EU Competitiveness (1)

The concept of competitiveness

• Controversies surrounding the concept of regional, national or supranational economies

• Microeconomic definition of competitiveness of enterprises– Reduction of costs– Higher quality– Higher market share– Capacity to improve profits– Efficiency– POSITION RELATIVE TO COMPETITORS

The concept of competitiveness

• But: – Trade is NOT a zero sum game!!!

• At macroeconomic level we look at the presence of determinants to growth, and ability to increase welfare

Definition

• D’Andrea Tyson (1984)

‘A nation’s competitiveness is the degree to which it can, under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously expanding the real income of its citizens’.

Definition

• D’Andrea Tyson (1984)

– Competitiveness at national level based on superior productivity performance

– Competitiveness associated with higher standards of living, employment opportunities

– Competitiveness NOT about maintaining trade equilibrium!

The 1990s

White Paper 1993

• White Paper on growth, competitiveness, and employment

• Part A: The challenges and ways forward into the 21st century.

• Why this paper?• © European Communities, 1995-2000

Why this White Paper ?

• “The one and only reason is unemployment.”

• “The difficult thing is knowing how to tackle it.”

Unemployment

• Unemployment in the EU averaged 10.6% of the labour force in 1997

• = twice the rate in the US (4.9%) and three times the rate in Japan (3.4%).

• the rate in the Union had shown an upward trend since the mid-1970s.

Latest unemployment statistics

Source: Eurostat, 2009

Source: Eurostat, 2009

The employment rate

• The employment rate in the Union in 1997 was 60.5%• much the same as in the 15 years before • rate in the US was 74% and in Japan, 74.6%, both

higher than at any time in the past

Latest employment rates

Source: Eurostat, 2009

Source: Eurostat, 2009

No miracle cure available!

Neither:

– protectionism– turning on the tap of government spending – a generalized reduction in working hours

and job-sharing– a drastic cut in wages and a pruning of

social protection

Over decades

• rate of growth had shrunk from around 4% to around 2.5% a year

• unemployment had been steadily rising

• investment ratio had fallen by five percentage points

Over decades

• EU competitive position in relation to the US and Japan had worsened as regards:– employment – shares of export markets – R&D and innovation and its

incorporation into new goods – the development of new products.

Over recent periods

• While it is true that Europe has changed, the world has changed too.

Europe’s problems

• the high level of unemployment• Europe's poor record for job creation,• investment, • trade growth,• product development, • labour costs, and• less tangible measures of

competitiveness.

Causes

• product and labour market fragmentation,

• disruption caused by the necessary restructuring of mature industries,

• *low competitiveness (relative to low-wage regions) in many sectors,

• *the relatively low levels of innovation and entrepreneurial activity.

Advantages

• Europe's educated population,• relative political and social stability,• cultural and creative resources and,• well-developed physical infra-structure,• should provide an effective platform for

competitiveness and growth.

Ways forward

• A more competitive economy – Drawing maximum benefit from the

single market – The trans-European infrastructure – Stepping up the research effort and

cooperation

2000

Why the Lisbon Agenda initiative?

Labour productivity GDP per capitaSource: European Commission

Average annual growth 1994-99

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

US

%

EU -15 EU -15 US

EU growth still lagging behind US

The Lisbon Agenda

The Lisbon European Council set an ambitious goal -

to become

the world’s most competitive and dynamic knowledge-based economy by

2010

Recent EU growth in comparative terms

Source: Eurostat, 2009

Sapir, 2003 (c)

The single market vs. The Lisbon Agenda

EU Benchmarking

’Improving the competitiveness of European industry depends critically on identifying and promoting examples of best practice from around the globe. We believe that benchmarking offers a highly valuable and effective means of doing this.'

Commissioner in charge of industry

What is Benchmarking?

Benchmarking has been defined as a continuous, systematic process for comparing performances of: – organisations, – functions,– processes or economies, – policies or sectors of business

What is Benchmarking?

• against the "best in the world", • aiming not only to match those performance

levels, but to exceed them.

What is Benchmarking?

Benchmarking allows us to:

• analyse and improve key business processes, • eliminate waste, • improve performance, profitability and

market share.

What is Benchmarking?

The basic idea:

• Assess your own performance (using performance indicators);

• Identify related best performances world-wide;

• Compare with your own practice;

What is Benchmarking?

• Make improvement plans to address the gap;

• Implement the plans; and • Monitor and evaluate the results.

What is Benchmarking?

In other words:

• benchmarking is a learning process to identify and implement best practice.

Benchmarking levels

• With the ultimate objective of increasing European competitiveness, the Commission has been drawing attention to benchmarking as a tool for addressing the underlying reasons, which impede the enhancement of Europe's performance levels.

Benchmarking levels

• Three "levels" of application have been identified:– Company Benchmarking, – Benchmarking of industrial sectors, – Benchmarking of framework conditions or

systems.

Benchmarking levels

• It is industry driven and competitiveness oriented, i.e. it serves to improve the competitive performance of enterprises, of industrial sectors, as well as the environment in which enterprises operate.

Company benchmarking

• A quality tool directed at continuous improvement of management processes in companies.

• At this level of application, benchmarking is the prime responsibility of firms themselves.

Benchmarking of industrial sectors

• A natural extension of company benchmarking in that many of the same principles can be applied to that set of enterprises that make up an industry and for which similar types of best management practices are fundamental for competitiveness.

Benchmarking of framework conditions

• Applies to key elements of conditions which affect the attractiveness of the regions, the Member States and the EU as places to do business, and which affect the business environment in which companies have to operate.

Framework conditions

• They relate to the environment in which people work and enterprises operate such as:– factor costs, – telecommunications and transport

structures,– labour market regulations and costs, – innovation and R&D, – i.e. the environment, which directly affects

industrial competitiveness.

Framework conditions

• Benchmarking these framework conditions enables the efficiency of public policies to be evaluated and to identify the steps required to improve them.

EU Initiatives

• In order to increase the contribution of research and innovation policies to sustainable growth and creation of employment, benchmarking should cover the areas of

•human capital,•education, •science, •technology, and •innovation.

BBC, Panorama: The Battle for Europe