Last week we wrote about why US stocks are so dominant in global markets and why, long-term, we think these stocks should be a core part of all portfolios. This week, we want to continue the theme on focussing in on the US market, digging deeper now into the US economy and why it is performing so much better than other major economies today.
Over the past few years, the US economy has grown faster than almost any other advanced nation, leaving experts and leaders around the world wondering: what’s driving this success? From innovative startups to groundbreaking technology and a risk-taking culture, there are key factors that help explain why the US seems to be sprinting ahead while others are struggling to keep pace.
Take the story of Demi Guo and Chenlin Meng. In 2023, they left Stanford University’s PhD program to launch a tech company called Pika Art. This app uses artificial intelligence to create dazzling video effects, and it quickly found an audience. Within months, Pika Art had over a million users. Even more impressively, the two founders raised $135 million in funding in just over a year. Their success wasn’t just about having a great idea, it was also about being in the right place. Silicon Valley’s unique network of mentors, investors, and tech innovators played a huge role in turning their dream into reality.
This kind of rapid success might seem unusual elsewhere, but in the US, it highlights an ecosystem that encourages bold risks and rewards innovation. Venture capitalists in the US don’t just provide money, they also mentor startups, help them hire talent, and offer support whenever problems arise. It’s this close-knit and supportive environment that fosters the kind of high-impact innovation driving America’s economic growth.
While many countries are facing economic stagnation, the US economy has expanded by an impressive +11.4% since 2019, according to the International Monetary Fund (IMF). This year alone, the US is expected to grow by +2.8%, a figure that many other nations can only dream of. For comparison, the Eurozone, home to countries like Germany and France, is predicted to grow by just +0.8%, while Japan and the UK have seen growth of only +3% over the past five years in total.
This growth isn’t just luck. Economists point to the US’s long-standing strength in productivity, essentially, how efficiently workers and businesses use resources. Since the 2008 financial crisis, US labour productivity has grown by +30%. That’s more than three times the pace of productivity growth in the Eurozone and the UK. Productivity may sound like an abstract concept, but it directly affects people’s lives. When workers and companies become more productive, it means higher wages, bigger profits, and more tax revenue to fund public services. Over time, this boosts living standards across the board.
So, why is the US pulling ahead in productivity while other countries are falling behind? A big part of the answer lies in its tech sector. From software to artificial intelligence, the US leads the world in developing and adopting cutting-edge technologies. Data from the Conference Board, a global economic think tank, shows that most advanced economies have seen their productivity fall relative to the US in recent years. In Europe, for example, productivity growth slowed sharply after the 2008 financial crisis and has yet to recover.
Technology is a major reason for this gap. While European countries have strong industries in areas like manufacturing, they’ve struggled to match the US in tech innovation. A report by Mario Draghi, former president of the European Central Bank, found that if you exclude the tech sector, productivity growth in the EU over the past two decades is roughly the same as in the US. In other words, America’s dominance in technology is what sets it apart.
Another crucial factor is America’s willingness to take risks. Venture capital investment in the US dwarfs that of other nations, accounting for 83% of all venture funding in G7 economies over the past decade. This steady flow of money allows startups to experiment, fail, and try again. Successes, in turn, create a “flywheel effect,” where successful companies fund future generations of entrepreneurs.
This isn’t to say that other countries lack talent. Europe, has brilliant minds and strong universities, but its venture capitalists are often more cautious. Founders in countries like Germany or Italy report that investors are hesitant to take risks, especially in the early stages of a company’s growth. In the US, by contrast, there’s a “go big or go home” attitude that fuels breakthroughs.
For countries that are struggling to keep up, the consequences go beyond just numbers on a spreadsheet. Low productivity growth leads to stagnating wages, strained public finances, and weaker geopolitical influence.
In the race to shape the future of the global economy, the US has found a winning formula of risk-taking, innovation, and technological leadership. For other countries, the question is whether they can adapt quickly enough to compete or risk being left behind.
Disclaimer: The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Capital Strategies Limited or its related companies. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.
