United States ( 244,99 KB )

 

In spite of everything, American economy still dynamic, productive and flexible

  Stock markets the world over are falling and prospects for the global economy have grown dark. It will be difficult for the United States to avoid a recession and there is the risk that it will be one of the worst in the past 75 years. At times like this, it is easy to lose sight of the strong points of the US economy. Nevertheless, a sober analysis of its fundamentals reveals a picture of relative strength. This is a dynamic, productive and flexible economy, all qualities that allow us to be optimistic about its ability to overcome the financial and economic crisis it now faces.

  Among the world’s large economies, the economy of the United States is by far the most productive. Last year, per capita GDP reached 45,600 dollars. According to figures from the University of Groningen, at purchasing power parity exchange rates, Japan, France, Germany and United Kingdom stood between 25% and 30% below the United States, a gap that has remained relatively stable in recent years. Spain’s per capita GDP stood at less than 65% of the US level. The superiority of the United States in this respect may be explained by its greater and better utilization of the labour factor. The employment rate is higher, those employed work more hours and, moreover, hours worked are more productive (see accompanying graph).

  Nearly 75% of working age Americans are employed, a much higher percentage than in the large European economies. In Germany, the so-called employment rate is approximately 70% while in France it barely reaches 65%. Between these two countries, after undergoing a substantial improvement in recent decades, we find Spain. In Japan, Canada and the United Kingdom employment rates are very similar to that in the United States. The high employment rate in these economies may be explained both by the higher rate of activity (more people ready and willing to work) and by the lower unemployment rate (the proportion of those in the labour force but unemployed) The unemployment rate is especially low among young Americans. In recent years this has stood at around 8%-9%, some 6 percentage points below the rate in the EU-15.

  The average number of hours worked per employee in the United States is relatively high and stands at 275 hours a year more than in Germany and 153 hours more than in France. It is not usual in the United States to have four or five weeks of holidays and this is reflected in the higher number of hours worked. Curiously, whereas the number of hours worked in most countries has dropped significantly in the past 40 years (20% in Japan, 22% in France and 27% in Germany) the decrease experienced by the United States has been only 5%.

  With regard to productivity, a worker in the United States produced per hour products valued at 53 dollars in 2007, substantially more than a Japanese worker (37 dollars) although only slightly higher than the 51 dollars and 49 dollars in France and Germany respectively. These figures also come from the University of Groningen and are in parity of purchasing power. In part, this is due to the fact that average productivity in Europe is relatively high because countries use fewer low-productivity employees, not because there are none but because it is more likely that they do not join the labour force or that, if they do, they remain unemployed.

  What are the fundamental factors behind all these differences? Among various factors, we can mention three: the flexibility of the labour market, rules that facilitate and provide incentives for innovation and entrepreneurial activity in general, and an excellent level of a major part of the education system, especially at the university level. These are the factors that most often place the United States at the top of international competitiveness rankings.

  According to a classification carried out by the World Bank on ease of doing business(1), the labour market in the United States is the most flexible in the world. While the regulations affecting the labour market vary from state to state, in many jurisdictions there are no legal limits to the use of temporary contracts or part-time work. No minimum level is set for holidays or the maximum number of hours worked. Firing costs are negotiated freely between the worker or the union and the company and unemployment payments are not very generous. This regulatory environment creates great mobility of employment. Only 60% of people in the United States were born in the state where they currently reside and between 2% and 2.5% of the population of working age change from one state to another each year. This figure is in contrast to the 0.1% in the European Union, where linguistic and cultural differences in general constitute an additional barrier to mobility. The flexibility of the labour market facilitates the growth of the most productive companies, sectors and regions while at the same time simplifies the adjustments in industries that have lost competitiveness. It is important to underline that flexibility also has its costs in terms of equity and welfare and this is why many countries, in Europe for example, limit this through legislation. For example, higher labour turnaround may have a negative effect on equity and reduce incentives to invest in training.

  Also according to the World Bank, the cost of setting up a company in the United States is one of the lowest in the world. It takes 6 days and costs little more than 300 dollars (0.7% of gross per capita income). In Spain, it is estimated to take 47 days of procedures and nearly 15% of gross per capita income to carry out the same task. In general, the bureaucratic formalities a company must follow are less costly in the United States than in most OECD countries. The level of taxes is also relatively low (especially for individuals and small companies although not so much in the case of large companies) and this fosters the entrepreneurial spirit and the creation of companies, which are often born small but in time may turn into large corporations.

  Finally, it would be difficult to understand the leadership of US companies in terms of innovation if it were not for the level of excellence at many of its universities. These institutions, which are able to attract the best professionals from around the world, are characterized by a large degree of management autonomy and a highly competitive environment. According to the classification drawn up by the Jiao Tong University of Shanghai, among the 50 best universities of the world some 36 are in the United States. Eight out of the 10 best are also there. The areas around many of these universities have become true breeding grounds for companies wishing to exploit research carried out on their campuses and to take advantage of the high concentration of human. All this helps to explain why the level of R&D in the United States (close to 3% of GDP) runs well ahead of the level in the European Union, where it does not reach 2% of GDP. Furthermore, this investment seems to bear fruit. Last year the United States was responsible for one out of every three patents registered in the world.

  Of course, not everything is positive. Some of the most notable weaknesses include a health-care system that is high-cost and inefficient, which reduces competitiveness, a tax system that is excessively complex, especially for large companies, and a low-quality public education system, especially in the large cities and the poorer municipalities (in part, because most funding for public schools comes from local property taxes).

  There is no doubt that a recovery of solvency and profitability of US financial institutions will be needed to recover from the current growth slump, as a strong financial system is one of the most important fundamentals of a modern economy. But when that happens, the United States should be able to recover its role as engine of the world economy. Beyond the wreckage, the fundamentals are strong.

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