On the eve of the American elections, the feedback on Joe Biden’s industrial support plans in 2022 and 2023 shows a surge in manufacturing investments around electronics and IT. Since the Chips Act and the Inflation Reduction Act, they have increased twentyfold. But beyond that, we must question the causes of this dynamism and its consequences.
Two years ago, European fears anticipating a diversion of investments from our continent to the United States, to this day not clearly validated, however eluded a more serious consequence. This intensification in the manufacture of information and communication technologies (ICT) in the United States contributes to accentuating the European disconnect in terms of ICT capital per job.
However, these technologies irrigate all the others. Their presence in the economy therefore reveals a potential for innovation and capacities for absorption of other technologies. In addition, the intensity of ICT per job is decisive in terms of productivity gains, which are lacking in European growth.
A recent OFCE study shows that the share of this type of investment in total hardware investment is more than twice as high in the United States as in the euro area. It is as if American companies were overinvesting in ICT hardware, fuelling investment demand from ICT producers.
A divergence that dates back to 2012
This state of affairs does not date from the Biden administration. Since 2012, we have observed that ICT investments per job in the United States have increasingly diverged from those made in the eurozone, reaching a ratio of five to one in 2019. In Europe, investment per job remained at €500 to €700 per year per job from 2010 to 2019, while it grew in the United States to €2,500 per job.
Three dynamics explain this growing gap. First, after the 2009 crisis, the United States bounced back more quickly and returned to its pre-crisis investment level before the Europeans, who were bogged down in the sovereign debt crisis. The cumulative effects of the productivity gains associated with these investments further distanced the Europeans. As a result, labor productivity growth in the United States is stronger than in the eurozone, which means that a unit of value added is generated with fewer hours of work and for the same level of work. More value added virtuously leads to more investment volume. Finally, the United States has a concentration of players in ICT who are very strongly driving this type of investment. Specifically, it is service companies, primarily Gafam, that are driving the growth of these investments.
A policy consistent with the private sector
The demand for computers, microchips, routers, servers and other electronic components, but also indirectly for ICT services, which incorporate these inputs, is very dynamic in the United States due to the growth of Gafam and other tech companies.
Ultimately, the success of the Biden plan is due to its coherence, with a very strong demand from businesses for IT and electronic inputs. Which raises a suspicion of a windfall effect: this demand could have, on its own and with a lower public cost, led to this investment boom.
The lesson for Europe is that the same policy impulses, such as the European Chips Act, will not produce the same effects in the absence of a private sector that drives demand as much. Moreover, the problem of sluggish productivity gains remains.
Source: www.usinenouvelle.com
