The general perception about the relative merits of the US economy on the one hand and the continental European economies on the other hand is simple: The US is a very dynamic economy which has been growing briskly over the past decade while Europe is sclerotic and always lagging behind. While markets in the US are free to allow for a swift process of innovation and growth, overregulation and a large government sector in Europe keeps growth down.
Against these stereotypes, the latest statistics from the International Monetary Fund’s latest World Economic Outlook are highly interesting (see the whole publication here or the tables referred to in this post here): After a number of downward revisions of the US GDP data over the past years by the Bureau of Economic Analysis, the data just does not support this impression anymore. If it comes to growth in real GDP per capita, arguably the single most important indicator if one wants to measure how well an economic systems manages to improve the welfare of its citizens, the US has been growing more slowly than the Eurozone economy over the past decade.
According to the IMF figures (table B1), the US economy has produced a real per capita GDP growth of an average of 1.6 percent per year over the period 1999 to 2008 while the Euro economy has produced a real per capita GDP growth of an average of 1.8 percent per year. Interestingly, even Germany which hovered around stagnation for several years at the beginning of the decade, has reached a per-capita-growth rate of 1.5 percent per year, only slightly below that of the US.
But where do these surprising figures come from? Did not the US economy outperform the European one in most of the years in question? The first reason is that European population is growing much slower than the American one. German population is stagnating, so a headline economic growth of 2 percent at once translates into a per-capita-growth rate of 2 percent. The US population is growing, so part of the economic growth is just needed to keep per-capita incomes from falling.
A second reason is that American statisticians tend to overestimate growth in their first estimations while European (and especially German) statisticians have a clear tendency to underestimate growth in the first publications of GDP data. The later revisions are often not given as much coverage in the news as the first publications.
But the data holds a wider lesson as well: Obviously, capitalism is a much more resilient system than some of the critics of the European economies implicitly suggest. Even with distortions, regulations and frictions as they exist in Europe, a free-market system can still produce decent rates of growth. And, yes, there seem to be different varieties of capitalism that work. Not everyone has to chose the same variety, and it might not be as clear as some people think which variety suits a country best.