How Europe Sabotaged Its Own Economy

the European Union as well as other closely integrated European countries collectively make up the second largest economy in the world only really falling behind the USA Germany alone is now the third largest economy in the world after overtaking a stagnant Japan and the continent is overwhelmingly made up of high inome advanced economies with great living standards but a lot of economists are very very worried about Europe's future so what is going on here Europe has fallen well behind the USA in terms of raw economic output as the continent closes in on almost two decades of

of relative stagnation now to be fair even though the USA is the most logical comparison as a high inome economic superpower almost every country in the world has performed poorly compared to the Yanks over the last half decade including lower income economies which should have a higher capacity for rapid growth most notably of course China so it might be easy to say that Europe hasn't fallen behind so much as the USA has pulled ahead but even if that is true it still begs the question as to why Europe has more people with more competitive salary

expectations education levels that are just as good if not better than the USA it's largely a safe stable business environment and it has the capacity to be a major Global Hub in fact historically it has been the bad news is that a lot of the current economic problems in Europe causing its slowdown are largely self-inflicted the good news is that a lot of the current economic problems in Europe causing it slowdown are largely self-inflicted and are therefore possible to address now there is an endless list of economists politicians and random people on the internet all

claiming to have the solution to Turning Europe around but really there's no single answer because there's no single problem rather there are a few broad areas that are worth looking at individually Innovation immigration industry integration interpretation and uh energy I um I really wanted to make that eye thing work but anyway how have these key areas been different from the USA is it possible to fix these problems and of course what happens if they don't immigration has often been framed as a solution to Europe's economic challenges from filling labor shortages to driving growth but the

reality is far more complex depending on where you get your news Mass migration can be painted as either a policy failure or an essential response to Modern labor demands these opposing narratives don't just shape opinions they influence the policies affecting our future that's why we rely on our partners at Ground news to help streamline our Research into these kinds of stories they're a nonpartisan website and app that organizes news from across the political Spectrum in one place so you can easily see which angles are conveniently Amplified or ignored depending on who's telling the story and

since I'm based in Australia I can even switch my addition to easily find global news with translation tools that connect me with every perspective shaping International Affairs for example the debate over the UK having enough workers to fulfill the government's promise of building over a million homes has been heating up lately but look closer you recognize coverage has been dominated by more conservative Outlets so without Grand News liberal and even Centrist readers might not know that many feel like immigration is actually worsening the housing crisis however skilled foreign worker visas are at their lowest level

in years essentially cutting off a key pipeline of talent that many Industries rely on to function and grow leading to worker shortages that cast out over Britain's ambitious plans there are real world consequences to not see in the full picture of pressing issues like this from shaping public opinion to public policy this is why I found Grand news blind spot feed invaluable this surfaces important stories exclusively circulating in the left or right media bubble for a more nuanced perspective on the world that we're living in I think ground news makes it easier than ever to

check your biases and make up your own mind or without being overwhelmed or misled and right now you can support this crucial level of transparency by going to br. news/ explained or scanning my QR code to get 50% off their unlimited access Vantage plan that brings the cost down to under $5 a month making it their biggest sale of the year the discount is for the same plan I use to track critical developments in the economy global politics and more and I think it can help you too so really there are only four ways to

make a population increase its gross domestic product they can get better training to move into more Technical and value adding roles they can be given access to better tools and resources they can work longer hours or the population can just get bigger starting with that last one first not a single country in the Au has birth rates high enough to sustain its population let alone grow it but it has been growing which has of course mainly been fueled by immigration now immigration can be a fantastic way to boost the economy very easily it can fill

in skills gaps in the workforce and it has a direct fiscal stimulus when people move to a new country to work or study they are going to bring some cash with them from their home and use it to make purchases in the domestic economy a lot of Visa programs around the world require people moving to the country to prove they have enough cash to fund themselves while they're getting set up or studying before they move now in a lot of cases these proof of funds are relatively easy to forge but even still people need to

bring at least some money with them these kinds of immigration channels have come to define the economies of Canada my own home of Australia and to lesser extent certain regions within the USA and even there theyve arguably been taken too far here in Sydney a cottage industry has developed of tertiary schools that basically don't run any classes but look like a university just enough for people to get a student visa where they can live and work permanently in the country with the eventual hope of getting a permanent residency for the supposed students it's their best

opportunity to move from a low-income country to a High inome Country even if they take up work in the gig economy or minimum wage jobs which let's be honest a lot of them are incomes in these countries are still much higher than even technical roles in undeveloped or developing countries over time this can actually result in financial outflows as people send money back to support their families through remittances now the reason this type of immigration is so hard for these high-income countries to give up is that it still provides a nice upfront boost even to

real educational facilities which are not above selling the dream of a permanent residency with a side of education and the big one which is that a lot of this immigration is going to fill jobs that existing residents just don't want to do at least for the salaries offered to them on the other side of the same coin there is a lot of immigration to these countries from extremely wealthy people going through the student visa path that aren't really interested in the job opportunities at all but are more attracted to the opportunities to invest into a

market with strong property rights of course this can and has had negative impacts where capital is directed into finite and nonproductive asset markets like housing either way the results are surprisingly similar an injection of capital or labor two of the factors of production into an economy will all other things been equal boost that economy but long term they can have hangovers which cause reductions in incomes or increases in living expenses beyond the immediate initial boost they provide now in Europe the migration Dynamics are a little bit different education only makes up a very small slice

of total immigration and even when combined with work fees that collectively only makes up a quarter of people entering the Union the remainder are coming in through family permits by seeking Asylum and another group which the European commission mysteriously just labels as other but includes a combination of humanitarian and Specialty visas of course the EU is made up of member states which can each individually award residency for any reason they say fit now the ultimate takeaway here is that compared to other advanced economies the EU in particular has a lot of migration based on addressing

social issues like family reconnection and Asylum which are clearly amazing causes but are not necessarily as economically stimulating now it's naive to ignore the elephant in the room and assume that migration policy is made entirely on economic grounds because it's not even if it was literally a silver bullet to fix an aging and stagnating economy with zero side effects there is going to be resistance to something that can fundamentally change societal Dynamics it's difficult to have productive and balanced discussions around these issues when any argument for controlling immigration is just labeled as racist similarly and

tragically during difficult Economic Times immigration becomes the center of attention because it's one of the most obvious and easiest policy levs to move to make matters worse what's often ignored in the very heated discussions around immigration is not so much the people coming in but the people leaving Europe is losing a lot of Highly Educated people who are seeking out more lucrative employment opportunities in the big Tech and finance sectors in the USA and now London as well since it falls outside of the EU Europe is losing more than 2 and A2 million people this

way and unlike population in flows which are happening for a variety of reasons the people immigrating are largely the most highly productive people doing it for job opportunities in the Euro area labor force participation is now actually higher than it is in the workaholic USA the US Labor Force has been trending down for decades now and in Europe it's been trending up now for headline economic figures that sounds like a good thing but it does come with some caveats for starters labor force participation does include unemployed people actively looking for work and unemployment in most

EU countries is still higher than the USA although to be fair it's now at its lowest level since the formation of the EU the second thing is that workers in Europe on average spend much less time at work than in the US with a few exceptions but the big centers like France Spain Italy and especially Germany really like their time off and finally more labor force participation isn't necessarily a good thing in Europe the upwards trend has mostly been caused by older people needing to stay and work for longer just to survive rather than a

broader push to mobilize the population into higher rates of production so yeah it's become more difficult less popular and less effective to grow the size of the population working more isn't really working and while the European population has become more educated it's losing a lot of its most technical workers to better opportunities in the USA so by process of elimination that means the most logical place to focus is giving the population access to better resources and tools the energy and Innovation part of the equation energy use has an almost perfect correlation with economic wealth because

rich countries both use more energy to power the luxuries they enjoy like big houses big cars and big amenities and energy intensive Industries can make the economy a lot of money we saw this just a few weeks ago in our video on Iceland so we don't want to repeat too much here but basically that country was able to use its geothermal heat as a free energy glitch which it has turned into a free money glitch to make it one of the wealthiest economies in the world despite being an otherwise Barren and desolate island in the

middle of the northern Atlantic now Europe and especially the EU does not have large energy reserves really the only place with large fossil fuel deposits on the European continent is the North Sea where production is controlled by Norway which was never a member of the EU and the UK which is no longer a member of the EU the Netherlands was a significant producer of natural gas up until recently but for a variety of reasons it has scaled way back on production and will probably cease entirely within the next decade now for a long time this

didn't really matter because the continent had a cheap source of natural gas to fuel its energy intensive Industries like heavy manufacturing coming from Russia but obviously there have been some complications with that recently to to make matters worse Germany which is Europe's deao manufacturing Hub also made the decision to decommission a series of nuclear power plants which took away a nice Baseline power supply right as the region needed it the most now Europe is investing heavily into Renewables which should pay off in the long term but for now it's an expense that isn't dealing with

the immediate concerns that they're just getting outcompeted in energy intensive Industries for the first time in its history Volkswagen one of the continent's foundational employers shut down plants in Germany this year as the brand has struggled to compete with rivals in Asia and the US although literally as we were putting this video together some last minute changes mean that those plants might be safe for now either way the big prestigious European manufacturing brands have also just been building factories abroad to make cars and Machinery within the consumer markets of the USA and China to avoid

long supply lines and to brace for the general Global Trend towards tighter trade restrictions we've mentioned it before but one of the clearest demonstrations of this is that the largest BMW Factory in the world is actually in the USA for the company itself it's an amazing opportunity that they've been able to maintain their Prestige German brand image even when selling cars made in South Carolina it's also great for Germany's headline economic figures and investors since a lot of value added from the factory will be directed back towards the German economy but that's probably not much

comfort to the German factory worker who could have been assembling those cars instead the problem is with reduced purchasing power High salary and benefit requirements expensive energy and very tight regulations it's hard for businesses to find a compelling reason to manufacture in Europe its energy transition is also not going to be helped by the fact that it's falling behind the USA and China in terms of renewable technology China is producing the solar panels that Europe is hopefully going to power itself with in the future which has potentially just replaced one type of energy dependence for

another now of course Renewables are a long-term capital investment rather than something that needs a constant Supply so it's not exactly the same but it does highlight the other area almost everybody agrees that Europe is falling behind in Innovation if the continent can't bring in more workers or provide them with better inputs or make them work longer hours or keep the most educated on Shore the only option left is really the best option which is just to give them better technology to conduct their business Innovation is something that has defined the economic history of Europe

even if it took a few Liberties borrowing some ideas from around the world the Industrial Revolution started on this continent as it became the first to use Railways steam engines and automated manufacturing to expand its economic output part of the reason why modern economies have been able to grow so fast over the last century and a half is because a lot of these tools have already been figured out and it's much easier to adopt technology than it is to develop it from scratch but despite their head start Europe has fallen decidedly behind in Innovation now

of course there are exceptions asml which makes the photo lithography machines to create semiconductors is based in the Netherlands this one example may be the most technologically significant company in the world but outside of this one exception that proves the rule it would be hard to think of a European company that could be considered Cutting Edge this is a major problem because a lot of high-end value Creation in the modern world is done through technology people ass assembling basic Goods by hand will only be adding a few dollar an hour in value give those people

the world's best industrial tools Advanced Training on how to use them and optimize workflows and they can produce 10 times as much stuff and justify incomes 10 times higher but it's still based on unit byun output however someone developing something even if they spend a few hours making minor improvements to an existing product design can add value to every single unit that's produced from then on out making the value they've added in those few hours of work potentially Limitless this is ESP true for software which is Trivial to copy to any amount of users or

ultra high in technology where improvements can render other products obsolete by comparison European industry is really stuck at the very top end of this second category of course it does have a lot of world-class Engineers but especially in Tech it just doesn't really hold a candle to places like Silicon Valley and even Shenzhen in China now there is no one single reason for this but there are a few factors the first is having that critical mass the US has aerated top universities top financing infrastructure and top companies together to build a system where they feed

off each other if people want to invest in startups they go to where people are starting startups and people starting startups tend to start them where they have learned to do it and where they can get financing Europe loses both a lot of talent and invested dollars to the USA because it has been a more lucrative bet over the last few decades and in return that talent and capital has made sure it has everything it needs to keep making more technology companies worthy of investing in or working for so yeah there is definitely an advantage

to being the leader in these fields but going one layer deeper that just begs the question of how the USA pulled ahead of Europe in the first place of course the fact that Europe had to rebuild from World War II is a big part of it the dominance of the US dollar as the deao global Reserve has made it a highly desirable investment destination regardless of the opportunities like the USA speaking English of course most people in most European countries also speak English but new businesses are going to develop for their domestic Market first and

then spread outwards which is much easier to do in a more universally recognized language then of course there is the eu's legendarily strict regulation internationally the EU has pushed companies to make overall positive changes for consumers which is great these rules only technically apply to companies while they're doing business within the EU but on a lot of issues even International companies have just changed their Global products because it's not worth making a separate line just for Europe so we all have the EU to thank for Universal type c but for new companies this can again

make things just a little bit more difficult than in the US the EU adds another layer of regulatory oversight between local laws which is a challenge for both investors and new businesses in fact often times this actually works in Reverse entrepreneurs in Europe have developed a cunning business model where they copy US tech company platforms and develop it in their local markets making minor adjustments for local languages regulations and preferences the ultimate end goal of these companies is just to sell themselves to the American companies once they want access to their local markets which is

a great system for those entrepreneurs not so great for investing in anything that could actually produce genuine value but here is probably the most important part of all of this yes Europe is not as productive as the USA but that might not actually matter depending on the interpretation big new global technology companies might be great for boosting headline economic figures and looser regulations might help those companies grow to sizes where they can become globally dominant but often this doesn't translate into tangible quality of life increases for average people some investors and workers have made lots

of money but these industries just don't employ that many people also the output of something like Facebook while financially valuable probably isn't as important to most people as the more traditional industries that Europe still has the value of the US dollar has been artificially pulled above where it really should be as investors from around the world try to buy into its markets and use it as a global Reserve this relative appreciation has also made the US growth look better than it otherwise would have or the EU worse by comparison this is great for Americans planning

a European holiday or buying consumer goods from Asia but difficult for regular businesses that have to decide between paying high wages in valuable currency or Outsourcing to pay lower wages in a cheaper currency the major European economies may be less productive but they are also less expensive for average people to live in especially when accounting for things like Health Care the average person from the US might be more productive on paper but apart from the top 10% the average person from Europe is probably living a better life now that's not to say that the EU

doesn't have its problems it absolutely does and prolonged stagnation could make issues like brain drain youth unemployment and social Mobility even worse which can quickly spiral to make all of these societal luxuries unaffordable now we recently made an entire video on just the challenges that the EU as an institution presents to the various economies under it in a separate video as always we didn't want to repeat too much here but you should be able to click to that video on your screen now thanks for watching mate bye