Why this is happening is complex, but seems in part to be a result of lower investment in human capital and in intangibles, such as R&D, which are key to push out the frontier. To give just one measure of differences in innovation, in absolute terms the US still submits more patents to the European Patent Office than does the euro area.
Contrary to popular wisdom, the best way to improve our living standards may not be to “re-industrialise” Europe but rather to make services more productive. So what can policymakers do?