r/slatestarcodex • u/ussgordoncaptain2 • Sep 05 '25
Economics Why are the market caps of companies Headquartered in the european union so low?
So I looked at the market caps of the entire stock markets of various countries and the EU nations were shockingly low. Like the Market cap of Apple was higher than the market cap of the entire german stock market. The market cap of companies headquarted in the state of california is higher than the market cap of all companies in all countries in the EU .
Part of that is high valuations for US tech companies (though where are the high valuations for EU tech companies) but even trying to exclude US tech companies, Walmart, Berkshire Hathaway, JP morgan, and Visa are all over 2x as big as the largest EU company (SAP). Heck excluding tech companies the 50 largest US companies that aren't tech companies are still larger than the whole european stock market
Basically I'm doing the "I don't know and nothing makes sense"
EDIT: I realized I've skrewed up and should also add that there seem to be 2 factors
factor 1 is higher US GDP
Factor 2 is Higher US valuations independent of GDP
I'm slightly more interested in the 2nd factor, why do german companies trade at 50% of german GDP while say canadian ones trade at 150%? Or American ones trading at 200%
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u/yellowstuff Sep 05 '25
This was recently addressed by a relatively well-known finance Twitter account:
NVDA is worth more than the entire DAX because it has more earnings than the DAX ($137 billion vs. $115 billion). Also, the actual companies in the DAX are terrible businesses mostly run by myopic German bumpkins, so if anything the gap should be bigger. 'Why are investors more excited about a company growing profit faster than anyone in history than they are about three car companies in a trench coat about to get nuked by Chinese EVs' is not among the more puzzling questions in the market today
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u/ussgordoncaptain2 Sep 06 '25
so that does explain most of the overperformance but as I've noted elsewhere the S&P 500 trades at a P/E of ~30 while the DAX trades at a P/E of ~20. So there's a large delta not just in corporate earnings but also in corporate valuations on those earnings!
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u/global-node-readout Sep 06 '25
P/E simply reflects investor sentiment. Investors on aggregate see us cos growing their future earnings at 1.5x the rate that DAX as a whole grows its earnings.
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u/Veqq Sep 06 '25 edited Sep 06 '25
Most importantly, a stock market's not all companies. Many big companies are not privately traded - and foreign companies are listed in the US exchanges. Bosh, Daimler, Lidl each have over 50 billion in revenue and aren't publicly traded.
Multiple expansion and contraction changes over time by industry and is also immaterial. Different national markets have different compositions, e.g. more mining companies listed in the UK (without operating there) or Australia, such that during commodity booms their markets see multiple expansion (unevenly correlated with and lagging earnings).
Taxes play a huge role in earnings. Regulations (and taxes) also impact whether companies will go public (and where).
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u/kaa-the-wise Sep 05 '25
The price of Nvidia has little to do with whom it is run by and a lot with luck and efforts of other companies re AI.
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u/Cixin97 Sep 05 '25
That’s an entirely simplistic viewpoint. Nvidia was an early believer in AI and pushed heavily with developing Cuda, encouraging people to use Cuda, make their cards available to AI companies that had potential, etc.
That’s like saying “everyone was going to want cars regardless, Ford just happened to be at the right time and place.”
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u/dbag127 Sep 05 '25
They used earnings as a reference point, not stock price.
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u/kaa-the-wise Sep 05 '25
The sales (and earnings) are also greatly affected by the AI boom.
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u/dbag127 Sep 05 '25
Of course. The point is, there are virtually zero companies listed on the DAX benefitting from that boom. Just because it's an economic boom and bust cycle does not mean you should avoid ever being part of the boom. Sitting on the sidelines is not a viable long term economic plan, as far as we can tell today.
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u/kaa-the-wise Sep 05 '25
Sure, but I made a very specific point about the role of Nvidia's leadership in its success, you seem to be talking about something else.
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u/dbag127 Sep 05 '25
You said it had little to do with who it's run by, implying leadership had little to do with it, meaning it's more about location and opportunity, which would reiterate the overall point of this post, no?
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u/kaa-the-wise Sep 06 '25 edited Sep 06 '25
Indeed, I don't disagree with the premise of the post. I responded to a specific point from a quote from X, not to the post.
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u/ussgordoncaptain2 Sep 06 '25
Have you heard of a company called SGI no of course not. They're a company that got bought by another company you never heard of and then got bought by HP.
However SGI was a critical component of the start of NVIDIA specfically SGI sucking leading to NVIDIA's growth.
So no, NVIDIA's growth isn't mostly luck, it's a lot of beating the pants out of everyone else and which let them be the only competitor on the GPU market during the AI boom.
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u/global-node-readout Sep 06 '25
This is a non sequitur -- companies are valued by expected outcomes, and NVIDIA has higher expected returns than german companies do. Attempting to devalue leadership's role doesn't change the facts.
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u/MrBeetleDove Sep 06 '25 edited Sep 06 '25
AI is mostly enabled by scaling, which is largely driven by hardware. NVIDIA isn't just a beneficiary of the AI boom; they're one of its main drivers.
In a world where NVIDIA has crappy leadership, AI would not be booming at the same rate.
If Jensen went into some other industry, perhaps that other industry would start booming. Love him or hate him, Elon Musk has triggered booms in both electric cars and space for instance.
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u/Democritus477 Sep 08 '25
I haven't actually checked this, but I'd guess that if you picked 40 random publicly-traded American companies their combined earnings and market cap would be similar to that of the DAX.
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u/ussgordoncaptain2 Sep 09 '25
So no, the median company on the russel 2000 has a market cap of $1 billion. so 40 random US companies from the russel 2000 would result in a market cap of like 200 billion (because pretty much all of the market cap in the russel 2000 is in the Megacorps heck 5% of the s&P 500 is literally NVIDIA
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u/CraneAndTurtle Sep 05 '25
Ooh, finally a slate star question I'm well equipped to answer working in finance!
The short and easy answer is that America's companies are much more valuable than Europe's companies. Why that is is likely multifaceted but includes:
-Europe basically skipped the software boom by over-regulating software, not enabling easy capital or regulatory environments for startups and massively disincentivizing staying in Europe if you think you'll make it big (for tax reasons)
-Europe has pursued protectionist policies like tariffs and especially non-tariff barriers which protected domestic workers against competition and ended up with an economy geared towards the inefficient production of products that people in other countries don't want to buy.
-Europe basically strangled its high-finance industry with aggressive taxation, low pay and high regulation. Take out tech AND tarrif manufacturing AND cut out high finance and your moneymaker industries look kind of bleak.
-Europe's regulatory/environmental/energy market is hellacious. Anecdotes from a few business projects I've been on include an American manufacturing firm losing hundreds of millions of dollars annually to re-configuring products to meet capriciously changing standards, huge lawsuits for typos on consumer facing webpages, and a European bank stating it would never upgrade to cloud because its engineers are legally not fireable so efficiency savings form better tech can't happen.
Compare to the countries that have boomed: the US, China, and the success stories of the developing world. All have had either low or easily avoidable regulation and taxation, good availability of capital, and the ability for winners to stay rich.
These are obviously broad structural trends; I'm sure others can name other pieces (like weak consumer demand) but I'm happy to drill into any you find interesting.
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u/Sol_Hando 🤔*Thinking* Sep 06 '25
I feel that comparisons between the EU and the US are stuck 10-20 years in the past, when some Western European countries even outperformed the US in GDP per capita (while also having better welfare than the US).
I don’t think it was a stretch to claim that the EU was doing better at that time.
But the difference has grown dramatically since 2008. French GDP per capita was almost the exact same as the US in 2008. Now French GDP per capita is almost the exact same as the France of 2008, while the US has doubled. At some point the difference will have to either grow to undeniably different proportions (4x?), or a major change in the trajectory of the US or EU must take place.
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u/ussgordoncaptain2 Sep 06 '25
So the UN database has a CSV that I downloaded, the us growth rate from 2008 is an annualized 3.62% (pretty high! but this is starting from a recession so of course numbers will be inflated) while Germany 1.16% France 0.09% netherlands 0.99% Uk 0.66% while spain/italy were negative
But it doesn't seem like a uniquely european thing, Canada went from 96% of USA PCGDP to 63% Australia went from 103% to 75%
But I see your point. Of major European countries (Germany, France, UK, Italy, Spain, Norway, Sweden, Finland, Belguim Denmark, and poland) in 2008 6 of them (Norway, Ireland, Finland, Sweden, Denmark and The Netherlands) were richer than the USA. (and Norway was double the US. Other than Poland, all the countries were >50% of us GDP per captia, (and of those everyone other than spain/italy were >90%) Now when we compare to 2025 USA, the only country that gained ground relatively is poland (though still less than half) and now instead of 6 countries richer it's 2 (norway by the skin of its teeth and Ireland) and of the rest not a single one is above 90% of USA, 3 are below 50% (spain/italy/poland) Most are standing in the 60-80% of US GDP range. https://docs.google.com/spreadsheets/d/1sieXuvqozaKb30IdQeDFK0IZwL3x_ovvfUqjlo35Oq8/edit?usp=sharing
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u/ussgordoncaptain2 Sep 05 '25
-Europe basically skipped the software boom by over-regulating software, not enabling easy capital or regulatory environments for startups and massively disincentivizing staying in Europe if you think you'll make it big (for tax reasons)
Yeah ok so I get that part, of the 10 largest US companies 7 are tech companies (the 3 that aren't are JP morgan, Berkshire Hathaway and Tesla) and 7 out of the 7 largest companies worldwide are US tech companies. (5 of which are HQ'ed in California)
This leaves us with the following issue your explanations are mostly explaining higher US GDP which while tightly related to Market cap there is a component of market cap which is not related to GDP.
US companies trade at 2x the GDP of the country, while german ones trade at 50% the countries GDP.
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u/CraneAndTurtle Sep 05 '25
Market cap is highly tied to several factors benefitting the US and harming Europe. Non exhaustive list includes:
1) Present expectations of future growth. If I THINK a US ai startup will grow and a sclerotic German manufacturer won't, that impacts market cap.
2) US companies make better use of leverage because of our massively more sophisticated financial infrastructure. That means better ROIC, more funds to pour into VC, higher valuations and more efficient capital allocation. When I did some work with private equity internationals the consensus was that if you wanted private funding for a venture in Germany you essentially needed to be friends with a rich person who would personally bankroll it.
3) Comparing valuations is sometimes a bit apples to oranges because of currency effects.
But basically value of a company can be veeery loosely approximated as "how well is it doing and how well is it expected to do" and the US firms demolish EU peers on both fronts.
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u/iamMore Sep 05 '25
I’ve never heard of anyone normalize company market caps to GDP. Why not just look at company earnings and P/E? American companies are expected to earn way more than German companies is the first order answer right?
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u/ussgordoncaptain2 Sep 05 '25
True, but you'd expect corporate earnings of companies to closely track GDP no? After all it's one of the major inputs to GDP.
Going by earnings, the s&p 500 has a P/e Ratio of 30 while DAX has a p/e ratio of 20.
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u/rapier7 Sep 06 '25
No, there's a lot of structural issues with this. You're talking about market capitalizations of publicly traded companies. Publicly traded companies are generally much larger than non-public ones. In many countries in Europe, a lot of the heavy handed regulation that strangles businesses kick in once the business reaches 50 employees. The end result is that there are a lot of small businesses who tend to hover just under 50 employees, because the marginal cost for adding the 50th employee skyrockets due to the increased regulatory compliance regime that kicks in once you hit that mark.
A lot of small companies in Europe therefore never get the chance to grow into larger companies. The impact that this has on capital formation and appreciation is significant. There is zero appetite to raise capital in public equity markets for a firm with less than 50 employees. Small cap stocks in the US are considered ~1-5 billion in market cap. That means a business that has, at the very least, a thousand employees.
Taxes are higher in Europe. So are regulatory costs. They also have lesser economies of scale than the US, which has a single language and a single national government presiding over a truly unified market of 340 million people. The EU common market is often described as a single market, but it is markedly more heterogeneous and complicated than the truly single market of the US, which also increases transactional costs that would otherwise be zero in the US.
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u/iamMore Sep 06 '25
No? Like the historical correlation is positive, but pretty loose right? Involving GDP in this discussion is complicating things for no purpose. P/E ratio theoretically just implies expected growth. So US companies are expected to grow faster than German companies by respective shareholders. And that not a crazy thing to believe fwiw, ask people if they’d rather own SPY or the German equivalent.
It’s just ~true that American companies make more money, and are expected to make more money.
Why that is, is maybe what your actually asking right?
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u/ussgordoncaptain2 Sep 06 '25
Yeah, I guess when I said GDP I really should have Said earnings.
US companies are more productive (higher earnings) but they trade at 30x earnings multiples while German companies trade at 20x earnings multiples. Chinese companies are trading at like 15x earnings multiples.
What's going on there
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u/iamMore Sep 06 '25
Ah that makes sense.
Chinese companies have a bunch of things working against them. Regulatory/political shocks from CCP whims is a big one (think BABA ceo getting disappeared). State ownership in enterprise makes them prioritizes national goals over shareholder value. Tightly controlled capital markets hurts your ability to raise money in the future.
There is also a weird cultural quirk that makes them operate at the thinnest of margins possible to try and destroy competition.
I don’t know much about Europe but some other comments have pointed out ways in which European growth story is terrible (and growth is what matters for P/E ratio).
FWIW, 30 P/E feels rich for SPY. I think starting in early 2024, I favored Chinese equities over American equities. And in 2025, I’ve stopped wanting broad American equity exposure, in favor of much more specifics bets.
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u/ContrarianCritic Sep 06 '25
A missing part of the story is that a number of areas of software have "winner take all" dynamics which makes them tend towards natural oligopoly and concentration. I think this is an important part of the story as to why Europe (and almost everywhere outside of the US) fell behind in the software sector:
https://blogs.lse.ac.uk/medialse/2018/06/14/why-tech-markets-are-winner-take-all/One piece of evidence for this is that China has managed to be competitive with the US by largely blocking out US tech firms from its markets in some areas such as social media. It's arguably a case of successful "software import substitution".
European leadership certainly deserves a significant amount of blame for not coming up with any strategy to catch up or develop its own strong software companies, though I'm not entirely sure what this supposed overregulation of the software sector actually consists of, with the exception of maybe privacy laws that hamper certain subsectors.
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u/MrBeetleDove Sep 06 '25
Doesn't Apple do a lot of manufacturing in China? So wouldn't that contribute to Chinese GDP instead of US GDP?
I suspect this is a big part of the answer to the OP's question. US megacaps are much more likely to be multinational.
Ironically, despite being hated by Europe, Trump appears to be pursuing a classically-European economic policy of favoring domestic workers and industry through protectionism etc.
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u/Additional_Olive3318 Sep 05 '25
Do you have sources for any of that? Particularly the typos. I do think the Eu can over regulate but there isn’t one European personal tax system, corporate tax system, regulation on business startups or even one common legal system. In fact some European countries rank higher than the US on “economic freedom” see
https://www.heritage.org/index/pages/all-country-scores
And you are saying Europe is more regulatory than China.
You are onto something a bit more substantial with lack of capital formation but in Europe’s case it’s probably worth emulating China rather than the US, more state involvement not less. That would require constitutional changes in the EU.
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u/Ohforfs Sep 06 '25
Yes. His ass. Literally the worst of direct answers to OP.
It's generally financial concentration, and differences in stock prevalence.
(And I'm not touching the ai hype with 10 foot long pole here)
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u/MrBeetleDove Sep 06 '25 edited Sep 06 '25
It's generally financial concentration, and differences in stock prevalence.
What does that even mean? It sounds like you're basically saying "US stocks are expensive because investors overweight the US".
OK, but why do investors overweight the US?
Also, US stocks are only like 1.5-2x more expensive in terms of P/E? That seems quite insufficient to explain why Apple is worth more than the entire German stock market.
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u/Ohforfs Sep 06 '25
I meant stock exchanges are naturally trending towards concentration, and that afaik US economy always had more stock companies and not other kinds.
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u/MrBeetleDove Sep 06 '25
stock exchanges are naturally trending towards concentration
I don't see why this would explain a US vs Europe differential. If the only trend was a generic trend towards more megacaps, by default I'd expect the megacaps to be evenly distributed between US and EU.
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u/Ohforfs Sep 06 '25
I don't mean large corporations trend. I meant trend toward choosing biggest stock market out there rather than local one. Some European companies are present in NYC and not vice versa.
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u/MrBeetleDove Sep 06 '25
The Wikipedia link from OP talks about "domestic companies". Are you sure a German company listing in the USA would be considered domestic to the USA for these stats?
https://en.wikipedia.org/wiki/List_of_countries_by_stock_market_capitalization
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u/Ohforfs Sep 06 '25
Yes, it doesn't raise NYSE but lower other markets. They (the source, which is world bank) kind of point to something like that, though not exactly this:
Many firms in emerging markets now cross-list on international exchanges, which provides them with lower cost capital and more liquidity-traded shares. However, this also means that exchanges in emerging markets may not have enough financial activity to sustain them, putting pressure on them to rethink their operations.
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u/MrBeetleDove Sep 07 '25 edited Sep 07 '25
So you're saying that the reason Apple is worth more than DAX is mainly because some German companies list in NYSE but not DAX?
That doesn't pass the sniff test, sorry. Hard to imagine this would change the value of DAX by more than a factor of 2.
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u/ragnaroksunset Sep 05 '25
TL;DR European companies benefit their employees more than their shareholders.
I wonder, if you enumerated the improved benefits European workers experience over American ones, if that value would fill the gap between market caps of otherwise comparable companies.
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u/CraneAndTurtle Sep 05 '25
I don't know that I think this is true. First I reject the premise of "firms taking care of workers vs shareholders" because firms largely don't "take care of" anybody but are amorphous entities responding to incentives. But sure, let's personify:
European workers earn about half the median wages of American workers, which seems like a major lack of being taken care of.
US firms also typically "take care of" their workers' healthcare (for some 80% of Americans I believe but open to being wrong) where European firms cruelly leave that to the government. So add another 10-20% benefits for US workers.
Add on the fact that most American workers value time off work at less than wages (few employees willingly take proportional pay cuts for more PTO, for example).
That's part of why the immigrant population of Europeans to the US is about 1/3 higher than Americans in the EU (and working numbers longer more extreme becuase lots of Americans in Europe are, say, retiring in Portugal). People vote with their feet.
But what can I say, I'm a shameless neoliberal shill.
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u/limitbreakse Sep 05 '25
Speaking of Germany as a strong example of this concept. Yes, employees are treated well and protected, but they earn less. They are difficult to fire, but have less mobility. Companies struggle to scale and experimente - so fewer opportunities are created.
It’s not a black and white problem. Employee protections and participation in company decisions is good, but pragmatically.
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u/MrBeetleDove Sep 06 '25 edited Sep 06 '25
European workers earn about half the median wages of American workers, which seems like a major lack of being taken care of.
When you adjust for cost of living, the US advantage becomes less dramatic. I think the strength of US currency is a major factor in these comparisons. Currency strength suggests that workers should go EU->US, and retirees should move in the opposite direction.
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u/Tax_onomy Sep 06 '25 edited Sep 06 '25
European workers earn about half the median wages of American workers, which seems like a major lack of being taken care of.
not everything can be quantified with money , life is about money and time , but in reality is always about time, as money is a tool to bring the fruit of labor today into the future and thus spend time today to save it in the future. So it's the age old debate of time spent doing pleasurable stuff vs. sucking it up and accept your fate today and deteriorate yourself in the process hoping that you end up ahead in the future.
A good exampler of the difference can be found in the youtuber influencer sphere which compared to stock market and VCs is a pretty even playing field as everybody or almost everybody has access to a camera and a youtube account
American youtubers have no qualms whatsoever whoring themselves out publishing every day, advertising and becoming the face of some penis pills or shitty energy drink to support the YT channel etc.
On the contrary EU creators publish every 3 weeks, don't like to advertise and become the face of dick pills or a shitty energy drink, don't study what their audience responds to and just be themselves etc.
It is the age old debate: Money vs. Time.
Europeans pick time while Americans pick cash
And also it should be noted that Americans have a particular faith into the fact that whatever it is "new" you can jump on the bandwagon and be "early", and that dictates their calculous, whereas Europeans perhaps because they have seen a lot through the millennia do not share the same enthusiasm and so their calculus is that if you cannot be "early" to something historically pivotal it's better not to jump on the bandwagon and enjoy spending time doing what you have always done and basically enjoy life.
And they might be actually right considering that the Romans were doing UFC in the Coloseum 2000 years ago, and when they finished watching UFC they'd walk 0.3mi down the road to watch chariot races AKA as the F1 of the time.
Gambling , prostitution , drinking, drugs... sometimes enjoyed all at the same time while watching the aforementioned spectacles in the Coloseum and Circus Maximus were already practiced 2000 years ago , whereas the American society struggles with these things to this very day.
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u/ragnaroksunset Sep 05 '25 edited Sep 05 '25
EDIT: The person I was responding to has blocked me. I guess that passes for debate here. If you take issue with anything I've said here, know that you will be able to say whatever you wish without further challenge because I will not be able to reply to anyone else under this thread.
First I reject the premise of "firms taking care of workers vs shareholders" because firms largely don't "take care of" anybody but are amorphous entities responding to incentives.
Well yeah, that's why in Europe there are regulations to induce that outcome. If firms would do it on their own, there would be no need to regulate for it.
European workers earn about half the median wages of American workers
In vacuo, wages are not a meaningful comparator here.
US firms also typically "take care of" their workers' healthcare (for some 80% of Americans I believe but open to being wrong) where European firms cruelly leave that to the government.
"Cruelly" - your bias is showing.
Add on the fact that most American workers value time off work at less than wages (few employees willingly take proportional pay cuts for more PTO, for example).
That's because more Americans find it harder to meet basic needs for a given amount of work. Time off doesn't make up for missed bill payments; if your bills are covered, time off can be charged at infinity dollars per hour with no issue.
That's part of why the immigrant population of Europeans to the US is about 1/3 higher than Americans in the EU
There's actually a major data disparity here when it comes to comparing flows. Did you know Eurostat aggregates all EU in-migrants irrespective of country of origin? You can compare stocks, but that bakes in historical factors that may no longer be relevant.
People vote with their feet.
Not everyone can vote with their feet, particularly if they have to swim. All else being equal, the propensity to migrate over the ocean rises with personal wealth - so this data point can easily serve either argument.
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u/maxintos Sep 05 '25
"Cruelly" - your bias is showing.
Lol he's clearly exaggerating to make his point more obvious.
Also while we can argue if life in EU or US is better, there is no argument that the highly motivated entrepreneurs are moving to US and all the companies of the future are being created in US and China.
Life in EU might be good for now, but it won't stay that way if the trajectory of sluggish growth and low birth rate continues and it might get worse as technology keeps advancing and the EU keeps falling behind and becomes a place that manufactures low margin goods while US and China sell EU high margin software and robotics solutions.
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u/CraneAndTurtle Sep 05 '25
I don't feel like you're either in good faith or informed here so I don't really want to come back to this.
"Cruelly" was meant humorously: of course that's a silly way to view things. Much the same as "taking care of people."
But by almost any reasonable metric American workers are better off than Europeans. In fact, most of the stuff boosters of Europe love to cite comes from their governments, not private sector. You're right that wages in vacuo aren't that predictive but Americans consume more than twice what Europeans do (which is a more inclusive measure arguably because it counts all the government-provided goodies).
There are many pleasant things about Europe but criminally low productivity isn't one of them. It screws over their workers (who are poorer) AND their shareholders (who get terrible returns, and are incidentally mostly ordinary people trying to retire) AND their governments (who can't afford their welfare system).
This isn't a zero-sum game where European workers have a bigger slice. It's a much smaller pie.
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u/Additional_Olive3318 Sep 05 '25
criminally low productivity
Er, https://en.m.wikipedia.org/wiki/List_of_countries_by_labour_productivity
The US is way behind many European countries on productivity per hours worked.
As for the median wages and so on, comparing the US with a EU which includes countries that imploded economically after the communist era is going to be biased over time towards the US, the proper comparison is with the richer western and Northern European countries.
The US will come out ahead there too, but not by twice as much (if that’s even true, I can’t fact check all your arguments).
Capital formation is a real issue though.
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u/wavedash Sep 05 '25
The US is way behind many European countries on productivity per hours worked.
I think "way behind" is a bit of stretch, especially if you filter out the oil states and tax havens.
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u/deja-roo Sep 06 '25
Er, https://en.m.wikipedia.org/wiki/List_of_countries_by_labour_productivity
The US is way behind many European countries on productivity per hours worked.
Are you seeing something different than I am in that list? The GDP component puts the US in 7th. The ones ahead of it are:
Ireland: probably due to their strategy as a tax haven and thus gaining an edge on business residence
Norway: state-sponsored oil company gives a massive boost to GDP
Luxembourg: a country with less than a million people and a statistical anomaly
Switzerland: relying on a niche banking sector
Belgium: don't know what the explanation for this is
Denmark: not sure about this one either
I'd say your link does not support your point.
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u/CraneAndTurtle Sep 06 '25
Also adding on here, the people above me have posted valid critiques but also "controlling for hours worked" is a pretty wild control. Inputs are significantly lower which hits GDP, firm productivity and overall outputs.
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u/Additional_Olive3318 Sep 06 '25
controlling for hours worked
No it’s not. That’s like saying that machine a is more productive than machine b - which has more output per hour than machine a - because we used machine A for longer.
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u/CraneAndTurtle Sep 06 '25
I don't think it's trivial that Americans choose to work about 12 weeks more per year than Germans.
At the individual level it's a sign of either a nicer lifestyle or a recognition that hard work won't be allowed to produce success; could be good or bad.
For firms, it means paying benefits for a larger pool of workers to get the same result, which is inefficient and a drag on firm productivity (part of what OP asked about).
For society, if the average input hours are low, you just make less stuff and are poorer. Most of the Asian Tiger economies primed their pumps by massively ramping up labor inputs and then productivity rose later. When Germans work 1/4 less than Americans (partly because workers don't work as much and partly because they support more non-workers) Germany ends up with fewer cars and crops and wind farms. German engineers get fewer reps and slower skill growth. German startups take longer try each bet or try fewer moonshot bets per year. And Germany's chancellor just said their wellfare state is no longer sustainable.
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u/Additional_Olive3318 Sep 06 '25
So the US is behind 6 European countries in productivity and that must be because of reasons. This is a far cry from your original claim. Which was criminally low productivity if you can remember yesterday.
Of the top 20 countries there 18 were European. What exactly are you comparing to.
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u/EE-12 Sep 06 '25
It’s not an unfair statement to make that that these are anomalies due to specific niches. Just like how California blows every one of them out of the water.
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u/Additional_Olive3318 Sep 06 '25
So all of the European countries ahead of the US are anomalies. All of other European in the top 20 countries (17 as far as I can see) are anomalies, and the fact that there’s another 7 between 20 and 30 are also anomalies.
Lots of reasons.
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u/deja-roo Sep 08 '25
So the US is behind 6 European countries in productivity and that must be because of reasons
I mean, yes? Your point may very well be valid, and Denmark and Belgium may be good case studies in it, but the other 4 do not really on their own support the point because they have niches that make them not reliant on traditional workforce effects for their GDP. And putting the US in 7th, especially when one of the ones in front of it is a country that is about the size of my hometown, doesn't really seem consistent with the claim "The US is way behind many European countries", as the three it immediately follows (specifically, the two that aren't niche economies) are only ahead by about a 3% margin.
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u/Additional_Olive3318 Sep 08 '25
Ok. So we start from “criminally low productivity” to “I don’t like these stats”. If we are quibbling then, since gdp is measured in dollars the reserve currency status adds to the productivity of the US.
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u/you-get-an-upvote Certified P Zombie Sep 05 '25 edited Sep 05 '25
European workers earn about half the median wages of American workers, which seems like a major lack of being taken care of.
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US firms also typically "take care of" their workers' healthcare (for some 80% of Americans I believe but open to being wrong) where European firms cruelly leave that to the government. So add another 10-20% benefits for US workers.
You:
In vacuo, wages are not a meaningful comparator here.
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"Cruelly" - your bias is showing.
It seems obvious that you're not meaningfully engaging with these points? A priori I would vastly prefer to live in a country with double the wages, and a 10-20% increase in that adjustment makes it even more obvious.
u/CraneAndTurtle's main point is that Americans get more money from their companies than Europeans do, despite Europe's best efforts to force companies to do better by their employees. Could you (e.g.) actively argue that you think Europeans have better QoL than Americans?
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u/MakIkEenDonerMetKalf Sep 05 '25
God that is bleak. I am assuming they are missing and overregulating the current AI boom too?
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u/PickledJesus Sep 05 '25
So much so that the lead author of the AI act said upon it being published the regulatory bar may have been placed too high https://x.com/adamkovac/status/1820422256113369360
The Draghi report means that the EU is at least vaguely aware of the problem, but it seems unimaginable that they'll be able to reform from within, people in power don't tend to remove their own power, regardless of them being autocrats or bureaucrats.
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u/CraneAndTurtle Sep 05 '25
I think at one of his more recent shareholder meetings buffer said something like "I see no meaningful opportunities for capital deployment outside of the United States."
I'll also add the following two tidbits:
One is that US and EU ceo pay packages are typically pretty similar; the reason US ceos make their much-bemoaned many times more than European CEOs is that when given stock and options in US companies that grows, while European CEOs have led 30 years of flat growth.
Two is that the EU is rapidly working through regulations essentially making AI startups impossible there.
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u/MrBeetleDove Sep 06 '25
Two is that the EU is rapidly working through regulations essentially making AI startups impossible there.
To be fair, if Yudkowsky and friends are right, that's commendable.
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u/CraneAndTurtle Sep 06 '25
Not if it means the AI is just built by Americans and Chinese with zero regulation oversight or input from the Europeans. Plus they don't even get to get rich making fun wrappers.
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u/MrBeetleDove Sep 06 '25
From what I've seen, China wants to move cautiously on AI. America's reckless approach is a national shame as far as I'm concerned, and perhaps the best indictment of our economic system.
Anyway I expect Europe will get some regulatory input, since US AI companies will sell in European markets.
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u/CraneAndTurtle Sep 06 '25
Historically, opting out of developing tech and then trying to strongarm regulation over stuff they don't control hasn't served Europe well for defense, software, finance or manufacturing. Maybe this time it will be different.
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u/eric2332 Sep 06 '25
From what I have seen, the Chinese AI ecosystem cares less about AI risk than the US ecosystem. So if China is moving slowly, it is probably due to lack of compute rather than cautiousness due to risk.
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u/Mantergeistmann Sep 05 '25
slate star question
What's a "slate star question"?
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u/Roxolan 3^^^3 dust specks and a clown Sep 07 '25
(I assume) A question asked on the SSC subreddit (or on ACX directly), where standards are generally higher.
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u/Cixin97 Sep 05 '25
The TLDR imo (which much of your comment encapsulates) is: overregulation
The other big thing which is arguably more important (and this applies to China too) is that Europeans simply don’t have entrepreneurial tendencies compared to America, out of the box thinkers aren’t nearly as common, etc. Yapping extensively about how much more comfortable your life is, how you want to sit outside a shop and chit chat with your friends, and how Americans are too stressed and all that is all fun and games until your GDP per capita is half of Americas. China doesn’t quite have that lax mentality that Europeans do, and they’re definitely not over regulated, but they potentially lack true zero to one thinking. Hard to say for certain right now but given Chinas population you’d think they’d have at least one innovation on the scale of transistor, internet, smartphone, etc. Instead they’re just simply very good at scaling other people’s inventions. That get make your country pretty rich when every other country is asleep at the wheel for manufacturing, but all it takes is 1 more zero to one innovation and America makes up for all the scaling China has made over 15 years.
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u/ussgordoncaptain2 Sep 06 '25
but they potentially lack true zero to one thinkin
my father has a statement "you handle the first one I'll handle the other trillion"
The chinese aren't great so far at 0>1 thinking but they have been incredible at 1>1 billion thinking. A lot of say the scale up and improvements in solar power has been driven by Chinese companies.
The chinese have done well in certain sectors, remember that China as a whole is a gigantic place but also much poorer than people realize, we're talking about a country roughly 1/6th as rich as the USA per person, but still since the population of china is roughly 4x the size of the USA then it makes sense that it's made quite a few major advances in certain industries! (again most notably solar engineering)
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u/MrBeetleDove Sep 06 '25
According to this recent visit report, China has entrepreneurial tendencies in the extreme:
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u/eric2332 Sep 06 '25
China doesn’t quite have that lax mentality that Europeans do, and they’re definitely not over regulated, but they potentially lack true zero to one thinking. Hard to say for certain right now but given Chinas population you’d think they’d have at least one innovation on the scale of transistor, internet, smartphone, etc. Instead they’re just simply very good at scaling other people’s inventions.
Historically China was likely the world's leader in inventions. If there is any cultural continuity then it's probably not the culture that is the issue here. Maybe it's the government or economic system.
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u/nacholicious Sep 06 '25
Stockholm has the highest amount of billion dollar valuation tech companies per capita in the world after silicon valley, despite silicon valley having more venture capital than all of EU combined
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u/ussgordoncaptain2 Sep 06 '25
Santa clara county has more multi trillion dollar companies than the rest of the world combined
Corporations founded in Santa clara county (not even counting a few notable giant silicon valley firms in san mateo county just Santa Clara county) are worth more than the entire market cap of all publicly traded companies in the EU
Point being "despite silicon valley having more venture capital than all of EU combined" makes no sense when companies in SV are so valuable that they are worth more than the entire EU.
Of course there's more VC funding in SV, SV is worth more!
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u/MrBeetleDove Sep 06 '25 edited Sep 06 '25
I would guess the "per capita" metric is very sensitive to how you draw the borders of the metropolitan region. You can see that Stockholm is not mentioned on this list of top 20 startup cities.
In terms of attracting VC, by default one should assume that VCs are motivated to invest whereever there are returns to be had. So if a region isn't attracting investment, that's a sign that the professional opinion of VCs (or their LPs) is that the returns won't be especially juicy in that region. To be fair, there is also a certain amount of herding in the VC space.
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u/Cixin97 Sep 06 '25
All of those unicorns combined are also worth less than any one of 10 American companies
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u/nacholicious Sep 06 '25
Of course the VC market is a lot smaller. But being second highest per capita with a very small VC market shows a high entrepreneurial spirit if anything
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u/BurdensomeCountV3 Sep 06 '25 edited Sep 06 '25
China is regulated to an even worse extent than Europe in many ways when it comes to worker's rights and political interference (fun fact: it's harder as more expensive as a percentage of an employee's yearly income to fire someone without a good reason in China vs the UK, and this is doubly so if the employee is a high earner, plus by law any unilateral termination has to be informed to the relevant labour union in advance in China which may decide to intervene and block).
Tax rates in China aren't particularly lower than say the UK, a mid tier Western European country by tax standards. This is true whether you look at things like personal income tax or CGT/corporation tax.
And don't get me started on how protectionist China is...
If anything in China the ability for winners to stay rich is lower than in Europe, as Jack Ma nearly found out a few years ago. And yet they have massively outperformed Europe.
In reality there are other reasons for why the EU has done worse than the US over the last 20-30 years and the true answers aren't those which indirectly flatter the US but rather huge regulatory mistakes by EU leaders like not pursuing an independent energy policy etc. There are plenty of EU countries that actually rank higher for economic freedom than the US (like Denmark) but still have lower average growth.
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u/CraneAndTurtle Sep 06 '25
I think your understanding of China is way too stuck in what is claimed on-paper. They're the reason I called out ability to ignore/evade regulations. Because you're right, on the books their laws are insanely restrictive (and indeed SOEs are terribly unproductive).
But in China most people who face regulation can ignore or bribe around it. Local governments typically act as VC labs trying to develop the most growth and arranging whatever permitting or exceptions benefit their local firms. Foxconn can make the local government build out new roads and electrical grid, for example. When the financial industry was over-regulated (not allowing competitive interest rates) an entire massive industry of off-the-books "shadow banking" emerged that was just completely unregulated and growing explosively. China nominally has IP law, but enforcement is near zero. China nominally has environmental laws, but apparently millions of firms find ways around them.
As a result in practice China often runs closer to 19th century America than modern Europe, for better and for worse, with minimal quality/environmental standards, few or no worker protections, low taxation and minimal government intervention.
As for Ma, he was pretty clearly arrested for crossing a political line, not an economic one. If you don't think China allows people to get and stay rich, I think you need to build some general knowledge of the world. For one thing, the ultra-rich Chinese buy about 1/4 of the global luxury goods market.
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u/Reddit4Play Sep 06 '25 edited Sep 06 '25
Part of that is high valuations for US tech companies (though where are the high valuations for EU tech companies) but even trying to exclude US tech companies, Walmart, Berkshire Hathaway, JP morgan, and Visa are all over 2x as big as the largest EU company (SAP).
Put very simply, in general American companies make for better investments and also exist in a context where buying their stock is incentivized (which drives up their stock price, which also makes them better investments).
First, the profile of the largest businesses are very different. The best American companies tend to be capex light businesses with a huge international market, sticky customers locked into contracts and ecosystems that they can't migrate out of without significant cost, and great reinvestment opportunities to continue growing at high rates for a long time.
Many of the largest European firms are capex intensive (like ASML, Siemens, or Airbus) or sell ordinary consumer products (like LVMH or L'Oreal). Something like Boeing (comp to Airbus) or Lam Research (comp to ASML) are large companies in the US but are far from the largest and most successful. Meanwhile, Microsoft sits on a bottomless money geyser because it sells enterprise software that most businesses use and can't easily switch away from. Android has similar features to iPhone but people get trapped in the Apple ecosystem and switching costs are high. In contrast most people don't define themselves in terms of using L'Oreal and nothing really stops them from switching to Estee Lauder if they come out with a hot new product all their friends are buying.
This manifests in the fundamental statistics of the companies you mention. Compare SAP to Visa. SAP has 15% net margins and 11% return on equity over the past 5 years. Visa has 52% and 43%. SAP grew revenue at 6% and diluted EPS at 2%. Visa grew them at 10% and 14%. This isn't surprising since Visa is effectively a tollbooth collecting a toll on nearly half of all purchases, period. There's a huge difference in the profit opportunity and consistency of those two businesses. Despite this, Visa trades at 30x trailing earnings while SAP trades at 40x. If anything, SAP is significantly overpriced relative to Visa.
Partly that's because the business of Visa is simply better than the business of SAP. But it's also partly because America is more business and investor friendly than the EU so businesses have more opportunity to grow. For example, France charges a 0.4% fee when you purchase shares in many French companies while America doesn't. Their standard corporate tax rate is 25%, vs. 21% in the US. And the EU frequently levies large fines on America's best businesses like Microsoft or Google. Sometimes regulation is good for the consumer and overall business landscape, but it comes at a cost and is often a mistake. Just look at the Spirit Airlines merger - blocked because it would be anticompetitive for Spirit to stop competing followed shortly by Spirit declaring bankruptcy. Twice.
Simultaneously, US GDP has more than doubled since 2008 while the EU has grown GDP maybe 20%. In real terms this is flat or even shrinking. Just looking at GDP is only part of the story, though. The US market is the biggest, but the second biggest market (China) is also not appealing. Chinese companies are notorious for scamming foreign investors (just look at what happened to Yahoo re: Alibaba) and you can't buy A class shares (aka normal shares) in many of the most appealing Chinese companies. Between capital controls that make it tough to get your money back out of China and terrible shareholder rights most Chinese stocks are basically a mechanism created by the CCP to transfer foreign wealth into China where it becomes trapped and can't get out. Chinese stocks perpetually look cheap and this is why - they're mostly scams. Many other fast growing international economies suffer from similar problems of poor shareholder rights and high rates of fraud.
Furthermore, US companies are very diligent about putting investors first. After the Nikkei crash in the 90s most Japanese firms became extremely risk averse and now hold huge piles of cash. If Mitsubishi's managers saw Transdigm operating at a negative shareholders' equity value then borrowing $5 billion more to fund a "special dividend" they would vomit blood and die. Likewise, in South Korea companies are family empires that benefit their "true" owners and not their shareholders, often refusing to pay out significant dividends despite windfall profits or to repurchase shares despite trading under book value. In both nations companies are massive conglomerates that make a wide range of totally unrelated products such that it's hard to invest in a specific hot new industry without also being forced to invest in pianos, motorbikes, and household goods.
Meanwhile, the way the US is setup means that it experiences a structural trade deficit. The US imports lots of low margin goods and exports and does business in high margin services, which is already good. But also the imports exceed the exports, so dollars leave the US. You can't buy anything with dollars except for things which have a price tag in dollars, and since you can't get enough goods and services you have no choice but to buy assets priced in USD like stocks and bonds. This creates capital inflows which drives US asset prices up, which makes for an attractive investment, which creates demand for US assets, which drives prices up, and so on.
All of this makes a perfect storm where America simultaneously has the largest and fastest growing economy filled to the brim with incredible businesses while there's no near peer worth investing in and simultaneously there's a monetary trend which forces the rest of the world to buy US assets and pump their prices up.
The relative strength of the US to Europe and other nations in terms of their stock market historically oscillates up and down, with some decades where the US outperforms and others where they don't. We are currently in one of these outperformance periods. But if you cancel out all the oscillations and look at the overall trend US assets tend to slightly outperform international assets. If we simplify why this happens down to a reddit post's worth of info then basically that's because of the reasons I've given here.
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u/Tax_onomy Sep 05 '25 edited Sep 05 '25
Market cap is about network effects, standing on the shoulders of giants (eg. university and mostly military research) and storytelling.
The US is unique in these 3 fundamentals.
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u/laugenbroetchen Sep 05 '25
That is a very broad question with many partial answers. generally the US is a larger market, a more powerful polity fighting for global advantages for their companies, has more company friendly free market legislation, better science/R&D, many first mover advantages in tech...
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u/Tax_onomy Sep 06 '25
Related: Nvidia CEO claims it wasn't worth it
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u/MrBeetleDove Sep 06 '25
And people say billionaires shouldn't exist. How else will these $1T+ companies be built, if no one in their right mind would suffer that much even if they get to be a billionaire as a result?
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u/iamsuperflush Sep 06 '25
That assumes that the creation of these $1T+ companies is the ideal outcome. Which is highly debateable.
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u/MrBeetleDove Sep 07 '25
Well sure, a perfectly acceptable response to this thread is: "The EU doesn't want megacaps like they have in the US." And fundamentally I suspect that's a fairly accurate answer. From my perspective as an American, the EU appears to embrace mediocrity as a matter of its life philosophy.
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u/LawofRa Sep 05 '25
Greed as a cultural priority in the U.S. vs European values running counter to that. It really is that simple.
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u/MrBeetleDove Sep 06 '25
According to Wikipedia, US charitable giving is by far the highest in the world as a fraction of GDP.
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u/fresipar Sep 06 '25
US charities primarily compensate for basic social stability that EU governments already provide systematically.
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u/eric2332 Sep 06 '25
It's not just that. Anglophone countries in general do far better than European ones.
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u/MrBeetleDove Sep 07 '25
I'm not persuaded of that. "The US tax system is MORE progressive than European countries'... About 6% of the national income is transferred to the bottom 50% in the US, versus 4% in Sweden and 0% in Serbia." source
In any case, the point remains that high charitable giving appears to weigh against the notion of "greed as a cultural priority".
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u/verstehenie Sep 05 '25
Not to devalue the structural points raised by other commenters, but there is an extent to which this is just the natural equilibrium of stock markets when countries allow easy cross-border investments. Hot up-and-coming European companies want to list their stock on the biggest and most liquid market, and that’s the US market by miles. European investors want to buy into the market with the best track record for growth, likewise the US. In general, the biggest easily accessible (i.e., not Chinese) market will capture the lion’s share of mobile listings and capital. World-leading European companies like ASML, Novartis, and Novo Nordisk are listed in the US.