PARALYSIS? IF ONLY THEY COULD STAY PUT:

Is Europe Suffering From Productivity Paralysis?: If it doesn't boost spending on tech, Europe will fall further behind (David Fairlamb in Frankfurt and Andy Reinhardt in Paris, with Laura Cohn in London, 8/02/04, Business Week)

Why can't Europe be more productive? That's a question investors, executives, and politicians are asking with increasing urgency. Boosting labor productivity is the key to creating higher profits, improving living standards, and keeping prices stable. For decades after World War II, Europe kept pace or even surpassed the U.S. in productivity growth. But since 1995, Europe has trailed America in this vital metric.

The gap is even widening. This year the U.S. should record productivity gains of 3.3%, according to Eurostat, the statistical agency of the European Union. That's almost twice the rate of France and Germany and well above the British rate (yes, even dynamic Britain is struggling in this area). Europe now has an hourly output per worker some 20% below American levels.

The productivity numbers have become so alarming that European Central Bank boss Jean-Claude Trichet warned about the problem in a July 1 speech. The Dutch, who have seen their once-robust economy stumble, are getting worried. "Future economic growth will require a substantial increase in our productivity," says Economic Affairs Minister Laurens Jan Brinkhorst. Patricia Hewitt, the British Secretary of State for Trade & Industry, has made improving productivity a top priority: It's the only way Britain can close a still-considerable gap in living standards between British workers and their U.S. counterparts.

But what exactly is wrong? The short answer is that Europe is not seeing the same productivity bang from information technology that the U.S. has enjoyed over the past decade. The long answer is that uniquely European factors -- from stiff job-protection codes to hidden barriers against competition -- amplify the problem. There is no simple fix.

More important, they've made a cultural value, almost an inalienable right, out of being unproductive.

Posted by Orrin Judd at July 27, 2004 11:42 AM