Why the European Economy Is Quietly Outperforming America’s — and Nobody Wants to Admit It

When you stroll through nearly any major Western European city on a Tuesday afternoon, such as Brussels, Munich, Lyon, or Amsterdam, you’ll notice something right away. Cafés are packed. There are people in parks. At five o’clock in the evening, employees are actually leaving the office and heading home. From the outside, it appears to be a civilization that has quietly reconciled with itself.

The narrative then changes when you look at the headline figures: since 2019, the US economy has expanded at a rate more than twice as fast as that of Europe, and the average American makes about $23,000 more annually than the average Western European. America appears to be winning on paper. However, it turns out that the paper doesn’t provide a complete picture.

The most striking thing concealed in the economic data is this: Europe’s productivity has historically kept up with, and in many cases even surpassed, American output when measured as the value produced per hour actually worked.

The majority of financial commentary, which frequently views Europe as a slow, overly regulated, demographically doomed afterthought, doesn’t give you that impression. However, European workers have consistently produced value per hour that is on par with that of their American counterparts. Europeans’ lower productivity is not the cause of the GDP disparity.

It is a result of Europeans working fewer hours. fewer hours each week. more vacation weeks annually. greater rates of part-time work, particularly among newly employed women. It’s possible that when economists call this a “productivity gap,” they’re actually describing a lifestyle choice — dressed up in the language of economic failure.

Between 2010 and 2022, total hours worked per employee in the EU fell by nearly 4 percent — a continuation of decades of deliberate policy and cultural shift. In contrast, American hours either remained unchanged or slightly increased. During that time, the US produced 19 million new jobs as opposed to 16 million in Europe, and as its population increased more quickly, more willing workers entered the labor market.

Naturally, a higher GDP figure results from more people working longer hours. However, it’s worth pondering that for a while. Simply having more workers put in more hours can result in a nation producing enormous amounts of economic output. That does not equate to being more productive, creative, or successful in any way.

It would be dishonest to ignore the real areas where the US has made structural progress. The revolution in shale energy is genuine. Since around 2010, the US has more than doubled its production of both natural gas and crude oil, flipping from a net energy importer — running a $360 billion trade deficit in energy in 2010 — to a net exporter generating a $65 billion surplus by 2022. Before taking into consideration the downstream effects on employment and lower domestic energy prices, that swing alone contributed close to 2% of the US GDP.

In the meantime, Europe relied on Russian gas for years before rushing to acquire pricey liquefied natural gas following the invasion of Ukraine. This energy disadvantage is deep, structural, and long-lasting. It is among the transatlantic growth gap’s most underestimated contributing factors.

Though a little exaggerated, the technology story is also true. The US allocates around 5 percent of GDP to technology investment and 3.5 percent to research and development, compared to roughly 2.8 and 2.3 percent respectively in the eurozone.

American universities make up seven of the top ten in the world. Venture capital in Europe remains fragmented, nationally focused, and risk-averse — partly because cross-border regulation makes continent-wide investment a bureaucratic nightmare.

Many European start-ups, finding bank financing inadequate and VC funding thin, simply relocate to San Francisco or New York. There is a brain drain. It is true that there isn’t a single European business valued at more than $2 trillion. European policymakers have yet to come up with a convincing solution to the real innovation deficit.

However, it’s difficult to ignore what is omitted from the typical framing. There isn’t a neighborhood in Europe like Tenderloin in San Francisco. By nearly every human standard, its cities—the sun-bleached squares of Seville, the canal-lined avenues of Utrecht, and the historic streets of Bologna—are more livable than their American counterparts. Its workers, though they produce less in aggregate, take more holidays, live longer, and report higher levels of life satisfaction in most surveys.

Despite their flaws, its healthcare systems do not cause people to go bankrupt. The difference between living standards in Europe and America becomes much smaller when GDP figures are adjusted for leisure time, or the true value that people place on not working. Some economists believe it completely vanishes.

It’s still unclear whether Europe’s quiet approach — more rest, more stability, less relentless growth — is a bug or a feature. It is obvious that referring to it as merely “underperformance” is a sign of laziness. The European economy has real problems: ageing demographics, energy dependence, fragmented capital markets, and a stubbornly slow pace of digital adoption in key sectors.

These are not small things. But it has also built something the US has not: a broad middle class that works reasonable hours, lives in beautiful, safe cities, and isn’t one medical bill away from financial collapse. Whether that counts as winning depends entirely on what you think an economy is actually for.