The economy is not a zero-sum game, but productivity gains do require inefficient firms to cede markets to efficient ones. Where there are winners, there must also be losers, and losing may ultimately mean bankruptcy and job losses. But, and this is the key point, productivity gains lead to higher average living standards, and fast growing companies create the majority of the new jobs in an economy.
One of the most frequently cited differences between the US and the EU is the lack of an entrepreneurial, risk taking culture on the eastern side of the Atlantic. But do we only have ourselves to blame?
- We hardly cherish wealth generators; and
- we ‘punish’ (both socially and more structurally) those that go bankrupt.
The result – as elegantly shown in this chart from the Lisbon Council’s Plan I published today, is a corporate environment where a ‘comfortable’ life is too often preferred over the excitement of mega growth and the tension of rapid reversal (see chart). Here lies, however, the roots of the transatlantic productivity gap and Europe’s slower economic recovery.