Cultural attitudes on work, leisure and wealth in Europe and America

I happened upon an article about shops being closed in France that highlighted a larger issue about cultural attitudes in the U.S. and Europe regarding work, leisure and material wealth.  I would like to share some thoughts with you on these issues because I think they are significantregarding savings, debt and other issues at the heart of the recent economic bubble and meltdown.

Shops closed? How 19th century.

First, the blurb on French shops posted by Jay Newton-Small on Time Magazine’s political blog Swampland.

Michelle Obama has unwittingly caused a national French debate over working on Sundays. It seems the First Lady wanted to take Sasha and Malia shopping while there: the problem was virtually every store in Paris is closed on Sundays. There is a ban in France, a Catholic country, on working the day God rested. Embarrassed, Prime Minister Nicolas Sarkozy personally called a few stores and asked them to open especially for the Obama ladies. Sarkozy has since introduced a law, expected to be voted on in the National Assembly on July 6, to allow shops in touristy areas to remain open on Sundays. In an article entitled, "If You Have to Work Sundays, It’s Michelle Obama’s Fault," Sarkozy, roughly translated, argues: "Is it normal that when Mrs. Obama wants to visit French stores with her daughters on a Sunday, I have to make a call to have them opened? Everyone in President Obama’s entourage was present, great. Who then had to explain to them why we are the only country where, even in Paris, everything is closed on Sunday?" A spokesman for the Communist Party responded saying Sarkozy "crossed the line" by invoking Michelle Obama. Vivre le shopping!

In America, shops are open every day, often well into the night when most people are at home with their families.  This is especially true in America’s big cities, especially in the northeast and west.  Clearly, Michelle Obama has been living that lifestyle and was unconscious of how different it can be in Europe or even in other parts of the U.S.  It is admirable that the First Lady spends so much time with her children. However, in this case, every hour extra she gets to go shopping with her daughter is one hour less that the people working in those shops have with their own children.

So, why the cultural divide here?  Religion is certainly part of it in the Midwestern and Southern America and in France – hence the allusion to France’s being a Catholic country.  But, Germans also frown upon opening shops on Sunday as well and they are not all Catholics, though many are.  I would say much of the difference has to do with culture.

Europe equals leisure while America equals wealth

A few years ago, three economists (including a brilliant former classmate of mine, Bruce Sacerdote) produced a paper called “Work and Leisure in the U.S. and Europe: Why so Different?” Below is the abstract. (emphasis added)

Americans average 25.1 working hours per person in working age per week, but the Germans average 18.6 hours. The average American works 46.2 weeks per year, while the French average 40 weeks per year. Why do western Europeans work so much less than Americans? Recent work argues that these differences result from higher European tax rates, but the vast empirical labor supply literature suggests that tax rates can explain only a small amount of the differences in hours between the U.S. and Europe. Another popular view is that these differences are explained by long-standing European "culture", but Europeans worked more than Americans as late as the 1960s. In this paper, we argue that European labor market regulations, advocated by unions in declining European industries who argued "work less, work all" explain the bulk of the difference between the U.S. and Europe. These policies do not seem to have increased employment, but they may have had a more society-wide influence on leisure patterns because of a social multiplier where the returns to leisure increase as more people are taking longer vacations.

Translation: Europeans worked more than Americans just four decades ago, but now work less. Thus, they are taking more of the benefits of increased wealth since that time in the form of leisure over material gain than do Americans.  In a nutshell, Americans are more materialistic than Europeans.

Now, you can argue why Americans work more.  The economists make the case for unions as the driving force behind this dichotomy.  That’s an argument for another day.  My focus here is on the fact that cultural differences have developed such that Americans prefer to work many more hours in order to accumulate wealth than do Europeans.

For example, productivity levels in the United States and Western Europe are not that far apart.  The 2008 OECD Factbook as the following quote:

In 2006, GDP per capita in OECD countries ranged from over USD 39 000 in Ireland, Luxembourg, Norway and the United States to less than USD 17 000 in Mexico, Poland and Turkey. On average, income levels were about 70% of that of the United States, Norway is a notable exception with its GDP per capita 14% above that of the United States.

Relative to the United States, most OECD countries had higher levels of GDP per hour worked than GDP per capita because their levels of labour utilisation were substantially lower than in the United States. This owes to disparities in working hours but also, in several countries, to high unemployment and low participation of the working-age population in the labour market.

Europe is just as productive as the U.S. But, clearly Europeans are choosing to work less than Americans.  Think store closings on Sunday in Paris.

The asset-based economic model

The result of America’s drive to work more has been an asset-based economy driven by debt. In America, and similarly in other Anglo-Saxon countries like the U.K., debt and savings are viewed in many parts quite differently than they are in places like Germany.  In the Anglo-Saxon model, people talk about things like efficient markets and wealth accumulation with almost religious fervour. Work is certainly prized as means of accumulating wealth. But, so too are debt and asset accumulation.

That leads to a greater reliance on markets and debt.  Look at any measures of aggregate national debt to GDP and you will see the U.S. and the U.K. at enormous levels over 300%.  The same is true in terms of market capitalisation levels.  The U.S. and the U.K. are much higher in terms of publicly listed companies as a percentage of GDP than, say, Germany.

German politicians disparage this as the Anglo-Saxon economic model – and since it is an election year in Germany, we are bound to hear more of this than usual. I call this the asset-based economic model.  The goal is to accumulate as much wealth as one possibly can by buying as many assets as one can, through income (hard work) and debt (mortgaging future income).

I find all of this a bit like a rat in his cage chasing a hunk of cheese.  After all, there are only so many hours in the week to divide between family, leisure, work and sleep.  And, there is only so much you can borrow against future income. At some point, lenders figure out they have lent more than you can possibly earn and pay back.

And that’s the message here and now, isn’t it? We have seen a massive credit bubble which has taken debt levels to unimaginable proportions – all in the quest for more material wealth.  My guess is that the pendulum, having swung too far in the one direction, is headed back the other way.  While risky debt-financed binges seemed the road to riches in the asset based economy, the conservative new normal will be savings.

My hope is that this new normal not only ushers in a world where high debt and low savings are frowned upon.  I also hope we see a re-allocation of time and energy away from work and wealth accumulation and toward other more important things like family and leisure.