But there is no magic wand and we simply don’t know enough about why the US has continued to

But there is no magic wand, and we simply don’t know enough about why the US has continued to outstrip the rest of the developed world to be confident that Europe will not fall further behind.There is one specific area where most of Europe does appear less well-placed than the US and that is the overhang of pension provision, particularly the portion of pensions paid by the state. It suggested specific improvements like increased support for commercial R&D, noting that innovation in some developed countries was much higher than in others. But, as the next graph shows, Western Europe is no longer narrowing the gap with the US Goldman thinks this situation will improve. But while it is quite true that a lot of the problem is the number of hours worked, rather than the productivity per hour, it is hard to see any evidence yet of any narrowing.There were some helpful thoughts last week from the OECD in its “Going for Growth” report. The continent’s ability to accommodate non-European workers is, of course, a social and religious matter, too, rather than a purely economic one.If Europe is to offset the drag of a declining workforce, it has to boost its productivity. So it won’t be easy.As for migration, the UK “Polish plumber” experience has demonstrated the benefits of the arrival of new skilled workers, but this is migration within the EU so it does not help the position of Europe as a whole. The main way of increasing labour participation rates is for more women to stay in paid employment, but that may clash with the idea of people having larger families.

That happens either by people retiring later or by people of working age, who are not at present working, doing so.That people will have to retire later is accepted intellectually but in practice is hard to achieve. So, aside from immigration, the main way in which Europe can maintain the size of its workforce for the next couple of decades will be by increasing the participation rate. But so far there is only sporadic evidence of that happening.In any case, it takes 20 years before a person born now will enter the workforce. I think that European birth rates will tend to rise over the next 30 years, partly as a result of changing social choices and partly as a result of more child-friendly tax policies. By then, the population of Eastern Europe is projected to be falling even faster than that of Western Europe.You have to be careful about all population projections that far out, for both migration and fertility patterns are pretty unknowable. The graph on the left shows how the population of the US will pass that of Western Europe (or more accurately, the 15 “old” EU nations) around 2032 and the whole EU (including the 10 new members) by 2050.

It expects Western Europe to do as well as the US in terms of increases in living standards, and the new EU members to converge towards the old ones.The ageing of Europe’s population and the implications that has for the size of the workforce does, however, create serious problems. Now it has applied similar techniques to Europe.Its message is mixed. Demography is going to put a lot of pressure on Europe, more in the East than in the West. If incomes are to grow at the same rate as in the past, a much higher proportion of people of working age will need to have jobs. But that is happening already and prospects for productivity growth, the Goldman team thinks, are bright. It was Goldman, you may recall, that focussed people’s attention on the growth of China and India (and also Brazil and Russia) in its “Brics” study just over two years ago. That is certainly a reasonable prospect, though to achieve it will require some adjustments in our working habits.
To get some feeling for the economic prospects of both the “old” European Union and its new member states, Goldman Sachs has done some projections running through to 2050.

But in absolute terms it is perfectly possible that European growth will continue and that living standards will climb. The rise of the economic power of Asia has become an embedded idea in our psyche, but what about the corollary – the decline in the power of Europe?

Mathematically, it has to be true that if the relative importance of China and India rises and that of North America remains much the same, the relative importance of Europe will fall. What “future privatisations”? What’s left in the Government’s dusty cupboards to sell off? We should be told?j.nisse independent.co.uk. With the extra £350m this adds to the Government’s coffers, maybe the bad taste about how much money the managers and Carlyle Group have made will be put to bed.The Defence Procurement minister, Lord Drayson, says QinetiQ is a “good model for future privatisations”.