think some of this is due to a lack of in-depth understanding. It’s hard to generalize across “Europe” which is really much more fragmented in culture, regulations, etcetera, than the US.

For example the article says, “In the United Kingdom, the number of new stores opening has slowed because of insufficient reform to planning laws”. Well frankly the UK has no shortage of stores or retail space. The real issue in the UK is that a small handful of megaretailers are blighting communities with soulless shops that make every high street (read: downtown) look the same. More of that is not going to make the UK better. So the “reform” these retailers are seeking is really to be able to bypass planing laws and march on with their mission to create clone towns. Is that of value? Probably not. The real issue then is about creating conditions that allow smaller, hungrier, innovative retail competitors to flourish, rather than relaxing planning laws and ending up killing what’s left of communities.

The author has rightly put the GAP between US and EU productivity. It’s high time that Europe takes note of it and improves its labor market which remains highly protected (like communist countries) and makes its people more competitive in the global arena. The laid back and relaxed work culture is at its extreme right now in Europe. It seems as if people are not working, rather holidaying. If this GAP is not addressed by correct measures at this time, it will be too late for Europe.

It is really a challenging time for European countries to raise their productivity levels. The author has indicated precisely and touched upon all the points. Going forward, they will have a tough fight from BRIC countries. Productivity is one aspect, Europeans must adopt like Japan continuous/continual improvement or growth methodology.

I think there are many points to note in this trend. First, the way business was being done in the period where US and Europe were at par has changed considerably. The businesses which were profitable in that era are struggling to be sustainable currently, if they haven’t already gone to dust. Also, while the US-based firms started looking for more opportunities and in a way led the way by taking more risk—e.g. outsourcing everything from manufacturing to services—their European counterparts felt that this was going to all fall apart and people would reject Indian- and Chinese-made goods and services. In the quest to be original and maintain that originality, European companies struggled to match US. There was some truth in that, but at the end of the day, consumers prefer price over quality, and cheaper products have won the battle. More and more EU-based firms are now outsourcing to Asia, the trend of EU falling behind may not last long.

The conclusions of this study are very aligned with the experience of living in Europe, when equating depth and availability of services, price levels, and family income, and comparing those to the US equivalent. The example of the pharmacies, retailers and professional services is aligned with this vision. Mainly, it is originated on many laws and regulations protecting small stores and distribution monopolies, with very high margins at the expense of higher prices, that at the end, the consumer pays.

I’m sorry, but the service sector is, apart from the weapons industry, the anathema of the US economy. Should Europe emulate the US? To what end? At best we end up in the same trouble as the US. Cheap labour and deregulated workforces only put people at the mercy of fickle corporate forces.

The essence of the comments show the real problem here: how productivity is measured, and whether that measurement is valid. There can be no valid measurement until we find a common standard to use. This is an area where the global approach is valid.

The area where the global approach is not valid is in the economies of scale being produced, which narrow the base of wealth to fewer and fewer people. We need to look back at the 19th century and ask ourselves why regulation came into the marketplace in the first place. The answer is the growth of monopolies, and the threat they had upon a society that wanted to make choices for itself, first in the United States, and later in Europe as their democracies spread. Now we need to add the world. Regulation came into being because market forces could not compete with the greed of individuals for wealth and power. The first was not as threatening as the last.

Today we hear economies of scale preached again as the United States went through a period of deregulation beginning in the 1980s that we are now reaping the results of in terms of high unemployment. The push is on to go toward a “one-world government” to solve these problems. The question that must be answered is, What type of government would that be? With economies of scale consolidating wealth into the hands of the few, I’m afraid at the moment that government would be a Fascist dictatorship of the worst order.

10% unemployment in the United States, and it is actually greater than that is unacceptable. It is a nation born of revolution, and at some point, treating people with that kind of heritage as being unimportant will once again lead to revolution.

“Free market” capitalism is the term most often talked about as ideal. Adam Smith is often quoted in extolling its virtues, but everything has a context. Those who extoll the virtue of Wealth of Nations should also read Smith’s earlier work The Theory of Moral Sentiments. To understand something, you cannot only look at one side of it which favors your arguments. Smith would completely astounded at how his work is being abused in today’s World. The context of free markets must be held within moral constraints. Deregulation has always led to violation of moral constraints.

The real answer is finding “balance” in every aspect of what we do. That creates happiness, builds productivity, and engenders respect for ourselves and each other.

That is why we must question economies of scale and their long-term effects on the societies of the world. To get something right, you have to get to the right question.

The real question: Can we measure something without a common measurement used by all? Can we form a government that allows for the extreme differences in our cultural background to continue to exist and be respected?

Travel in Europe shows a difference in infrastructure and quality of life. No doubt rampant, 19th century protectionism should go, but let’s not fall prey to knee-jerk nonsense about lazy Europeans, excess vacations, featherbedding, etcetera. Their city centers are vibrant, not the derelict wastelands all too common here, and initiatives are vetted for the good of all society, not simply commerce. They are not anti-business, but intelligent reasoning is integral to the process. Regulation is the only means to enforce the wishes of the society.

Productivity in a growing economy is a way to enable growth and increase profits without the negative impacts of competing for scarce resources. In a lagging economy, it is a way to reduce staff/costs to retain profit in a shrinking market. An increase in productivity is not necessarily a positive sign. There is a tipping point where sacrificing jobs to increase productivity actually hurts economic growth. After all, employees are also consumers. Europe’s lagging productivity is not necessarily a negative.

Regarding Roy’s comments below, I couldn’t agree more. Whilst there is an inherent need to boost productivity, to use resources of all kinds more efficiently we need to realise that this goal of unlimited growth in a limited world is impossible. Not only that, it’s deeply destructive when taken to its logical conclusion.

One of the things that you notice when travelling in Europe is that, yes, it may be less efficient and ‘messy’, but wow, people have a great quality of life, including the non material, intangible elements—friends, family, good food, nice architecture—a real work-life balance. So many of us, especially those in the US, are looking for these things to fill that certain void in our lives that are currently being plugged by endless, vapid consumerism.

First, I wonder if per capita GDP is the right measure of productivity. Presuming it has been used for want of a better measure, how do you compensate for currency fluctuations? Second, an average person in the US is workaholic compared with the European on lifestyle, which falls more in line with my personal philosophy which is ‘work smart and not just hard.’ Third, in Central Europe one enjoys at least 6 weeks of annual vacation as versus 2 to 3 weeks in the US. I am sure if one normalizes for these differences, productivity of the European would the same as in the US.

An excellent analysis but the same analysis applies to comparison between United States and India. The parameters are the same but with little difference.

It is amazing to find that the term ‘productivity’ is the focus of this article, according to the heading, but the article discusses nothing about industrial productivity.

All your observations are accurate and frankly well known, but the focus on productivity inside corporate walls is now a silly, narrow perspective. The reality is that the total delivery cycle efficiency of a product or service is much more important in a global economy and because they are used to selling to the world from the time of the UK, Spanish, Portugese, and especially the Dutch traders, they see globalization as a naming exercise for those who do not have that heritage. Whether it is the ability of UK organizations to bring quantity surveyors into an Indian project to control costs or a German equipment provider to quickly bring prime movers into central Africa by long standing logistics relationships, we need to metrics tuned to global processes and thinking.

“But the fact remains that as the number of manufacturing jobs has declined in the EU-15, only the service sectors have increased their levels of employment. It is the service sectors that offer Europe the major potential for job creation.”

You are quite correct to point out that the number of manufacturing jobs in western advanced European nations—with the possible exception of Germany that relies on high quality mechanical, electrical and electronic engineering to support its economy—has been in decline for the last 20 or 30 years. In the case of the UK, our industrial and manufacturing base disappeared because some politicians believe manufacturing isn’t important and that somehow countries can rely on the banking and finance sector and the retail trades, incidentally flogging products manufactured mostly in India and China, and the cost of private housing to keep economies afloat. In UK, the only service sector to show any increase over the last decade was the public sector, and those jobs only lead to an increase in the public sector debt. The situation was exacerbated when companies in the service sector providing jobs in call centres outsourced, off-shored, or exported those call centre jobs to India thus increasing the level of unemployment.

But it does not work like that because customers and clients still demand all kinds of manufactured goods for personal use, cars, clothing, curtains, carpeting, chairs, and beds to furnish their homes and besides, the banking and finance sector has proved to be a greedy and a most unreliable and inefficient collection of people basically because of weak regulatory systems in the US and the UK, and the price of housing, over here and over there, is still falling placing additional pressure on family incomes.

Therefore, the question is what part of the service sector is going to create the employment opportunities to deal with something in the order of 10%+ of the population in many European countries that are out of work or classed as ‘economically inactive’? It is a question to be posed to the new Coalition government in UK because it they do not address this issue they will find it increasingly difficult to deal with the UK national and UK public sector debt.

As for deficits, the US trade deficit is running at US$46bn a month or approximately US$510bn a year and for how long can that go on? Agriculture in the US, wheat, feed grain, cotton, milk, rice, peanuts, sugar, tobacco, and oilseeds, is allegedly subsidized, and it is the same in Europe with the Common Agricultural Policy (CAP) and export subsidies that eat up 43bn Euros or 34% of the EU budget, in order to keep smaller and inefficient farms, mostly in France and Germany and some other EU member nations, still operating. This is one major area that the EU parliament must address sooner rather than later especially when it relates to expanding populations and the need for food and water security.

Interestingly, the article reveals a method whereby companies in Europe might individually make progress, and perhaps a counter-intuitive way at that.

The macro-economic view, when reversed like a telescope, narrows down a potentially highly fruitful area of activity for European firms whereby they can perhaps achieve significant progress.

The suggestion I am making is that, since as pointed out “A range of regulatory and market barriers stand in the way of higher productivity in European services, which suffer from relatively low scale in many operations and from product, land, and labor market regulations that inhibit competition. MGI sees two important areas to address...” and then goes on to cite “Injecting competition” and “Deregulation” as the two important areas, and “It will also be necessary to ensure that enablers for growth, including infrastructure and skills, are in place.”, then a potential strategy for individual firms emerges.

Working from the local up to the macro level, whilst lobbying for the macro-conditions to be improved within the context of their particular country within Europe, if firms budgeted defined and targeted effort (sacrificed, if you like) specifically to increasing their understanding and ability to work with and within the regulations rather than how to avoid or get around in general, and therefore how to best use where beneficial, comply with speedily where they can and must, and control the negative impact of as best they can where there is little alternative, then the rest of the firm’s endeavours could more profitably be spent in increasing output and productivity.

And it remains a possibility of course that from within some of the welter of regulations and bureaucracy some beneficial gems may emerge that surprisingly contribute to the firm’s progress—after all, some regulations must be good!?

Perhaps a little like stopping banging one’s head against the wall, and simply acknowledging that the wall is there but a better way through could be to walk along it to the door. Or to the window.

So the prescription could be to find someone knowledgeable in the regulations that impact widely in your firm (perhaps from newly liberated townhall-istas) who has a spark of ingenuity as well; brief them to study and assess regulations into categories as above; see what really might be of use and assistance; and set about energetically implementing at least those.

It surely has to be a defence against not having implemented them ‘all’ that one HAS helped the firm’s staff understand and fully and successfully implemented all of ‘these’ shiny rules and regulations and improved productivity, and the ‘rest’ are in the project and program plans.

The trick might also be to find a way of simplifying the matter of describing applicable regulations, measuring progress towards achieving them with definable ‘real-world’ actions, and demonstrating progress usefully and graphically with a visual ‘Action-Status’ profile.

Colossal department stores in a massive building surrounded by smaller chain retailers with ample car parking spaces but very little ambiance is not what is sought after by many outside the USA. Foreign visitors always appraise highly of the elegance of European shopping. Yes, let’s overhaul the professional and financial services and let it crumble like the US financial market and burden the taxpayers. Sometimes is better not to be too American. Let’s have a survey and come up with some conclusive outcome whether Europeans really want to be American-like, it’s very unlikely and perhaps its better to find a solution that is more European instead.

Another reason Europe apparently lags behind is that the US overstates productivity improvement by allowing the impact of increased offshoring to incorrectly increase our measured value-added/worker. The Europeans do not offshore as much and might calculate more accurately.

I wonder whether the entire paradigm around productivity is becoming obsolete. The focus on productivity (production per capita) assumes that continued “growth” is both sustainable and desirable, notwithstanding that such growth imposes an ever increasing drain on the planet’s finite resources.

At what point is growth replaced as a goal by sustainability? Perhaps our goal should be to reduce per capita production and consumpton to sustainable levels. In this context, we may need to consider more leisure (non-productive) time as contibuting to the societal balance sheet.

In this regard, our measurement of “production” is inherently biased. If I pay someone else to look after my children, it contributes to the GDP and our measurement of production. If I look after my own children, it doesn’t count.

Some of the productivity gains of the past half century have been simply shifting some activities (child care, preparation of meals) from the “non productive” to the “productive” side of the balance sheet. They are now counted differently, but haven’t necessarily increased their value to our society.

Unless we change how we measure productivity, an economic system that relies on continued growth in production and consumption is proceeding towards a dead end. By all means, let’s consume fewer resources (both labour and other inputs) to generate the same outputs, but let’s also find a way to value those outputs. Simply producing and consuming more products and services that don’t add real value, is a false measure of productivity. It is like rewarding those in our organizations for their amount of activity, while ignoring the quality of what they produce.