Why European Economies Are Falling Behind the Rest of the World

in the past 20 years something has happened to europe and it's not pretty in the year 2000 41 out of the 100 biggest global companies were european today only 15 out of 100 are from europe and every year few more disappear from the list and those few companies that remain on the list are either in dying sectors like oil and gas or in sectors with growing global competition like car manufacturing instead of nokia phones made in finland europeans now use huawei made in china there is not a single european big tech company that could be even compared to giants like amazon apple or meta and it's becoming increasingly clear that europe is slowly but steadily turning from an economic powerhouse to an archaic and obsolete continent one that lives off of its former achievements but fails to succeed and adapt in the changing world but why is that where and how did europe lose its edge and its ability to innovate why are the rich and developed european countries unable to compete with asia and the united states and is there still time to change it or is europe really destined to become completely economically irrelevant but to understand what went wrong we first need to understand how europe became an economic superpower in the first place because the economic dominance of the west is surprisingly a very recent phenomenon up until the 18th century the difference between economies of different countries and different regions were extremely small in fact asia africa and latin america were economically on basically the same level as europe and north america and china and india together made up half of the world's economy twice as much as they do today but then something called the industrial revolution happened basically europe went on a sudden spree of technological innovation that completely changed how the continent looked and more importantly how europeans did business in just a few decades small workshops turned into massive factories that were suddenly using machines and steam engines and mechanical tools and everything became faster better and more productive at that point the european economy started taking off getting ahead the rest of the world and it only got faster and faster more inventions followed and that meant more money and better military and that's when european colonialism really kicked off suddenly europe was this unstoppable economic powerhouse with a better military than anyone else which allowed the european powers to conquer a large part of the world throughout the 19th century europe didn't get rich because of colonialism but because it was rich it was able to colonize most of asia and africa and that in turn made it even richer and it also kept a lot of its potential competition poor everything was going great for the europeans until after the second world war when things started to change as more and more former colonies were gaining independence the european share of the global gdp started to go down at first slowly but then faster and faster while in the 1960s europe together made up more than a third of the global economy today it's less than 15 and as the european share of the world's economy is getting smaller and smaller the one's dominant continent is becoming less and less relevant today europe is in sort of an economic malaise that it cannot seem to be able to get out of and there are three indicators that show how bad things actually are first the largest european companies have been failing to keep up with their global competitors just take a look at those graphs this is jp morgan the largest american bank whose revenue grew by 10 percent in the past 12 years at the same time the revenue of the largest european bank bnp paribas shrank by 8 and it still did better than deutsche bank the largest german bank whose revenue has shrunk by more than 40 percent at the same time and it's not just banks walmart the gigantic u.s supermarket chain has grown by 40 percent since 2009 while carr 4 one of its european retail equivalents has shrunk by 28 nike's revenue has almost tripled since 2010 but its european direct competitor adidas has only grown by just over 50 and apple the largest u.s tech company has managed to grow by almost 600 percent while alibaba the largest chinese tech company has grown by 1300 and compare that with sap the largest european tech company which has only grown by only 100 even though its revenue is 10 times smaller you can go sector by sector looking at the biggest companies that make up the largest part of the economy and the data is clear us and chinese corporations are growing and they are growing fast but their european equivalents either grow at a much slower pace or worse their revenue is actually getting smaller and smaller whatever the reason european companies are doing something wrong and that is closely connected with another disturbing fact that many of the largest european companies are simply in the wrong industries the striking difference is that while the american top 10 is filled with tech and retail the top 10 in europe is filled with oil and gas and car manufacturers two sectors that are going to be massively transformed by the global move towards sustainable resources and even though they are trying to adapt it's very unlikely that companies like shell and bp would dominate the global economy in the coming decades like they did in the 20th century instead the global growth will most likely be driven by a completely different sector by the big tech and that's not good news for europe either because europe with all its industrial and scientific achievements has actually failed to produce any big tech companies that could even compare to the tech giants from the us or china sap the only european tech company in the fortune 500 has been around for half a century so it can hardly be considered a startup and spotify the only recently founded european tech company that managed to achieve a truly global success is still in a completely different league than u.s tech giants for some reason europe has lost its capability to innovate that's why european companies are losing to its global competitors while europe is growing much slower than everyone else and why it's not able to produce companies that can dominate in the future but why what went wrong and how did europe once the most innovative continent lose this ability well there are two main reasons first innovation tends to happen when there are no major obstacles in its way and studies like this one show that one of the big obstacles for innovation is too much regulation and well europe happens to be a so-called regulatory power it is usually the first in the world to regulate anything and the rest of the world usually follows much later and often adopts european standards and that's great on one hand because regulation is meant to protect people the environment and whatever else we care about but on the other hand too much regulation can reduce the ability of companies to do business decrease competition investments and generally slow down the whole economy and in recent decades both the eu and the individual european countries have been regulating more than anyone else in fact the eu even launched a program to reverse that but so far without much success and it's not just that it's harder for european companies to innovate but they also don't really have the incentives to do that despite the fact that most of europe is now in the eu each country still has its own unique set of regulations rules permits and licenses that companies need to comply with when they want to do business there in that sense europe is more fragmented than it seems and it's still really 28 different markets rather than a single large one that makes it harder slower and more expensive for companies to expand from one european country to the rest of the continent compared with for example the united states that makes it harder for european companies to grow as fast as their global counterparts since they only target their own small domestic markets and it also means that most competition in europe happens within each country but not as much across the whole continent and so european companies don't need to be as innovative hungry and aggressive as if they were in a giant market like the chinese the indian or the american one so far europe has been able to live off its historical achievements maintain its welfare state and quality of life while avoiding any radical changes but being unable to successfully compete on a global level with an aging population and declining share of the global economy the european model does not look very sustainable sooner or later europe will have to change adapt and get its mojo back or suffer the consequences in one way or another

Channel: Explained with Dom

Views: 291,589

Keywords: european economy, europe economy problems, why european economy is not doing good, european economy explained, european economy collapse, european economy falling apart

Id: JXlsQdaEwXA

Length: 9min 18sec (558 seconds)

Published: Wed Aug 03 2022