The US is thriving and the EU is lagging behind. Why should we switch approaches?

With the European Union ready to consider some American economic ideas, Washington is moving in a direction that could be considered European. If those with the initiative get their way, we could even see the two Atlantic giants swap places, were it not for one huge American advantage.

In a recent and long-awaited report by the European Union The future of Europe’s competitiveness, Former Italian Prime Minister and long-time European Central Bank President Mario Draghi notes that, due to low and falling productivity, EU gross domestic product per capita has fallen from around 70% of the US level in 1980 to 60% today. To reverse the situation, he calls on the EU to follow the US model and focus on high-tech companies instead of older industries such as cars.

Draghi points out that “no EU company with a market capitalization exceeding €100 billion… has been founded from scratch in the last fifty years, while all six US companies with valuations exceeding €1 trillion were founded in that period.” The report goes on to point to Apple, Microsoft, Nvidia, Amazon, Alphabet, and Meta as notable US companies.

Ironically, these are the very companies that U.S. antitrust regulators have been keeping an eye on for years. If our zealous regulators and the politicians who support them have their way, the potential profits of large U.S. high-tech companies could be washed away by antitrust concerns.

An additional paradox is the juxtaposition of government crackdowns on high-tech companies and attempts to support and protect the auto and steel industries. We seem to be planning for the past.

Could we disappear while the EU thrives? While US antitrust actions may weaken the goose that lays the golden eggs, all is not lost. The US economy has features that no EU country can copy, even if it tries.

The United States is one economy with open domestic markets and it is huge. Adam Smith made a critical observation on this subject in his epochal book Research into the nature and causes of the wealth of nations, arguing that “the division of labor is limited to the size of the market.” This thoughtful statement tells us that firms in giant market economies like ours can achieve lower costs by expanding and discovering economies of scale in their home market. Assuming all other factors are equal, similar firms in smaller economies have less room to wander and specialize.

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As relevant today as it was in 1776, Smith’s statement directly addresses the EU’s recent interest in American leadership. The EU may not be able to simply follow the American playbook, but it should pursue greater openness in its member states and encourage global free trade, which has the practical effect of expanding the EU’s borders and thereby achieving significant economies of scale.

As for the United States, we should take the EU report as a compliment and a warning to rethink our tendency to attack large, successful companies by threatening them with antitrust actions.

Bruce Yandle is a distinguished fellow at the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and former executive director of the Federal Trade Commission.