Chasing the leader.

America has been the world's economic leader for over a century. Economic theory suggests that western Europe should be catching up. Yet average GDP per head in the European Union, measured at purchasing-power parity, is only three-quarters of that in the United States. A popular explanation is that European firms are less productive because they are hampered by labour- and product-market regulation. But European productivity, measured by output per hour worked, has in fact almost caught up with America's. If Europeans are so productive, though, why are they apparently so much poorer than Americans? The narrowing of the productivity gap has not been reflected in living standards, as measured by GDP per head. Robert Gordon, an economist at Northwestern University, discusses how Europe's productivity and GDP per head fell relative to America's from the mid-19th century until around 1950. Productivity has since rebounded, almost reaching American levels. GDP per head, on the other hand, rose sharply until 1970, but then flattened off at 77% of America's.