One possible reason for the EU underperforming is that the European Union and its member nations have structured their economies and societies to favor rent seeking over productive activity.
In addition to increasing inequality, rent seeking uses the power of the state to favor the already wealthy, it also crowds out productive activity, because the former is more lucrative.
To be fair, there is also the energy increases resulting from the cut off of cheap Russian natural gas as well.
Why is Europe falling behind in investment and growth compared with the US, let alone China and India? In a new report, Labour Squeezed, Investment Stalled – the renowned economist Mariana Mazzucato and a team at the UCL Institute for Innovation and Public Purpose, financed by the European Trade Union Federation (SETU), reckon that the EU’s declining competitiveness is not the result of too much regulation or the lack of cheap credit as mainstream economists and Mario Draghi is his report for the EU Commission argued.
Instead it is due to “falling investment and productivity caused by the hoarding of profits and higher payments to shareholders and CEOs rather than reinvested in production, innovation and good jobs”. The decline is the result of an emergence of a “capitalism of rent” in Europe, where income is increasingly captured not by producing anything, but by owning assets, financial positions and market power, and charging for access to them. Mazzucato concludes that Europe must switch from “an economy based on value extraction to one based on value creation”.
Mazzucato and and the IIPP show that headline profits have stayed healthy even as profitability in production have declined since 2000. They claim that’s because profits have been captured through ‘financialisation’ ie non-financial corporations are increasingly make more money through financial investment rather than in production. In study of over 300 EU corporations, they find that around one in six firms surveyed now draw more than 10 percent of earnings from financial rather than productive activity.
I think that the framing in the last paragraph is particularly important.
Stating that financial activity is not a productive activity is true, even if financial activity can aid in productive activity by allocating capital to business that need it.
Finance, as well as IP driven activity are profitable because they are fundamentally parasitic in nature when taken to extremes.
It's why they are so hard to fight, they have excess profits that can be redirected to bribery in various forms to support their businesses.
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