‘One side will make you grow taller, and the other side will make you grow shorter.’
– The Caterpillar, Alice’s Adventures in Wonderland, Lewis Carroll
The question of different approaches to capitalism and which of the two if either, is preferable, has been preoccupying me. To lump all of Europe into one category is a bit absurd but there appears to be a consensus that the practice of capitalism differs on the two sides of the Atlantic. There’s a humorous take I found on Tumblr, and while I don’t necessarily agree with it in its entirety it does highlight some of the key debates, such as the role of state in providing healthcare and education.
– The Caterpillar, Alice’s Adventures in Wonderland, Lewis Carroll
The question of different approaches to capitalism and which of the two if either, is preferable, has been preoccupying me. To lump all of Europe into one category is a bit absurd but there appears to be a consensus that the practice of capitalism differs on the two sides of the Atlantic. There’s a humorous take I found on Tumblr, and while I don’t necessarily agree with it in its entirety it does highlight some of the key debates, such as the role of state in providing healthcare and education.
Source: Tumblr
Asking which system is superior is simplistic. It depends on what that society prioritises and whether those objectives are being met, or at least whether the system embodies those objectives. It is possible to ask if each system has been more or less effective in achieving its own goals. With the global financial system in crisis, this is either a very good or a very bad time to be asking these questions.
One caveat I will make is that it is probably inaccurate to see the crisis in Europe as a direct product of more ‘socialist’ policies. France and Germany have emerged as fairly robust despite these, and the experience of the Scandinavian countries further support a temperate view.
The US economy has done better in terms of GDP growth rates and profitability figures. The figure below shows the PMI levels for the US, China, the UK as well as Japan and the Eurozone. PMI stands for Purchasing Manager’s Index, which is a metric that measures private sector activity by looking at output, new orders, stock levels, employment and prices.
The graph above gives an index of peak profits between the middle of 2006 and last quarter across the US, the UK the Eurozone and Japan. Many consider profitability to be the key indicator of the health of a capitalist economy and it is clear from the graph that the US has outperformed the Eurozone, though its been less stable. Both the figures above are sourced from Michael Roberts’ Blog.
The US (No. 4) also performs better than most European countries aside from Norway (No. 1) and the Netherlands (No. 3) on the 2011 Human Development Index rankings published by the UNDP. The UNDP also publishes an HDI Index which takes into account the level of inequality in a country. In this index the US (0.771) doesn’t do so well. All of western Europe does better including Italy (0.779) and Spain (0.799). Slovakia (0.787) does better as well and Estonia (0.769) is just a couple of steps behind the US.
I think this raises more questions than it answers and that’s really the point of this post. None of these indicators can be held to be completely accurate and even if they were what they tell us about the US vs Europe is selective. Depending on whether you subjectively believe that equity (as in a smaller disparity in income) is more important than achieving high growth rates, or if you believe that profitability is the relevant indicator you might find yourselves on different sides of the debate. Or indeed you may see both systems as deeply flawed.
I will be writing a few more posts on this issue and it would be both stimulating and useful to generate a debate, so please feel free to comment, criticise and challenge all of this.