US vs UK-EU economy: How US economy grows much bigger and faster than UK-EU economy

Currently, US economy growth pace is much higher than other developed countries such as UK-EU and Japan.

Specifically, we focus on the economy growth in the last 10-year since 2015 until 2024.

In this post, we will briefly discuss and throw foods for thought for readers about the reasons behind the steep growth of US economy leaving behind other old developed countries, such as UK-EU and Japan.

According to the theory of Prof. Christensen, only disruptive products or services can create significant growths of a nation or company.

We will discuss and compare the economic growth of developed countries, especially US and UK+EU, from this “disruptive” perspective and try to look at more details about what products or services that are disruptive, their characteristics and their impacts to the economy.

We will discuss this topic in two sections.

The first section we compared the US economy growth and size with respect to UK-EU as well as Japan.

The second section we will analyse and discuss what the US has been doing to get their economic growth.

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A look at year-on-year GDP growth of developed nations

For this discussion, we will specifically compare US to UK-EU and also briefly consider Japan. Of course, there are others developed countries such as China, Taiwan, and South Korea. Here, we narrow down our focus on the US, UK-EU and briefly Japan as these countries are the “old” developed countries.

Currently, US is the biggest economy in the world. The US’s gross domestic product (GDP) per 2024 is around US$29T [1]. By contrast the GDP of UK, EU and Japan in 2024 are US$3.5T [2], US$19T [3] and US$4T[4] respectively.

From these GDP data, US GDP is higher than the summation of all the GDP of UK, EU and Japan. This data shows how big the US single economy is.

For figure 1 above, we can see the US GDP per capita growth during the last 10-year from 2015 to 2024 (including the COVID-19) period is 54%. This is an immense GDP per capita growth for a single country.

From figure 1, US GDP growth per capita seems to be steadily high since even the year 1960 to the year 2024. This growth pace shows a steady high economy growth in the US.

Meanwhile, if we look at the UK GDP per capita growth in figure 2 below, the UK GDP per capita only grows around 4.2% from year 2015 to year 2024.

This 4.2% growth during the period of 10 years is small for one of the most developed countries in the world.

From figure 2, the UK GDP miracle growth happened between the year 1940-1970 and the year 1980 to 2008 (before the world financial crisis in 2008-2010). After this period, the UK economy looks to be stagnant.

More contrast, figure 3a below shows the Japan’s GDP per capita growth since the year 1960 to the year 2024. During the last 10 years (since 2015 to 2024), the Japan’s GDP per capita is worse than stagnant. The Japan’s GDP per capita even slightly decreases since the last 10-year period (2015-2024).

This situation is unthinkable considering how Japan is well-known for the countries’ technology intensive economy and has been giving birth to many household products used around the world.

The Japan miracle growth happened during the period of before 1995 (figure 3a).

Figure 3b below shows a contrast comparison of Japan GDP growth between two periods: period between 1960-1990 (before 1990) and period between 1990-2020 (after 1990).

In these two comparisons, there is a significant contraction in Japan GDP going down from 6% average growth before 1990 period to only 1% average growth after 1990. This fact is a huge reduction in the economy of the country.

From these growth comparisons between US GDP and UK, EU and Japan, we can observe that the US economy growth is the steadiest since 1960 until now in year 2024.

Furthermore, regarding the economic recovery speed after the last COVID-19 event starting in March 2020, the US economy flies above EU and even more above UK economy.

Figure 4 below presents the comparison of the economy recovery (growth) after the COVID-19 among US, EU and UK. From this figure, UK economy is basically just the same as before COVID-19 pandemic during the course of three years.

Meanwhile, US economy can recover to the same level as before the COVID-19 in just one year and within three years, the US economy is already growth for about 5%. This data shows how fast the speed of economic recovery and growth of the US is.

Maybe comparing US and UK in term of economy may be difficult to digest. Next, we will compare US and UK economy in term of more direct and intangible metrics that everyone can relate to.

The comparison is the market capitalisation value between US and UK.

Market capitalisation between US and UK companies

In this comparison, we will pick the biggest share index in the US, that is S&P500 and in the UK, that is FTSE100.

S&P500 lists the biggest 500 US companies and FTSE100 lists the biggest 100 UK companies. Both indexes are measure by market capitalisation from all the companies within the index.

Figure 5 and 6 below show the growth of the market capitalisation of S&P500 and FTSE100 respectively. Note that we cannot compare directly the value in $Y$-axis as they both use different index calculations.

Let’s us focus on the index growth after COVID-19 pandemic (after March 2020).

The S&P500 growth after March 2020 is astonishingly fast. It only takes eight months to recover from the COVID-19 and after that, the US companies just growth from there.

Meanwhile, from figure 6, the UK companies seem stagnant after the pandemic. UK companies took around three years to get back to the state before COVID-19 period and after that grow very slow.

There is something that holding UK backs, of course there are many factors, from politics to wars and economic policy. In the next section, we will discuss the problem from one aspect.

Figure 7 shows the direct comparison of the size of S&P500 and FTSE100 in term of portfolio size.

From this figure, we can see that the US company growths start to take over UK since 2016. After 2016, the growth of US companies is faster and bigger than UK companies. The gap is even larger and larger every year after the year of 2016.

Finally, as have been briefly discussed before, the S&P500 can recover rapidly from a recession due to the COVID-19.

From figure 8, we can observe a comparison of the market recovery between S&P500 and FTSE100 after the pandemic.

From this comparison, S&P500 only need seven months to recover to the previous state before COVID and just skyrocket from there. Meanwhile, UK FTSE100 needs up to three years to recover, let alone to grow.

After the recovery, FTSE100 can only grow slowly and not as expected for a country like UK.

It is interesting to see the huge difference between US and UK economy behaviours. Specifically, we want to look at more detail of why US economy can recover and grow very fast.

In the next section, we will look at the problem from one particular factor. Although this factor cannot explain 100% why US economy can grow significantly faster than UK-EU, at least, we may learn something from this factor.

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Why US economy can grow steeply

Of course, there are many factors why US economy can grow so fast and large. But particularly, we will discuss from one factor, that is the ability to produce products and services that can be absorbed by mass-market consumers.

At the end f the day, the growth of the economy of a country is driven by how much the country can produce products and services that are purchased by customers both locally and globally.

That is, how many things we can sell and get profit from the sales.

Prof. Christensen’s theory says that significant economic growths can only be achieved by disruptive products and/or services. These types of products and/or services are the results of disruptive innovation.

Disruptive products or services are those that are simple and easy to use, have affordable price, meet minimum customer requirements and target high-mass market instead of very advance (niche) users [11].

These disruptive products/services will be purchased by mass customers and then bring massive profits to the companies that produce those products/services and hence the nation where the companies belong to.

Figure 9 below shows the pyramid of type of consumer markets. In this figure, there are three types of consumer markets: premium (high-level) market, medium level market and mass (low-level) market [11].

The premium market is a niche market that demands a premium or luxury products. Although this market is profitable, in total, the number of customers is limited.

Contrast to mass (low-level) market, the number of customers is astronomically large. Hence, if this mass market accepts a product or service, the manufacturer or provider will gain an immense profit.

In case of US, in the last five years, there are companies that fill the mass market, that are Apple, Microsoft, Google, Meta, NVidia, Amazon and Tesla.

These seven companies produce products and services that are relatively affordable (in their respective field), easy to use and access by anyone and deliver what customers need.

Their products, such as mobile phones, computing devices, delivery services, electric cars, artificial intelligence (AI) services, high performance computing chip, operating system, cloud services and others can be found in almost every human hand, houses and offices, anywhere in the world.

That is, their products enter very-dense high-mass market! Imagine, there are billions of people in the world and their products are purchased by almost anyone in the world.

In addition, technologies and services that support those disruptive products are also becoming disruptive.

For example, the trend of AI (developed by Google, OpenAI, Amazon, Meta, Microsoft and others) pushes the demand of high-performance computing chips, such as from NVidia. Since NVidia is only a chip designer, hence companies that receive order from NVidia to manufacture chips will also get high profit, for example TSMC.

In addition, logistic companies that distribute the disruptive products around the world will also get high profits.

If we look at Japan, after the World War II until 1990, Japan encountered an economic miracle with signs of rapid and sustained economic growth [12]. At this time, the Japan average GDP growth was approximately 6.8% per year, even reaching up to 12.5% between 1965-1969.

If we look at the period of Japan economic miracle, we can map what products Japanese companies launched in that period.

In the peak period of Japan GDP growth, Japan produced many products that fulfilled mass-market customers, both individual and industrial consumers. To mention several, those products were industrial robotics (robotic arms), automation sensors and system, compact cars for daily ordinary people, compact and portable electronics, such as the legendary Sony Walkman and home appliances (TV, telephone, home entertainment) and many others.

Japan innovations on mass-produced small transistor devices (1957) [14], instead of using traditional big vacuum tubes, pushed many Japan creations of compact and portable electronics, such as The Sony Walkman (1979) [13], and TV [14].

For UK, one of the UK GDP growth peaks was in between 1950-1980. This is one period where UK experienced high economic growth and improved living standards.

In this period, UK created many industrial mechanisations and automation for mass production of consumer goods, such as shoes (goodyear welding machine), textile, foods and beverage, mass production of agricultural products and others. These goods are mass-market needs.

In addition, at that time, UK focused on advanced manufacturing and technologies, including manufacturing many defense and military products, aerospace and automobiles.

In addition, UK service industries, including finance and hospitality systems, also contributed to the high growth in that period.

UK was the most industrialised nation in the world where one-third of the population worked in manufacturing by 1870 [15].

Lesson learnt

We can see from the previous GDP data and the mapping of what happened when a country has high GDP growth.

When there is a significant GDP growth of a nation, we can always see that that nation produces disruptive products and/or services, both for individual and industrial consumers.

Those disruptive products target mass-market consumers, have affordable prices and fulfil what mass customers want.

As lesson learnt, we can summary several suggestions on how to encourage disruptive innovation in a company or nation so that they can produce disruptive products/services. Some of those suggestions are:

• The government should encourage private sectors to make disruptive innovation: and hence disruptive products/services, by for example, reduce tax for innovative and profitable companies, encourage labour developments by training subsidies or other means, provide intensive for companies that export products.
• The government should encourage technological changes or new technology adoptions. Usually, there is a high-risk on adopting new technologies. Hence, the government should help companies to reduce this risk, by for example, subsides for new technologies or other means.
• The government should make easy the import of technology pre-cursors goods, such as instrument tools, research tools, laboratory tools and research infrastructures.
• The government should reduce and simplify all bureaucracies. Especially, custom bureaucracy for export and import of technological goods should be made easy by the government.
• The government should encourage people not to only chase University educations but also can try to chase apprenticeship educations. Apprenticeship provides direct hands-on-experiences while also studying the theoretical knowledge in part time. By doing this, students can directly relate what theory they have learnt in the university with their direct experiences they got when meeting real problems in industry.
• Companies should not hesitate to “Copy, Modify and Improve” a product or service (without infringing intellectual properties). By doing this, companies can reduce development costs and can create products rapidly.
• The government and companies should encourage collaborative research and development. Only by collaborative ideas and works, a disruptive products/services can be made. Because collaborative works will provide perspective from different angles. These multiple angle views of a problem may spark new and genuine disruptive ideas.

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Conclusion

In this post, we have discussed two main points. One is the discussion of how large the US economy compared to UK-EU and Japan as well as how fast the US economy can grow. Secondly, we discuss one factor that cause US economy grow fast and large, that is disruptive innovation.

The main premise of disruptive theory is that significant economic growths can only be realised by a disruptive products and/or services. The products and/services will require a disruptive process innovation.

The key idea is that, disruptive products/services are absorbed by the mass market at large scale since the products/services provide functionalities that mass customers need to finish their task at an affordable price as well as easy to access or obtained.

References

[1] https://en.wikipedia.org/wiki/United_States (accessed: 11 December 2024).

[2] https://en.wikipedia.org/wiki/United_Kingdom (accessed: 11 December 2024).

[3] https://en.wikipedia.org/wiki/Economy_of_the_European_Union#:~:text=The%20economy%20of%20the%20European,(EU27%2C%202024%20est.%20) (accessed: 11 December 2024).

[4] https://en.wikipedia.org/wiki/Japan (accessed: 11 December 2024).

[5] https://www.macrotrends.net/global-metrics/countries/usa/united-states/gdp-per-capita (accessed: 15 December 2024).

[6] https://www.macrotrends.net/global-metrics/countries/gbr/united-kingdom/gdp-per-capita (accessed: 15 December 2024).

[7] https://bsic.it/japan-30-years-of-economic-failure-have-we-finally-come-to-a-reflationary-turn/ (accessed: 8 December 2024).

[8] https://www.bbc.co.uk/news/business-64661791 (accessed: 8 December 2024).

[9] https://curvo.eu/backtest/en/compare-indexes/ftse-100-vs-sp-500?currency=usd (accessed: 8 December 2024).

[10] https://www.macrotrends.net/global-metrics/countries/jpn/japan/gdp-per-capita (accessed: 15 December 2024).

[11] https://www.wasyresearch.com/disruptive-innovation-to-create-growth-a-research-perspective/ (accessed: 15 December 2024)

[12] https://econreview.studentorg.berkeley.edu/the-japanese-economic-miracle/#:~:text=Known%20as%20the%20Japanese%20Economic,end%20of%20the%20Cold%20War. (accessed: 16 December 2024)

[13] https://en.wikipedia.org/wiki/List_of_Sony_Walkman_products#:~:text=The%20original%20Sony%20Walkman%20TPS,cassette%20tape%20based%20Walkman%20models. (accessed: 16 December 2024).

[14] Lynn, L.H., 1998. The commercialization of the transistor radio in Japan: the functioning of an innovation community. IEEE Transactions on Engineering Management, 45(3), pp.220-229.

[15] https://en.wikipedia.org/wiki/Economic_history_of_the_United_Kingdom (accessed: 16 December 2024).

[16] https://www.economicshelp.org/blog/170878/economics/how-the-uk-economy-has-changed-in-the-past-70-years-1952-2022/ (accessed: 16 December 2024).

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