SELF-IDENTITY & COMPENSATION: EU & US Divergence. Part 6.
A guest piece by Owen Reynolds of Teklas Ventures, the venture arm of the FO associated to Teklas.
This piece is a guest piece written by our good friend Owen Reynolds from Teklas Ventures, the VC arm of a family office associated with Teklas.
Owen is an armchair economist and leads Teklas Ventures, the venture arm of an automotive family office, covering both venture fund investment and direct industrial tech investment strategies. He is a former US Peace Corps Volunteer, founder of a sustainable construction company, and economist at the US FERC. After his MBA, he started in impact investing at an Omidyar fund in the US, then spent two fund cycles with Expon Capital in Luxembourg.
Over the last few weeks, we’ve dived into the structural economic reasons the EU and the US are diverging. If you’ve followed along, we’ve hit Culture, the Dollar Reserve Discrepancy, the Monetary Premium & Investments, the Land of Liquidity, and Structured Failure.
This week, there’s a structural part that borders on cultural—but is so embedded into business culture that I’m giving its own section. The American Self-Identity is different than Europeans, and strongly impacts final compensation. This in turn dictates the world of corporate incentives and where the best talent finds itself drawn to.
Identifying
Americans are no less tribal or banally bound to that tribe than any other nation. Judging by the most recent election cycle, perhaps more so. Those tribes tend to have less to do with nationality or the past than Europe.
Because most Americans (whether their ancestors arrived by force, by pleasure, or by temptation) have a fractured past, that identity is less anchored in the past. Only the 2,8m people of Native American decent have any true deep connection to the land or place. And even people that look alike may come from different nationalities, tribes, religions, or linguistic groups—some of which may very well be at war in the Old World.
What that floating identity for most means in practice is that greater importance is placed on more recent events. Neighborhoods, socioeconomic level, education, and political group become your identity in the US.
In my opinion, that also means that Americans derive more of their identity from their work. Much as in European names such as Baker, Miller, or Weaver may have indicated years back—you are tied to your profession in America.
In practice this identity means that Americans freely bring their work home with them, share about it at parties, and blur the lines between personal and professional. It also means that the outcomes of work have serious implications on who you are.
Work or Die
In the US, it’s common to say things like “you either work or die”. These are not just sayings. With a brutal lack of a social-safety net, there is truth to these fears. And the middle ground of “potential survival” is so unappealing in America, that it is not enough to keep the most vulnerable from diluting themselves with Fentanyl.
What this does mean is that you have to hustle from day one. This is where the “hustle culture” comes from. It’s not just because we’re putting pressure on students at school—it’s because there’s no back up.
Combining the Work or Die mentality with the fact that Americans draw their identity from their work is a combination for a hard-working—nearly obsessive—work culture.
Working Hours
All that said, do Americans work more than Europeans?
It’s an important question. No one is going to say that Americans work more than Chinese or Indian counterparts, where the Work or Die mentality is perhaps even more deeply rooted. However, a highly driven culture is constantly touted as the key driver between the EU & US divergence.
The truth is odd. The graphic below shows hours worked annually by country in the OECD, with the US in Green in the middle.
Starting on the left, Germans do indeed work an abysmally short work week. Many Northern European countries fit the same mold before hitting a pretty flat area of the curve that starts with Australia and ends with the US.
From then on, Portugal, Estonia, Ireland and a host of other European and Latin American countries pepper the upper ranks of the hardest working in the OECD. This makes sense—Millennials in previously poorer countries in Europe remember what those old days were like. And they want to Hustle Culture their way up the rungs of the ladder. The graphic below shows this play out in geographic terms.
To me the graphic mirrors what we see across Europe. There are incredibly hard-working people—they are rarely the Western European mainstream. They come from other places, or other backgrounds, or countries that haven’t been rich for 3 generations.
Spending Adjustments
There are also several other things to keep in mind when we’re measuring the US and European economies. While different from the capital markets, it’s worth noting these when we’re thinking about the quality of life trade off.
There are several other economic adjustments that impact the monetary calculus. It’s important to know what is included in or driving divergence between calculations of GDP per capita or even purchasing power parity (PPP).
Cup Cake Economics
First, Europeans have a cultural tendency to do more “in-house”. Birthday cakes, gardening, mushroom picking, and family members driving each other around are but a few examples.
The closer family networks evidenced by less social and geographic mobility mean more productivity can be done in-house, not taxed, and not reflected in GDP. I call this the “coffee cake economies”, which I mentioned in the first post. The US sells more of these goods and services, which show up on the official statistics, and make the US economy look larger and “more productive”.
Health Care
Second, health care is significantly smaller part of the economy in Europe. One major reason is that the US national health care program, Medicare cannot negotiate (you read that right: NO negotiation) against pharmaceutical companies. This effectively and sadly means that US pharmaceutical consumers are frequently subsidizing the world’s pharma development. It also explains why some cutting edge medication is available in US markets first—it’s where the big bucks are.
And to be clear, for skeptics, the results are longer average lifespans and lower infant mortality per dollar or euro spent. So European health care, on average, seems to still be hitting the mark. Just catching up would save the US a cumulative estimated $1.1 trillion between 2004 to 2050.
Military
Third, the US spends about $916 on its military—making up 3.4% of GDP, and a shocking 37% of the worlds military spending. This compares to 2.1% of GDP spent in France, 1.5% in Germany, Spain, and the Netherlands—the biggest spenders in major EU economies. One can further imagine if US GDP is already over-inflated for healthcare costs that this is a double whammy.
Correcting for all of these are heroic tastes I’ll leave in the hands of better economists than myself. But these cultural economics help frame the conversation. Its good to keep these things in mind no matter what you’re measuring.
Compensation
All of this matters because of how it plays out in the job market. When the expectation is to work, and your identity is derived from your work—so too is salary tied to that sense of self. Americans are not afraid to tell you what they’re worth, fight for it, and quit if they don’t get what they’re deserved.
Harkening back to the Education component covered in Culture, American MBA grads are taught repeatedly to hire up. Hire the best, compensate the best, lift up the best. Harness the best.
Keeping the best also means sharing. American executives get and give bigger bonuses and bigger equity packages. And because identity is drawn more from work than where you’re from, there’s no shame in pulling yourself up that ladder rung by rung under the noses of your friends and family.
Hard workers get paid better in the US than in Europe. Plain and simple. The bonuses are bigger, the equity shares are bigger. The liquidity and exits are better.
In contrast, Europe has stronger informal economies and ties to family and friends. Health care and the military are not such massive components of spending. But corporates also not share or compensate.
In the end, humans are rational actors—yes, with lots of biases, but rational enough to target the best compensation. When the highest exit potentials and the biggest outcomes are structurally tilted to the US, where will companies favor?
