competitivenessThe question of how to make Europe more “competitive” has come up several times on Debating Europe. Some of you blame the Euro for creating “massive imbalances in terms of competitiveness” between EU member-states (and suggest scrapping the single currency as a solution); others argue that increased competition between different national education systems would help to drive down youth unemployment; whilst others think “privatizing the health care delivery systems as much as possible… will foster innovation and competition”.

Peter, a regular contributor, argues that European economies should take the radical step of cutting defence budgets and investing any savings straight into research. He argues that “by freeing up the defence budget the EU can easily dedicate 8 to 9% GDP to research and education. The only way to sustain prosperity without growth is by investing in innovation.” We asked Carl Bildt, Sweden’s Minister of Foreign Affairs, whether he agreed that Europe needed such a radical re-think of its R&D policies to survive in the global market place.

We need, for a start, to live up to the target set in the Lisbon agenda to spend 3% of GDP on R&D. Today only Sweden and Finland are fulfilling this goal. The EU as a whole spends only 2% of its GDP on R&D.

Europe has been lagging behind the US and Japan for the last few decades, and China is catching up with the EU. This must change. I strongly believe that there is a link between competitiveness and investment – private and public – in R&D. Sweden could actually be seen as making a good case for such a conclusion. Our investment in R&D – close to 4% of GDP – has for many years been substantially higher than our industrial structure and the size of our domestic markets would imply. And we have been, for a number of years, performing stronger and stronger in the global competitiveness rankings.

What we [also need] is decisive “political” investments in a single energy market and a single digital market. These would probably be the two most important contributions European policy-makers could do to enhance European competitiveness.

Last week, we looked at what Europe’s digital future might look like. ICT doubtless offers many opportunities for economic growth, but is there a dark-side to the “information revolution? As well as concerns about privacy and censorship, could “streamlining” European businesses with ICT actually increase levels of unemployment?

As I said earlier: We need a single European digital market. This would mean a lot to create a more competitive business climate. But we are not doing that bad actually. According to McKinsey, France has lost 500 000 jobs since the mid nineties from the expanding internet but also created 1,2 million new jobs. It is a total gain of 700 000 jobs. In the even more advanced ICT countries in the EU, I would expect the ratio between losses and gains in the job market to be even more favorable.

Some European countries are very strong performers in ICT – the UK and Sweden for example. Others are lagging – especially in the South. This gap should be closed and the way to do it is national and European deregulation and investments in the digital infrastructure.

There must be increased productivity in the public sector as well. This is even more obvious in our digital era – the silicon age – which presents so many opportunities to rationalize services. We demand from every Swedish public agency that it should increase its productivity by 2% every year. This makes it impossible to reduce services without cutting staff.

What do YOU think? Do you agree that Europe needs to be more competitive globally in order to escape recession? How should we achieve this? Through massive investments in research and innovation? Or through deregulation and a focus on the benefits of new technology? Let us know your thoughts in the form below, and we’ll take your comments to policy-makers and experts to hear their reactions.

15 comments Post a commentcomment

  1. avatar
    Nikolai Holmov

    How to make Europe more competitive compared to whom?

    If you are going to make it more competitive to the emerging markets then there is an immediate downwards pressure on wages, health and safety, regulation, materials and all other things that contribute to a unit cost.

    Germany is super competitive because a single unit of production would be more than 20% cheaper to produce in Germany than Greece for example, even if they had the same infrastructure to produce the same unit.

    Quite simply, Germany has managed the wage increases within far better than other EU nations.

    Can the EU as a supra-structure compete with Chinese or African production costs? Of course not. Not unless the EU is going to put an artificial ceiling on wages until those economies raise their wages coming close to parity.

    The globalisation of the capitalist free market necessarily means that corporate bodies will seek out the most cost effective production in an effort to be more profitable and provide better returns to shareholders.

    In effect any trickle down economic gains will trickle down to those nations will the lowest production/labour costs. One could argue that globalised capitalism has been a very successful method of spreading the wealth amongst huge parts of the global populous (much to the annoyance of some socialists one suspects) in the never ending search for the cheapest labour.

    There is then a matter that the EU single market, despite its apparent openness is in reality a very protectionist market for those outside the EU. Often any meaningful external entrant into the EU single market does so by buying an existing corporation within the EU as other routes in face numerous barriers to entry.

    Let’s see how the proposed EU/Canadian FTA fares when looking at growth outside the continent of Europe.

    If EU unit costs are less than those of Canada then the EU should do well. If Canadian unit costs are less then the EU is unlikely to do particularly well in Canada.

    There is then still major issues relating to internal EU infrastructure. Anybody who bothers to go outside a 50 kilometer radius from major cities of former Communist nations are likely to face dirt tracks and horse and carts.

    There is an abundance of cheaper labour within the EU that could bring down unit costs if it was effectively and efficiently connected to the major logistical nodes within the sovereign nations. Not only would creating such infrastructure create jobs and internal demand, but the communities it connects to would work for less than those in capital cities.

    Unfortunately in such austere times, such major infrastructural projects are unlikely to occur and thus the obvious way to put an artificial ceiling on wages by greater inclusion of the poorer members EU populous within sovereign nations will not occur.

    As for R&D being the way forward? When the R&D is done, where does it go for production? My guess would be the location with the cheapest unit production costs.

    To be more competitive the EU has to address how it will deal with the necessary downwards pressure on wages and entitlements whilst developing economies catch up and become less competitive by way of unit cost on the global stage.

    On an internal EU setting, as it is highly unlikely Germany will radically increase its unit production costs by the necessary massive wage increases required to level the playing field, so other nations will still have to address their wages by moving unit production to their more deprived regions under the auspices of social mobility, social equality and national re-balancing.

    Options such as subsidies or legislating to keep domestic R&D produced domestically will undoubtedly fail in a globalised world.

    The geographical boundaries and population numbers I competed with for work in my youth are now meaningless. There are 5 billion more people than there was then, there are pseudo-geographical boundaries across the EU that were then far harder and now globalised business and the need for shareholder return removes even continental boundaries.

    No matter how or what the EU does to try and manipulate the global marketplace, its biggest problem is that of managing the necessary downwards pressure on wages without massive popular unrest if it wants to be competitive on a global scale. Involving its poorest citizens by moving the corporate entities into its poorest regions (rather than externally of the EU) seems the only socially acceptable and credible answer.

    That takes money and infrastructure the EU hasn’t got.

  2. avatar
    Terri Stoll

    One thing for sure — make sure you can keep internet connections connected …. I’ve been communicating to various countries this past year and a half just on the personal level and the connections rather the internet is constantly going down. From a business prospective you can’t begin to function globally if you can’t communicate….

  3. avatar
    Christos Mouzeviris

    I agree with Peter and Mr Bildt…But deregulation in the health system..? I think not…You can deregulate telecommunications, energy and any other sector you want, but as for education and health services i strongly believe that they must remain public or partly public…You may have the choice to chose having public or private education or health insurance for example, but for those who can not afford it they’re must be free…Education and health for everyone..

    On the “single” digital and energy market I strongly agree…what a wonderful idea…And as Peter said, by forming a common defense policy, we can cut costs in our national defense expenditure…

    I will add the educational system..We need to prepare young Europeans for an ultra competitive future, we need to stream line our systems and give equal opportunities to all youths on our continent..Languages, and opportunities to receive education for new industries like the green sustainable one..Of course first we need to create job positions to absorb the young people with those new skills..

    Innovation and development for all states, equally, first on local level but also on pan-European level…Exploit each country’s natural resources on a national level but with pan-European benefit..create jobs and growth for each country, and then share those resources with the rest of the states..

    Like in the USA, if one state has oil or minerals, the profits of their exploitation will first create development in that state, but will also contribute to the US economy as a whole…we need to start thinking collectively and a true fiscal/monetary union for all states…

  4. avatar

    Cut corporation tax for manufacturing companies?

  5. avatar
    Horácio De Matos Táboas

    I have asked Europe in 2009 a critical economic rules clarification about a real problem that I have faced in Portugal that involves the action and formal position of the public structures in the enterprise promotional initiatives, activities or projects in the tourism portuguese industry.

    We are in 2012 and that expected european conclusive clarification have not still arrive us, , the European Parliament or the Portuguese Authorities.

    In face of this fact we ask how can we work and develop our economic sector or our economy sustainably and securely in face of this national and european long time periods to clarify and correct basic and essential working enterprise conditions that are not in the field past three years since we begin to present the problem in Portugal ?

  6. avatar
    Horácio de Matos

    I have asked Europe in 2009 a critical economic rules clarification about a real problem that I have faced in Portugal that involves the action and formal position of the public structures in the enterprise promotional initiatives, activities or projects in the tourism portuguese industry.

    We are in 2012 and that expected european conclusive clarification have not still arrive us, , the European Parliament or the Portuguese Authorities.

    In face of this fact we ask how can we work and develop our economic sector or our economy sustainably and securely in face of this national and european long time periods to clarify and correct basic and essential working enterprise conditions that are not in the field past three years since we begin to present the problem in Portugal ?

  7. avatar

    To escape recession EU should rethink the way regulates and the way manage its economy as a whole.
    Thinking that from 27 countries, more than a half live in poverty, the opportunity of those citizens living in poverty is to be a slave in a well developed western side EU country, then your point of being competitive in a global market falls down.
    The whole idea is based on the fact that: where isn.t a balance between fairness, opportunities and living conditions the general aspect of being a sustainable group falls down.

    If you are investing a lot of money in a country where the representative voice of a society is: corruption, political power-controlling everyday life, nonsense in administrating the money, low rated set of values developed in time by capitalists, unfair amount of income compared to the hard work, defective education and what you could see in eastern Europe, then your money means nothing, because they are going to the same default pockets. What you can DO, is to develop an administrating mechanism, present in undeveloped countries, or where things doesn.t work and then try to manage with the available expertise the well known problems. Maybe this should happen after a country adhered to EU-over a period of 3-5 years. It involves legal facts regarding sovereignty and constitution.s stipulations, but without any involvement you wont have further development. The idea that I had stated is that, if you do not manage a balance between the group managing then the whole system works inefficiently.

    Where competitiveness appear in that phase? well, the EU is represented by 27 countries, the higher differences between them, bigger the recession will be, because of discrepant economies that won.t come together with the development and global competitiveness.

    The current directions should focus on combating economic discrepancies, corruption issues, developing the poor states till they could be sustain themselves the economy. An important aspect is related to the question: Are you really interested in develop poor countries, because they have a great workforce able to do everything in anytime, rather than starving in their countries? and to that question there is an answer provided by the actions implemented by now by EU.

    Global Competitiveness is the determined by: being accountable about the work inside, in order to be efficient in the relations outside.

  8. avatar

    The first thing to do to make europe more cmpetitive is to put everyone to work.

    There is no point complaining about fertility rates, ageing population and generation replacement if a significant proportion of europeans in working age ar unable to find a job. besides, an healthy society must find find a place for ALL its members. In a europe with 30 million unemployed racsm will be rampant. Don’t be surprised to fing that the french are racists so long as they have 3 million unemployed.

    Now, EMPLOYMENT results from economic activity. At macroeconomic elevel, the level of production is determined by «effective demand» subject to supply limitations. To a large extent, effective demand results «monetary policy» and «fiscal policy». If increasing employment is an objective, these two instruments of macroeconomic policy must be used as means to their ends: full-employment and price-control. These must be pursued at european level because monetary policy is «european» in scope.

    On the supply side, it would be a progress if the financial sector would be regulated so as to facilitate capital allocation to sectors in short supply. The financial sector shuld be serving the «real economy»: not the other way around.

    A Europe where everyone would have ts place would be a better Europe. More COMPETITVE, yes. But also less racist, more equal and more INCLUSIVE. A better place to live, where people would be more FREE. FREEer more inclusive societies tens to be more creative and dirigist societies where people «do what they are told». Creativity is an engine of progress and enhances competitivity. An inclusive society in which talent makes the difference will be «more competitive» than a financial dictatorship where economic ecision-making is dictated by property rights.

  9. avatar
    David Fernandes Coelho

    Well just think basics dont kill peoples dreams and the economy will never stop turning.

    Deregulating will just favour those with money, money makes money. eg:( why make citizens pay for the lossess of banks when they file for bankruptcy especial those who didnt even have an account in the)
    Regulate clearly and apply the regulations be it to whom it maybe rich or poor and with equality.

    Stop corruption in the EU and we will be competitive with the rest of the world.
    Eg: ( how is it possible to subsidize the destruction of a countries agriculture system and then tell them that productivity is low)
    And probably the most important set equal living standards for the whole of the EU and not only for the polititions but for the normal Eu citizen be he or her German,Portuguese, English, Estonian.

  10. avatar
    Rui Miguel Ganhão Miranda Duarte

    The last thing to do is to make «a» europe behind the europeans’ backs and force us all to accept «the inevitable» because «there is no alternative». That’s the strategy of fear: it has been tried before, in europe, and it has been defeated; and will be defeated again.

    The right thing to do is to build a europe resulting of the positive will of europeans to unite; not a «negative» defensive fear-fueled last resort against a hipothetical «yellow danger» or «black danger», like in the EUs last racist clip.

    In order for such a clip to go out YOU must have been thinking it was a good ideia! You are sooooooo out of touch!

  11. avatar
    Dimitris Koryzis

    Which is the roadmap to EU growth? There are difficulties but the last months EU leaders decided to give a boost to EU growth, without sucess. The question of how to make Europe better, has come up several times. Some blame the Euro for creating massive imbalances in terms of competitiveness between EU member-states and suggest scrapping the single currency as a solution. Is any way to make EU better? Do we have the means to overcome the global economic crisis? Single Market is the key? What about employment and flexicurity?

  12. avatar
    Hamish Haas

    I’m afraid that Shirl says that the economy is ruined.. there is nothing we can do, so we might aswell face the facts that we’re all done for.

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