ECB: Larger Firms Could Help EU Close Productivity Gap With U.S.
EU Productivity Gap and the Role of Large Firms
FRANKFURT, Sept 23 (Reuters) - The European Union could close a third of its productivity gap with the United States if it had as many large companies, the European Central Bank said on Wednesday, adding its voice to calls for reforms that make it easier for businesses to scale up.
European policymakers are trying to tackle the EU's economic underperformance relative to the United States, which is home to many of the world's largest companies and is leading the race to develop artificial intelligence.
Current Productivity Comparison
EU workers produce 20% less output per hour than their US counterparts, according to academic studies. They were almost on an even keel in 1995.
Impact of Firm Size Distribution
ECB staff found that if Europe had the same distribution of large and small firms as the United States – without changing how productive each type of company is – the productivity gap would shrink by roughly one-third.
Productivity Differences by Company Size
Large firms are significantly more productive than smaller ones. Companies with at least 250 employees generate an average of €86,800 in value added per worker annually, while firms with fewer than 10 employees produce less than half that amount.
Barriers to Productivity Growth in Europe
The ECB said Europe's weaker productivity performance also reflects lower innovation, fragmented regulation and less developed capital markets, all of which make it harder for companies to grow and compete internationally.
Proposed Solutions: The "EU Inc" Framework
The central bank backed the proposed "EU Inc" framework, an EU-wide corporate law regime aimed at reducing barriers to cross-border business activity.
Model and Potential Benefits
Modelled loosely on Delaware's corporate framework in the United States, EU Inc would create a single legal structure operating across the bloc, bypassing a patchwork of 27 national company law systems and dozens of corporate forms.
"EU Inc. has the potential to support the Single Market, by strengthening competition, innovation and productivity growth," the ECB said.
(Reporting by Francesco Canepa; Editing by Andrew Cawthorne)