Why the US Keeps Getting Richer While Britain Stagnates

The King arrived in Washington this week to celebrate UK-US relations. The pageantry was splendid, with flags, troops and warm speeches. Yet beneath the bunting lies an uncomfortable economic comparison. America has spent two decades getting richer. The UK is scrambling to work out why it hasn’t.

The divergence is striking. On purchasing power parity terms, US GDP per head reached $85,810 in 2024, more than 40 per cent above Britain’s. In 2007 that gap was just 25 per cent. Yes, Americans work longer hours and get less holiday. But they also produce 23 per cent more for each hour they do work.

Westminster’s instinct is to call for a growth plan to narrow the gap. Rather inconveniently, America does not have one. It instead has millions of private plans, all colliding untidily. Firms in Texas drill gas. Data centres are sprouting up in northern Virginia. Florida throws up new suburban neighbourhoods. California, even as it half-strangles the basics with regulation, turns eccentricity into software fortunes in Silicon Valley. Nobody designed this economy, nor could they. It is sprawling and chaotic. But it certainly delivers growth.

Discussing how we might catch-up, British commentators often say we need better skills, better health outcomes, better transport and a serious industrial strategy. All have some economic theory underpinning them. Yet, again, none really explains America’s relative success.

Yes, America has the world’s top universities, but its children are not obviously better educated overall, and young Americans are not more likely to hold degrees. The country is less healthy than Britain and its public transport is poor. Until very recently, Washington did little regional and industrial strategy either. There is really scant evidence here of the sort of government-led growth that seems to appeal to Europeans.

No, having lived stateside for almost a decade, I would trace much of the gap, beyond America’s sheer scale, to two attitudes that shape or constrain policy.

First, Americans unashamedly desire abundance. They want cheap energy, big houses, deep capital markets, large shareholdings, higher incomes, and they tolerate the long hours, disruption and downside investment risk required to obtain them. The British young professional’s dream in London is often a Victorian terrace near enough to a railway station. The American version is a detached house, two cars, a 401(k) pension plan and a garage large enough to be a London flat.

True, many Americans also complain the country does not build enough. There is growing bipartisan recognition that permitting homes, transmission lines and infrastructure takes too long. But America’s debate is about building yet more from a high base. Britain’s discussion quickly pivots to the caveats and the country’s environmental, safety and equity goals.

Many Britons visit America, recoil at the expensive tips, World Cup ticket prices and healthcare bill stories, and conclude that high living costs undermine those higher incomes. But this gets the economics partially backwards. Many non-automatable services are more expensive precisely because America is rich. High wages available elsewhere bid up the pay needed to get people to serve meals or staff hospitals, while increasing demand for popular leisure activities.

Which brings me to the second major difference. Americans more willingly accept the fallout from all this striving. Surveys consistently show they are likelier to believe that effort and skill get rewarded in their economy. That belief tempers demands for redistribution, meaning far less working-age cash support. The pandemic aside, the drumbeat for government relief after shocks is markedly more muted too.

America therefore tolerates more inequality and greater postcode lotteries across states, counties and cities. To British eyes, the result can look garish, uncaring and under-governed, but the results point to a truth that Britain’s own debate keeps trying to evade. Prosperity is not summoned by government plans. It is made by people willing to build, risk, fail, scale and disturb the neighbours, and having the opportunity to try.