Norwegian gives bracing clue to Europe’s productivity puzzle: slackers.
The man who runs the world’s biggest sovereign wealth fund says his fellow Europeans lack ambition and “Americans just work harder”.
So what? There’s a big and growing gap between the US and Europe – most clear when it comes to Americans’ far higher incomes – and fixing it is a priority for business and government alike.
Nicolai Tangen, chief executive of Norway’s oil fund, worries that American companies are outpacing their European rivals. He blames Europe’s
- attitude to work;
- level of ambition; and
- lack of second chances when entrepreneurs flop.
Yes, but. There are a few obvious quibbles. US growth and incomes are a function not just of work ethic but also cheap and abundant energy, a younger population and the world’s biggest sovereign debt market, giving Washington more space to spend in a downturn.
Still, it’s worth working out how much of Europe’s disadvantage is self-inflicted.
Hours first. The US working week averages 34 hours, compared with nearly 38 in Europe, but Americans get far less paid leave and nearly half don’t take all their leave entitlement.
Productivity. It’s how workers use their time that really matters, and here the US has outstripped western Europe over the past two decades. Americans just produce more for each working hour.
Why?
- Tech. Europe’s productivity growth is flagging because companies are failing to make the most of efficiency gains from new technology. In the first two decades of this century, IT-related capital stock in US firms grew nearly twice as fast in the US as in the fastest EU country (Spain). Isabel Schnabel, a board member at the European Central Bank, suggests a regulatory fix: make it easier to start new companies, which tend to be more productive.
- Management. It’s better in the US. A team of academics from Harvard, Stanford and the LSE found that US multinationals -– which were more aggressive in promoting high-performing workers and removing under-performing ones – are better at exploiting IT than their European counterparts.
- Merit. The researchers also found that in the US a low proportion of family businesses let the eldest son take the helm, a factor associated with especially poor management. (Sorry, Kendall.)
Tough. Elon Musk’s management creed may be an extreme version of this, urging employees to question, delete, simplify, accelerate and automate. But the magic appears to be wearing off at Tesla, where slumping sales and profits have fuelled doubts about the company’s ability to outrun competitors. Musk may be distracted, or US work culture may be outdone by even more demanding versions.
Tougher. When Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest chipmaker, expanded its production hub in Phoenix, Arizona, the result was a culture clash with US workers who complained of 12-hour days, unrealistic deadlines and rigid hierarchies, according to an investigation just published in Rest of World. (The Taiwanese, for their part, were taught that Americans responded better to praise than criticism.)
Europe has a scattering of highly innovative companies, such as Novo Nordisk and the French AI start-up Mistral, which builds large language models. Just not enough of them.
What’s more… Covid prompted a boom in entrepreneurship in the US that’s still going. By contrast, directing pandemic subsidies at companies preserved jobs in the UK and elsewhere at the expense of new ideas.
