The old-age of Europe’s big corporations and its lack of large ‘young blood’ companies are a key impediment to the bloc catching up with its main competitor, the United States, explains Nicolas Véron of the Brussels-based think tank Bruegel.
Véron’s assertion is based on an assessment of companies listed among the 500 largest worldwide based on market value in 2006.
Indeed, he points out, the list reveals that the median age of European ‘champions’ is of 130 years – 30 years more than that of their US counterparts.
What’s more, almost none of Europe’s leading companies are young, he finds. Only 12 out of the 154 European companies in the global top 500 were created after 1950, against 51 out of 174 in the US. And, only three of these EU companies were born after 1975, against 26 in the US.
The scenario can be interpreted in two ways, says Véron.
One would be to consider that big European companies are simply more apt at continuously re-inventing themselves. “In fact, the European champions are not doing badly. Their share of the top 500 has remained relatively stable for ten years, whereas that of the US has declined. They have managed to expand beyond their domestic borders and in the last few years have recorded spectacular profits,” he concedes.
Nevertheless, he adds: “There is scope for concern in this picture”.
Of the 51 US companies born after 1950, 21 are high-tech firms in the fields of electronics, software, internet and biotech. In the same period, Europe only gave birth to two leading high-tech companies, confirming “the technological domination of the US”, according to Véron.
He believes that America’s technological lead “is inseparable from the performance of its top universities”, which “generate both projects and entrepreneurs which are especially prone to high growth”. European governments must grant their universities more autonomy and resources, he concludes, although adding that “Europe can only hope to recover the lost ground slowly, because top research institutes are not created overnight.”
The remainder of the transatlantic competitiveness gap can be accounted for by services, where Europe is relatively weak due to the fragmentation of its markets and the “stunted development of its SME finance sector”, says the author.
But cultural differences are also important, he stressed, pointing to the tendency, in France and Germany, to “often give precedence to smokestack industries over other sectors of the economy, as evidenced by the frequent calls for ‘re-industrialisation’ as a remedy for the effects of restructuring”.
“Europeans would gain from ridding themselves of the obsession with manufacturing industries which is so prevalent in public debate, anchored in mercantilist stereotypes from the last century: it is certainly time to move towards a broader vision of the drivers of growth,” he concludes.