America’s growing national debt is largely to blame for a 44 percent rise in the euro and a corresponding 31 percent fall in the dollar between July 2001 and December 2003.14 The International Monetary Fund (IMF) is so concerned about U.S. debt—the result of a rising budget deficit and trade imbalance—that it issued a report warning that if steps weren’t taken to reverse the trend, it could threaten the financial stability of the world economy. IMF economists say that U.S. financial obligations to the rest of the world could be equal to 40 percent of its total economy in just a few years. Economists worry that U.S. borrowing could become so high that it could force up global interest rates, slowing global investment and economic growth.15
The U.S. deficit was a staggering $374 billion in 2003 and is expected to exceed $521 billion in 2004.16 More frightening, the IMF report concluded that the long-term fiscal outlook was even more grim. The IMF economists predict that underfunding for Social Security and Medicare in the U.S. will lead to shortages as high as $47 trillion over the next seven decades. 17 John Vail, senior strategist for Mizuho Securities USA, summed up the feelings of many foreign investors about the value of the dollar, saying, “The currency doesn’t have the safe haven status that it has had in recent years.”18 Who would have dared to suggest just five years ago that the euro would be stronger than the dollar by the end of 2003?
So, why are so few Americans paying attention to the dramatic changes taking place on the other side of the pond? To a great extent, it’s a question of perception. When we think of Europe, our context is a cultural or historical one. When we think of commerce and politics, however, our frame of reference quickly shifts to the individual countries of Europe—Germany, the U.K., France, and Italy. This older conception that associates commerce and politics with the nation-states of Europe is fast being contradicted by the new reality of a continentally defined superpower whose commercial muscle is beginning to be flexed on a more expansive global playing field.
While making comparisons between the U.S. and particular countries in Europe still makes some sense, at least in the political realm, and especially in foreign-policy matters, it makes less and less sense in the commercial sphere. The companies I am personally familiar with in Europe increasingly think of themselves as European—if not global—companies, just as in the United States, companies long ago stopped thinking of themselves as New York companies or California companies, but rather as American and global companies.
What this all means is that we have to begin to reframe our very concept of European states and begin thinking of them as part of the European Union, just as we think of the fifty American states as part of the United States. This fundamentally changes the way we make comparisons. For example, rather than thinking of Germany in comparison to the U.S., we should think of it in comparison to California—Germany being the largest state in the European economy and California the largest state in the U.S. economy. When we begin to shift the way we make comparisons, everything suddenly changes and we start to grasp the enormity of what’s unfolding and the potential consequences for America. If we compare the GDP of Germany—the largest of the twenty-five states of the European Union—to the GDP of California, our largest state, we see that Germany’s GDP of $1,866 billion (U.S. dollars) exceeds California’s $1,344 billion GDP. The U.K., the European Union’s second-largest state, with a GDP of $1.4 trillion, is nearly twice as large as our second-largest state, New York, with a GDP of $799 billion. France, with a GDP of $1.3 trillion, is nearly 50 percent larger than our third most powerful state economy, Texas, with a GDP of $742 billion. Italy, with a GDP of more than $1 trillion, is more than twice as big as our fourth most powerful state economy, Florida, with a GDP of $472 billion. Spain, with a GDP of $560 billion, edges out our fifth biggest state, Illinois, with a $467 billion GDP. The Netherlands boasts an economy larger than New Jersey’s. Sweden’s economy is bigger than that of Washington State. Belgium’s economy eclipses Indiana’s. Austria’s GDP exceeds Minnesota’s. Poland’s economy is larger than that of Colorado. Denmark’s is bigger than Connecticut’s. Finland’s GDP exceeds Oregon’s. Greece’s GDP is dead even with South Carolina’s.19
When my colleagues and friends—on both sides of the Atlantic—have occasion to applaud or rail against the feats and follies of global companies, it’s a sure bet that it’s American companies that come to mind. That’s not to say that they aren’t aware of transnational companies whose head-quarters reside somewhere outside U.S. shores. Toyota and Honda in Japan, Samsung in Korea, and BMW, Vivendi, and Nestlé in Europe are familiar names. But they believe that most giant corporations, the ones that dominate world commerce and trade, tend to have American roots. When the German auto giant Daimler-Benz bought out America’s third-largest automaker, Chrysler, a few years ago, it was a shock to most working Americans, but treated as something of a fluke. Few Americans realize the power of European transnational companies. Sixty-one of the 140 biggest companies on the Global Fortune 500 rankings are European, while only fifty are U.S. companies, and twenty-nine are based in Asia.20
Royal Dutch/Shell and BP are now the fourth and fifth biggest companies in the world. Nokia, the Finnish company, is the number one producer of cell phones, with revenues of $28 billion. The company now controls nearly 40 percent of the worldwide mobile-phone market. Here’s a company that was selling toilet paper and rubber boots just thirty years ago. By 1998, its mobile-phone division had surpassed Motorola to become the world’s mobile mouthpiece.21 Vodafone, the British telecom giant, with more than 100 million subscribers in twenty-eight countries, is the number-one or -two wireless operator in a dozen of the biggest markets in the world, including Britain, France, Switzerland, the Netherlands, Italy, and, yes, the United States. It turns out that the largest American wireless operator, Verizon Wireless, is a 45 percent owned joint venture with Vodafone.22
Chances are, most Americans aren’t familiar with Bertelsmann, the 167-year-old German media company—the world’s third largest after Time Warner and Walt Disney—and the largest book publisher in the world. Of course, Americans buy lots of books from the venerable American publisher Random House. What they don’t know is that Random House is owned by Bertelsmann. Well, what about other well-known and long-established American book publishers Penguin, Putnam, and Viking? They are all owned by the British publishing giant Pearson.23
Americans are proud of Boeing and like to think that no other country surpasses American know-how when it comes to making airplanes. Not so. Airbus, the European consortium, has outperformed Boeing for the past three years and now controls 76 percent of the global airplane market.24
It’s fair to say that Royal Ahold, the Dutch food retailer, has zero brand-name recognition in America, even though, with nearly $60 billion in revenue in 2002, it’s the world’s second-largest food retailer. Over the past decade, the Dutch company has quietly bought up virtually every major grocery-store chain east of the Appalachians and now operates more than 1,400 stores still under their original names, like Bi-Lo, Stop & Shop, Giant, and Bruno’s. Ahold is currently the biggest food retailer on the East Coast of North America.25
Deutsche Post, the recently privatized German post office, is pressing ahead to become the world’s leading delivery company and has made more than twenty acquisitions worldwide over the past several years, including the $1 billion purchase of Air Express, the largest U.S. air freight for-warder. It also owns a majority stake in the Brussels-based DHL International, the largest delivery company outside the United States. The American companies, United Parcel Service (UPS) and Federal Express, long bitter rivals, are so worried about the Deutsche Post plan to gain a dominant foothold in the United States that they have joined together, filing protests with the U.S. Department of Transportation, in an attempt to block the German company’s expansion efforts in the States. The brouhaha between the American delivery companies and their new German competitor led The Wall Street Journal to quip that “American parcel delivery trucks
have rumbled across the cobbled streets of Europe for more than two decades. Now European carriers say they want to find out if transparent borders work in both directions.”26
It’s surprising how little regard European companies are given in discussions around globalization. At antiglobalization protests at World Trade Organization (WTO) meetings, World Bank gatherings, and G8 Summits, the attention on the streets is generally on the evil machinations of U.S. transnational companies. Even in world policy forums, the focus is almost exclusively on American companies. Yet in so many of the world’s key industries, it’s European transnational companies that dominate business and trade.
European financial institutions are the world’s bankers. Fourteen of the twenty largest commercial banks in the world today are European, including three of the top four: Deutsche Bank, Credit Suisse, and BNP Paribas.27 In the chemical industry, the European company BASF is the world’s leader, and three of the top six players are European.28 In engineering and construction, three of the top five companies are European: Bouygues, Vinci, and Skanska; the two others are Japanese. Not a single American engineering and construction company is included among the world’s top nine competitors.29 In food and consumer products, Nestlé and Unilever, two European giants, rank first and second, respectively, in the world.30 In the food and drugstore retail trade, two European companies, Carrefour and Royal Ahold, are first and second in the rankings, and European companies make up five of the top ten. Only four U.S. companies are on the list: Kroger, Albertsons, Safeway, and Walgreens.31
European companies dominate the global insurance industry. Eight of the top ten reinsurance companies are European, including Munich Re and Swiss Re, the first and second rated companies.32 In the life and health insurance field, the top five are all European companies—ING, AXA, Aviva, Assicurazioni Generali, and Prudential.33 In the property and casualty field, Allianz, the European company, is number one in the world, and five of the top nine are European companies.34
In the telecommunications industry, European companies hold six of the top eleven spots in the rankings.35 In the pharmaceutical industry, U.S. companies have eclipsed their European rivals in recent years, with Merck, Johnson & Johnson, and Pfizer ranking first, second, and third in the global rankings. Still, GlaxoSmithKline, the British company, is fourth; Novartis, the Swiss company, is fifth; and Aventis, the French company, is sixth. European companies still hold five of the top ten rankings.36
In the motor vehicle and parts industry, General Motors and Ford are still on top, but DaimlerChrysler is third, and European automakers Volkswagen, Fiat, Peugeot, BMW, and Renault are all in the top twelve global companies.37
In a recent survey of the world’s fifty best companies, conducted by Global Finance, all but one were European. The only U.S. company to make the list was Hilton. European performers such as Diageo, the giant premium-drink company—it owns Seagram’s and Smirnoff;—Anglo American, the London-based mining company; Ryanair, the upstart low-cost Irish air-passenger carrier; SAP, the German business-software company; E.ON, the Düsseldorf-based energy company; the Swedish company Electrolux; L’Oréal, the French cosmetic giant; Diversified Services, the British distribution and outsourcing company; Philips, Europe’s largest consumer-electronics company; and Hermes & Mauritz, the Swedish retailer, were among the companies singled out for praise for their innovative leadership and entrepreneurial acumen.38
All of this is not to suggest that European companies have suddenly leaped way ahead of their American competitors. In some industries, European businesses are clearly the market leaders, while in others, the U.S. companies still dominate. Rather, the message is that European-based global companies are able to match their American counterparts more often than not. And, in a number of instances, their successes are worth noting and learning from if American business is to stay competitive in global markets.
While Europe more than holds its own with the United States when it comes to its share of global corporate institutions, it also sports more small- and medium-sized enterprises than America. The U.S. business community is forever touting the idea that small businesses are the backbone of the American economy. In truth, the European Union has a far greater number of small- and medium-sized businesses (SMEs) than the U.S. In fact, SMEs currently represent two-thirds of the total employment in the EU, compared to only 46 percent of the total employment in the United States.39
Moreover, SMEs have been able to keep pace with the profitability of large companies by pooling their resources and talents in larger networks, including industrial clusters and cooperatives, to gain the advantages of economies of scale and scope without sacrificing the innovativeness and flexibility that often go along with smaller-scale operations.
The European Union has made a point of advancing the interests of SMEs and adopted the European Charter for Small Enterprises in 2000 to help promote their growth and development. Among other things, the charter calls upon member states and the EU Commission to support education for entrepreneurship, legislation and regulation to help SMEs remain competitive; improved job skills; and the use of successful e-business models. The EU has even created a “Global Information Network for SMEs” to help them “exchange information on products, technologies, and human resources” across borders so they can extend their activities to the global marketplace.40
Measuring Success
On the whole, while the European Union is closing the gap with the U.S. economy—and is much larger than its nearest rival, the Japanese economy—it still has a long way to go to reach its goal of becoming the world’s most competitive and dynamic knowledge-based economy by 2010. (That goal was set out at the European Union Council in Lisbon in March 2000.) In an effort to benchmark its progress, the EU publishes the European Innovation Scoreboard (EIS) each year, listing the European Union’s progress in seventeen main economic indicators. The indicators are divided into four categories: human resources for innovation; the creation of new knowledge; the transmission and application of knowledge; and innovation finance, outputs, and markets. According to the report, the EU leads the U.S. in three of ten indicators for which data is available: the number of science and engineering graduates; public research and development (R&D) expenditures; and new capital raised. The EU still lags the U.S., however, in seven other significant areas, including the share of manufacturing value-added from high technology, the number of high-technology patents, and the share of the working-age population with some form of tertiary education.41 It is interesting to note, however, that Europe’s leading economies—Denmark, Finland, the Netherlands, Sweden, and the U.K.—outdistanced both the U.S. and Japan in seven of the ten comparable indicators. Moreover, the EU, overall, has been improving faster than the U.S. in four of the eight comparable indicators: Internet access, the registration of patents in the United States, per capita information-technology spending, and participation in tertiary education. The EU has gained on Japan in all seven of the indicators to which there is comparable data.42 The report’s authors conclude that “the overall positive trend results suggest that the EU may be catching up with its main competitors.”43
Most American economists, and even some European economists, are reluctant to acknowledge Europe’s dramatic economic strides. Michael Mussa, former chief economist at the International Monetary Fund responsible for putting together the agency’s world-growth forecasts, now with the Institute for International Economics in Washington, D.C., predicts that the U.S. growth rate in 2004 will be around 4.5 percent while that of Western Europe will be only 2 percent. Western Europe is expected to fare slightly better in 2005 at 2.25 percent while America’s growth rate is expected to drop to 3.5 percent. Europe’s less robust growth rate compared to the U.S. is cited as proof that the EU is falling further behind in the race to be the world’s most competitive economy.44
The reason for Europe’s poor performance, argue American economists, lies with the governments’ inflexible labor policies, anti-entre
preneurial biases, overtaxation, and burdensome welfare programs—so-called “Euroschlerosis.” What they conveniently ignore is that America’s recent economic growth has not come without a steep price tag in the form of record consumer and government debt. The cost of stimulating the economy has been steep. The United States had to take on $1.5 trillion of additional debt between 2000 and 2004 and increase its annual government deficit to $500 billion in 2004 alone, while American families saw their savings rate hover at 2 percent. In a sense, America is paying for its improved short-term economic performance, at least in part, by borrowing against the future.45
Admittedly, many European companies rival their American counterparts, and the EU economy is nearly as competitive as our own, but doesn’t America continue to produce more millionaires? Not so. According to a report compiled by Cap Gemini Ernst & Young along with Merrill Lynch, Europe boasts 2.6 million millionaires—individuals whose financial assets are at least $1 million (U.S. dollars), excluding home real estate—while North America has only 2.2 million millionaires. More telling, Europe added 100,000 millionaires to its roles in 2000, while North America dropped by 88,000 millionaires in the same year.46 Surprisingly, of the 7.2 million millionaires in the world today, the greatest percentage—32 percent—live in Europe, and their numbers are growing faster than those of any other region.47
The European Dream Page 9
