With the European Union poised to consider some American economic ideas, Washington moves in what might be considered a European direction. If those holding the initiative have their way, we might even see the two Atlantic giants trade places, were it not for one huge American advantage.
In a recent and much-anticipated European Union report, The Future of Europe’s Competitiveness, former Italian prime minister and longtime European Central Bank President Mario Draghi notes that due to low and falling productivity, EU gross domestic product per capita has fallen from roughly 70% of the U.S. level in 1980 to 60% today. To turn things around, he calls for the EU to follow the U.S. model and, instead of focusing on older industries such as autos, focus on high-tech companies.
Draghi points out that “no EU company with a market capitalisation over EUR 100 billion … has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period.” Going further, the report flags Apple, Microsoft, Nvidia, Amazon, Alphabet, and Meta as noteworthy firms from the United States.
Ironically, these are the very firms U.S. antitrust authorities have had in their “let’s break them up” sights for years. If our zealous regulators and their backing politicians get their way, the prospective gains from large U.S. high-tech firms could be washed away because of antitrust concerns.
An additional paradox is the juxtaposition between the government’s targeting of high-tech firms even as it attempts to shore up and protect the auto and steel industries. We seem to be planning for the past.
Could we fade while the EU prospers? While U.S. antitrust actions may weaken the goose that lays golden eggs, all is not lost. The U.S. economy has features that no EU country can duplicate, even if it tries.
The U.S. forms one economy with open internal markets, and it is huge. Adam Smith made a critical observation about this in his epoch-making Inquiry into the Nature and Causes of the Wealth of Nations, arguing that “the division of labor is limited to the extent of the market.” This thoughtful statement tells us that businesses in mammoth market economies such as ours can achieve lower costs as they expand and discover scale economies throughout their home market. All else equal, similar firms in smaller economies have less room to roam and specialize.
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As timely now as in 1776, Smith’s statement speaks directly to the EU’s recent attraction to America’s lead. The EU may not be able simply to follow the U.S. playbook, but it should seek greater openness across its member countries and encourage global free trade that has the practical effect of expanding EU boundaries and thereby achieving meaningful scale economies.
As for the U.S., we should take the EU report as a compliment and as a cautionary note to rethink our tendency to attack large, successful firms with threatening antitrust actions.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, a dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.