Reflections on Economic Stagnation: A Transatlantic Wake-Up Call
By the President and Chief Executive of the US Chamber of Commerce
The term “Eurosclerosis,” coined by the astute German economist Herbert Giersch back in the mid-’80s, starkly encapsulated Europe’s economic malaise. The year was 1985, and a compelling contrast emerged when juxtaposing Europe’s stagnant economy with the more vibrant American model. What accounted for this glaring discrepancy? Giersch elucidated that Europe was ensnared in structural rigidities—labor markets were stiff, a web of excessive regulations hampered entrepreneurial spirit, and exorbitant taxes dissuaded risk-taking.
Fast forward nearly four decades, and we find ourselves grappling with a troubling recurrence of this very affliction. Last year, growth limped along at a mere 0.4 percent—an alarming statistic underscored in former Italian Prime Minister Mario Draghi’s sobering analysis on the future of European competitiveness. This report should not merely be a footnote in the annals of economic discourse; it is a clarion call for US policymakers, a cautionary tale that illustrates the perilous potential of neglecting pro-growth strategies. Without such measures, the specter of stagnation could well cast its shadow over the United States, mirroring our European allies’ plight.
Where did the fault lines emerge in Europe’s economic saga? Draghi suggests the roots of this predicament lie in an avalanche of “inconsistent and restrictive regulations.” This observation mirrors concerns that the US Chamber of Commerce has long articulated. To put it into stark perspective: since 2019, the European Union has enacted around 13,000 pieces of legislation—mind-bogglingly compared to the 3,500 laws and 2,000 resolutions adopted by the United States. Such a deluge of regulations has prompted even European officials to recognize the pressing need for a regulatory moratorium.
The consequences are dire: innovation is stifled, and entrepreneurial ventures flounder under the weight of bureaucratic encumbrances. In the last half-century, not a single European company worth over $110 billion has emerged from the ground up. A staggering 30 percent of Europe’s unicorns have exited the continent between 2008 and 2021, thwarted by an inability to scale within the EU’s strict confines. Given this backdrop, can we truly be surprised by Europe’s stagnation? Government micromanagement and regulatory overreach act as chokeholds on innovation, resulting in an economic malaise that resonates through society, where real disposable income growth has lagged significantly—almost twofold—in the United States compared to Europe over the past twenty years.
Regrettably, a troubling trend now resurfaces on our own shores. The Biden administration is racing toward a record-setting 2,524 regulations this year alone. By late May, it had already issued 273 economically significant rules, a pace unmatched by any of its six immediate predecessors during their initial terms. Look no further than Federal Trade Commission chair Lina Khan, who appears transfixed by the siren calls of the EU’s regulatory approach.
This is particularly alarming as the United States grapples with sluggish economic growth—averaging a meager 2.2 percent annually since 2010. The non-partisan Congressional Budget Office warns that this will dwindle to an average of just 1.8 percent in the coming decade.
In light of these challenges, the US Chamber of Commerce implores candidates and elected officials to champion policies that can rekindle growth to at least 3 percent per year, forging a path toward a prosperous future for all Americans. Achieving this requires cultivating a larger, more skilled workforce, investing in innovative technologies, and harnessing the potential of international trade—all while resisting the temptations posed by protectionist tariffs.
The bonds between the US and Europe constitute the world’s largest commercial relationship; their fates are inexorably linked. Draghi articulates a crucial truth: Europe is losing ground to both the US and China. Yet, equally alarming is the realization that both Europe and the US are at risk of falling behind, together.
The transatlantic alliance serves as a robust anchor for democracy, peace, and security. In an era where authoritarianism threatens the established rules-based order, complacency is a luxury we cannot afford. The warnings blare loud and clear: an inward turn is unthinkable. Now is the moment—on both sides of the Atlantic—to commit to policies that will invigorate our economies and fortify our alliance. The time for action is now.