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Should Europe Be More Like America?

Many economists say business in Europe is expanding. They point to a new crop of billion dollar start-ups, which have adopted the American way of doing business and are reaping huge profits. But other experts counter that Europe's largest economies -- Germany and France -- still need structural reforms that will bring them American-style growth.

Many experts say that Europe's economies could be among the world's most dynamic. They lead America in several key areas. They have a better educated workforce than the United States. The number of scientists Europe turns out is increasing, while in the U.S. is declining. European companies are required to use energy and raw materials more efficiently than their U.S. competitors. The Continent has been outperforming the U.S. in car and mobile phone production.

But for all of their strengths Europe's biggest economies -- France and Germany -- have had sluggish growth rates for about 15 years. Most experts say both economies suffer excessive welfare costs, taxation and regulation. Setting up a new business in France, for example, involves at least a dozen administrative and other steps, compared to just a few in the United States. It can take three months for a European business to start operating, but only a few days for a company in America.

European Obstacles

"I would say that Germany and France continue to be very much anchored in the past," says Mauro Guillen who is an expert in international management at the University of Pennsylvania's Wharton School of business.

"There are a lot of frustrated entrepreneurs in Europe who believe there are way too many bureaucratic obstacles that they have to overcome. And when they do, they really have to adopt very formalistic structures. Here in the United States, you can just start a business in your garage, but it's not so easy in Western Europe. You actually have to incorporate very quickly," says Guillen. "And you have to meet a lot of legal requirements. And it's just much more complicated and as a result of that, the number of new businesses in Europe is much lower, unfortunately."

European economies lag behind the U.S. in capital markets and private investors, as well. Harvard Business School's Christian Ketels says American entrepreneurs are also more successful in finding markets for new products. He says that in Europe, governments often give grants for university research and development, and subsidies to firms. But there is no guarantee that companies will find buyers.

"You can start a new company with an idea from the university, but then it's very hard to grow, to really find the market. That's much easier in the United States. It seems to be easier to find the first new customer and enter the market. That's what people are only waking up to in Europe," says Ketels. "There is a big push here now that talks about 'lead markets'. Rather than paying subsidies or money to start-ups, let's try to make sure that they actually find customers that are willing to try out new things."

But Ketels says that the way Americans do business is not always the right answer. "European businesses in the past sometimes have made the mistake that they thought that global success only comes by becoming more American. That was necessary in terms of upgrading efficiency of companies," says Ketels. "But in strategy, it is really not about benchmarking and becoming the same; it's about trying to develop differences that customers value. And I think Europeans absolutely have room to develop their own products and services that can be successful."

Closing the Gap

On the question of whether welfare reform is needed to fuel economic growth in Europe, many experts point to the booming economies of Scandinavian countries, which have not reduced their generous welfare protections. But business expert Mauro Guillen says countries like Britain, Portugal, Italy and especially Spain have been rapidly restructuring their economies on the more efficient U.S. business model and have generated higher growth rates than their European counterparts.

"Spain privatized the state sector, especially infrastructure -- in telecommunications, electricity and water. Taxes have been reduced. The Madrid Stock Exchange [i.e., Bolsa de Madrid] may not be the biggest in the world, but it is actually one of the most efficient. It [i.e., Spain] continues to be the most rapidly growing economy in Europe, together with Ireland," says Guillen.

U.S. billion-dollar start-ups outnumbered those in Europe by four-to-one in 2007. But there has been a surge in European high-tech companies in recent years. European companies are narrowing the gap with better managers and more investors.

The Role of Culture

Despite these converging transatlantic business trends, Europeans and Americans still look at making money differently, says Venkatachalam Seshan, an expert in international business management at Pepperdine University in California.

"Americans are much more entrepreneurial and bottom-line, profit oriented. And they tend to be very pragmatic in terms of the effectiveness of business. The Europeans have more of a social approach to it, so it tends to be more egalitarian. For instance, the power of the union is much bigger in Europe. The mandatory five-week vacation in France or somewhere else is typical. You wouldn't find the same attitude in America," says Seshan.

"All of these things reflect the values and the traditions of the different countries," says David Sicilia who is a business historian at the University of Maryland.

"There is something very compelling about economic growth. Economic growth tends to be something in which everyone wins. It makes everything easier. It makes politics smoother. Politicians get re-elected. Unions are happy. It's hard for any country to sustain very low levels of economic growth for a long time," says Sicilia. "But once you get above a respectable level, then these fundamental questions kick in. Those are value judgments, really."

But Professor Sicilia adds that many Europeans now feel they need to "Americanize" their economies in order to remain competitive in today's rapidly globalizing markets.