Technology Explains Why America's Free Market Is Falling Behind Europe's

Bret Swanson

Technology,

What can we do about it?

In a new book, Thomas Philippon of New York University makes the contrarian case that the free market is thriving in Europe and faltering in the United States. This may startle observers focused on top-line output figures. Over the past three decades, for example, annual US GDP growth has averaged around 2.6 percent, compared to 1.4 percent for the Eurozone. Since 2010, US growth has averaged 2.2 percent, outpacing Europe’s mere 1.3 percent.

The Great Reversal’s key arguments, however, are more granular. Philippon makes the case that Europe’s more aggressive competition policies have led to better outcomes across a range of industries and for consumers as a whole. Lower prices supposedly make up for slower growth. He covers banking, airlines, and healthcare. But “the question that spurred [him] to write the book” was this: “Why on earth are US cell phone plans so expensive? Or, to broaden it a little further, why do consumers in Europe or Asia pay less for cellular service and, on average, get much more?”

Not an uninteresting set of questions. But are his eureka query and his larger conclusion about internet and digital services — that the “telecommunications industry provides another example of successful competition policy in Europe” — on the mark?

Here is the heart of his case:

Consider home Internet access first. In 2015, the Center for Public Integrity compared internet prices in five medium-sized US cities and five comparable French cities. It found that prices in the US were as much as three and a half times higher than those in France for similar service. The analysis also showed that consumers in France have a choice between far greater number of providers — seven on average — than those in the US, where most residents can get service from no more than two companies.

According to data on broadband penetration among households gathered by the Organization for Economic Cooperation and Development (OECD), the US ranked fourth in 2000 but dropped below fifteenth place in 2017.