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Hello, I'm Rob Young. Welcome to Business Daily from the BBC. Coming up, Europe's economy is failing to keep up with America's. These are very, very scary numbers for Europe to see that we're losing a competitive edge. We'll look at why Europe fell behind and hear what the consequences could be. It is totally urgent. We have some democratic values to defend.
So we cannot really defend those values if our economies are not doing well. Tackling Europe's poor competitiveness. That's all on Business Daily from the BBC.
Even before there was talk of a trade war between the United States and the European Union, the EU was on the economic back foot. But it wasn't always the case. Back in 2008, the European Union was the world's mightiest economic engine, having just overtaken the United States the year before. The annual economic output of the bloc of 27 nations was $1.5 trillion greater than that of the US.
Many economists at the time predicted the EU, with its much bigger population, would continue to outpace America. But it didn't turn out that way. Fast forward to today and the US economy is now $9.5 trillion bigger than the EU's. Even if you include Britain back in the figures, which is no longer in the block after Brexit, America still towers over its European rivals. These are very, very scary numbers, I think, for Europe to see that
we're losing a competitive edge. Sventor Holsiter is the chief executive of the fertilizer giant Yara, which works in dozens of European countries.
Yara's headquarters are in Norway, which is not an EU member state, but is part of the bloc's single market and so is bound by its economic rules. There's war in Europe. That war is being fought with energy as well and that has huge consequences. And it's something I'm really realizing now how important energy is for Europe.
all sectors. And when we're faced with energy prices that three and a half times the cost in the US, that has a consequence for vital industries. And we see it in terms of capital being made available for companies and how fast we're able to transition. All of that is working in the favor of the US and Europe is lagging behind. So faced with all of this, what I'm puzzled by is where's the urgency in
Russia's invasion of Ukraine, that's three years ago now. The increased energy prices happened in the summer of 2021. Now we're in 2025. Why don't we see a massive build-out of renewable energy? Why don't we do more on fossil fuel, even with carbon capture and storage? We have technologies in place. We have opportunities. Where is Europe on that? Why don't we do that? Fossil is about fundamental competitiveness that we should be worried about right now.
Can you answer your own question? Why haven't European nations tackled these questions with the urgency which you clearly think they demand?
I don't really know, but perhaps we haven't felt it strong enough. Yes, there's war in Europe, but do we feel it every day? Households have higher utility bills. Industries are faced with higher energy prices. It's us that also elect political leaders and help to set the agenda on that. Is it felt strongly enough?
I think also the messages from the US now on trade and tariffs, that's not potentially happening. It will happen. So this is a major wake-up call. But we've lost two, three years now, and that has a price. Do you think the European political and corporate class just need to change the way they do business when they're up against China?
subsidising companies and stealing intellectual property, and the US exploiting its oil and gas and launching trade wars. We're still playing with the old rulebook, but things around us have changed.
The US is taking a different approach to decarbonisation and incentivising important industries. It's making money available, financing available, while in Europe we have the regulation and additional costs. How do we support businesses? How do we invest in businesses? And now is the time to change it. Yara Boss, Sven Tor, Holsiter. He used the word competitiveness, which is a somewhat ill-defined term, but it's broadly the institution's
policies and business practices that determine how productive a country is. A sound of cars being made in Germany, the whirring and clanging of an industry once admired around the world. Germany's economy has stagnated in recent years as those high energy costs we heard about...
hit hard. Import taxes of 10%, maybe 20% on EU goods imposed by the US is likely to make things for manufacturers worse. EU exports to America account for just under 5% of European economic output. This trade clash may last weeks. It may last years. Either way, Europe's fundamental competitiveness woes need to be tackled.
According to academics who've looked into this, Europe has a big problem with digital technology. America has adopted new IT in a way that Europe hasn't.
Spanish economist Judith Arnal is from the Centre for European Policy Studies. This is not so much related to the fact that in the US they are doing a lot of research on digital issues and that they are the ones introducing the new advancements in AI or that basically they control the cloud computing sector or that they are investing a lot in quantum. It's not so much about all those huge investments. It's more about how
how those technology advancements are incorporated into the daily business activities of our EU corporates. US companies that have subsidiaries in the EU are still more productive than EU native companies, and they are faced with the same regulatory framework. So it's not so much about regulation, but about the fact that US companies tend to
have superior management practices when it comes to ICT. There's something inherent in the business practices of EU and US corporates. So you're saying that it doesn't necessarily matter that Europe doesn't have an equivalent to Facebook or Amazon or Apple. It's that European companies are just much less likely to embrace new technologies than American ones.
It would be perfect to have those kind of companies in the EU. Clearly, there's something in the productive structure of the EU and the US that is not matching and is not going the same way.
What really matters is what we do once that technology is out. If our companies are not large enough and if managers do not have the adequate capacities to implement in their daily business activities those digital advancements, then that really could widen competitiveness gap.
We'll hear more from Judith Arnall later. All of this matters not for economic bragging rights, but for the real-world consequences for people. A measure of living standards is called purchasing power parity, which enables you to compare how much you can buy for your money in different countries. In the US, it stands at just over $82,000 per person. In the European Union, it's much lower, at just under $59,000.
Europe's politicians are now trying to do something about it.
That's Mario Draghi, the former Italian Prime Minister and President of the European Central Bank, who was asked to investigate the problem. He came up with a 400-page report. The report identifies three main areas for action. The first is aiming at closing the innovation gap with the United States and China.
The core problem in Europe is that new companies with new technologies are not rising in our economy. We must bring innovation back to Europe. So if Europeans' reluctance to embrace technology like Americans is a key productivity problem, is there hope? After all, it is much quicker to buy software and robots than it is to, say, build factories and motorways. When the world of business is constantly changing, you need to stay ahead.
So what about AI to generate new possibilities? This is an advert for Amazon Web Services, part of the $2 trillion US company Amazon, one of the world's most valuable firms. It was a pioneer in artificial intelligence.
The company's managing director and vice president for Europe, Tanuja Randhuri, says loads of Europe's businesses are taking up AI, albeit not uniformly. Nearly three million businesses in Europe adopted AI just last year. That's about five every minute.
So we see startups embracing this technology to develop new products and integrating it into their core processes. Large enterprises slightly behind, I would say, on that. How does the level of adoption of AI in Europe compare to the United States? Europe is different from the US in the sense that, you know, you have multiple countries, right?
countries at varying stages of adoption. For us, the important thing is ensuring that everybody has access to the technology in a way that they can adopt it. The issue, and I think this is where I think Europe has to tackle some of the key barriers to enable it to actually accelerate and use this technology at scale. One big issue, Rob, is skills, right? So what we see is businesses across Europe saying, we got the technology, we have the vision, but we can't find the people to make it happen.
Funding is the other one. Startups say access to venture capital and government incentives are critical. And so really leaning in to ensure that startups have that access to capital is really important. And then finally, regulation, navigating regulation in Europe can feel very difficult. So I think if we address
Those three areas within Europe, I'm confident given the innovation that we're seeing in Europe, the universities we've got, the investments, by the way, we are making in Europe, that we will see Europe accelerating significantly. I suppose the defenders of the European Union's attempts to regulate artificial intelligence would say the big AI companies are American and we don't want European companies to be overly reliant, maybe totally reliant.
on technology from the United States. Is that a fair enough criticism and fear, do you think? We believe there's a lot of competition, by the way, in this space. And we've got phenomenal startups, by the way, here in Europe.
Their IT services industry is actually highly competitive. It is important to have choice. We are, as a cloud provider, that invests a lot here in Europe. And we will continue to do that because we need to ensure that our customers have access to this technology so that they can, in fact,
leverage it to reduce costs, become more productive and more innovative. President Macron of France wants Europe to become a global leader when it comes to artificial intelligence. Do you see any prospect of Europe becoming a leader in AI? We are very bullish on Europe, right? Europe has the foundations for success, strong research capabilities, robust institutions, growing, by the way, public support for AI adoption.
There are barriers to address, as I mentioned, but there's a lot of positivities that we are seeing in terms of the way businesses are actually embracing it and governments are actually embracing this technology.
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I'm Rob Young, and today I'm asking why Europe's economy has fallen behind America's.
The average European may not work with as much technology as the average American or be as wealthy as them, but Europeans work fewer hours and get longer, in some cases much longer, holidays. They also get more paid sick and parental leave.
Let's get an American perspective on US productivity. Deborah Wins-Smith is the President of the United States Council on Competitiveness. New high-tech companies and digital technologies were developed and entered very quickly into the economy. And coupled to that, as this digital revolution unfolded, the US economy was less tightly regulated, had
much more flexible labor market. It had rewards for innovation and a financing system that drove this from startup venture capital all the way up to large scale investments driven by companies and supported by the U.S. government.
This greater flexibility allowed U.S. companies to change their operating procedures, their management practices. They redeployed workers and reallocated resources. And very importantly, older obsolete firms gave way to new dynamic firms. So
We kind of refer to this in our jargon as America's X factor, and that's its economic dynamism. And that's really essential for driving productivity and greater long-term economic growth. This economic dynamism also...
has cultural dimensions to it. And we hear so often about entrepreneurs starting, failing, building new businesses, and having that almost as part of their ability to move forward into their future. Do America's culture and X-factor, as you called it, mean it's very difficult, maybe impossible for anywhere else to successfully replicate what America does?
I would not really say that it's impossible. Every nation, every culture has strategic assets and comparative advantages in their culture, the way they do things. And rather than try to, quote, replicate the U.S. model, as it were,
to really understand what are those capabilities and then what are the national strategies that need to be developed and unleashed to move to the next level of economic opportunity.
Europeans work fewer hours, they get longer holidays. Is it also perhaps about priorities? Well, that's a factor. There's no question about that. Also, I think the labor laws and labor cultures, you know, once people get a job, often in European countries, they're sort of in that job for life. It's very difficult to redeploy people, let alone have reductions in force and things.
You know, the flexibility of U.S. labor is very, very powerful in the United States. The percentage of organized labor unions consistently drops. It's way below 10 percent of the workforce now. Deborah Wins-Smith. In Europe, incidentally, about one in four workers are members of a labor union. In the Nordics, it's even higher at about seven in 10.
To introduce to you the President of the European Commission, Ursula von der Leyen. The European Union's executive recently launched a series of reforms intended to boost the bloc's competitiveness. Here's the European Commission President, Ursula von der Leyen. Simplification is vital to Europe's competitiveness. So today, as you know, we have presented our first two omnibuses.
This could save up to 6 billion euro every year for European companies. But the plans didn't go down well with everyone. What do we want? Justice! What do we want? Justice! When do we want it? Now! One of the politicians' ideas, reducing companies' obligations to report on their environmental impact, drew protests.
The Commission is just listening to business, business saying we don't care, we don't want to have those obligations, let's do the business we want for the sake of competitiveness. But competitiveness can't be on the back of workers, can't be on the back of the environment, nor of the communities. Changing how Europe does business is not necessarily free from controversy.
Europe is now planning a major increase in defence spending amid fears that President Trump may not protect Europe from Russia. That spending will likely be a boost to the economy at a time when Donald Trump's trade wars are rewriting the system countries have been used to for years. The European Union was formed in order to screw the United States. That's the purpose of it. And they've done a good job of it, but now I'm president.
Here's Judith Arnal again from the Centre for European Policy Studies on why a trade war may force European nations to take decisions they may otherwise not have. The negative side of the story is that these kind of trade restrictions are going to hurt our economy, that's clear. They're going to hurt mostly the German economy, which is the economy that exports the most to the US. The
The good side of the story is that this is kind of a wake-up call for EU member states to do something. Now we need to ratify the EU Mercosur trade agreement.
There was some reluctance by some member states like France and Poland, even Austria. But probably the fact that we have Trump in the other side of the Atlantic not wanting to be cooperative in trade could allow the EU to come to a very needed free trade agreement with these Latin American countries. How urgent is it that Europe improves its competitiveness to take on the US and China?
It is totally urgent, basically also because we have some democratic values to defend. So we cannot really defend those values if our economies are not doing well. That becomes not sustainable and that becomes not credible.
If we want to defend the way we live, our societies, we really need to make progress when it comes to competitiveness. Judith Arnall on the importance of competitiveness. So what might seem like an obscure economic concept or measurement could prove key to Europe's future. Thank you for listening to Business Daily. This advertisement feature is paid and presented by Standard Bank Corporate and Investment Banking.
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