The competitiveness of Europe is the priority

Speaking not long ago to students in Taipei, I remembered how in my youth all the toys coming from China were “Made in Taiwan”. Then in the 1980s I witnessed the economic and industrial turnaround that upscaled the Taiwanese economy. The government’s policy was focused on technology, research and development, engineering, manufacturing and human resources. It fostered new companies and attracted foreign investments, so Taiwan became one of the Far East’s “four dragons”, along with South Korea, Singapore and Hong Kong, and is now is one of the world’s top 20 industrialised countries.

For Europe, there are lessons to be learned from Taiwan. When there is the political will that stems from consensus among economic and social actors on what to achieve, and when there is a consistent and a well-defined roadmap, delivery is possible. The competitiveness of a country is manageable.

Back in the days of the European Convention in 2002-2003, I and a number of others successfully advocated adding “competitive” to Article 3 of the Treaty on European Union to describe our “social market economy”. This adjective wasn’t there at the beginning, and its addition meant that going forward the EU and national decision-makers would be bound by the TEU to add this factor. In other words, no proposal should be made nor any EU decision taken without looking at its impact on competitiveness.

This concept can be defined in different ways. The one I used when talking to students in Taiwan came from the Business Dictionary: “Competitiveness is the ability of a firm or a nation to offer products and services that meet the quality standards of the local and world markets at prices that are competitive and provide adequate returns on the resources employed or consumed in producing them.”

Are European companies competitive? The EU is the largest trading bloc in the world and includes strong global companies in sectors like automobiles, chemicals, engineering, food, luxury goods, construction, banking, insurance, and design. They represent a very dense network of small, medium and large companies that are world market leaders, and as companies can no longer trade without investing abroad, European companies are unsurprisingly by far the biggest investors worldwide.

That’s a good place to start, but business people know that success is never a given. To “meet the quality standards at competitive prices with an adequate return”, as the definition put it, needs constant effort and a never-ending push on all the components that determine competitiveness. An equal effort must be undertaken by the EU and its national leaders. They claim their aim is to create better conditions for growth and jobs, so now they must shape policies that are conducive to increased competitiveness.

To strengthen European companies’ global position, the EU’s integration process has to be deepened, not weakened. The size of a company depends on the size of its domestic market; a Belgian mid-size company, for instance, is on average five times smaller than its German equivalent. After three years of existence a new company in the U.S. is three times bigger than in Europe. Why? Because the breeding ground of a company is its domestic market. The larger that market the bigger are the companies.

Companies cannot be competitive in the global marketplace without a strong local basis, so therefore they look for a more integrated single market and a robust single currency. These are advantages currently enjoyed by the U.S., where the states in the Union compete with each other but share a currency and an integrated market regulated by the federal government.

There are undisputable reasons for investigating the European economy more closely than ever. To begin with the strengths to be built on: The European Union’s 505m citizens mean that if it were a single country it would be the third most populous one after China and India. With a GDP of almost €15 trillion, Europe outperforms all other economies, and is the world’s largest trading bloc as an importer and exporter of goods and services, with a single market that is both quantitatively and qualitatively the most important.  And despite the financial crisis and the current exchange volatility, the credibility of the euro and the ECB were maintained.

A comprehensive competitiveness agenda can secure our position in the world and create new opportunities, and should consist of these basic factors: finance, energy and people.

The financial means to support business depends on the strength of the banking sector. European companies, and in particular, SMEs depend more on bank lending than on equity finance. Manufacturing industry complains about insufficient access to financing, but banks argue that the new capital requirements are restricting their lending activities, as does the tightening of the risk management.

The EU’s banking union will, it is hoped, strengthen the banks by reducing their fragmentation. Banks do not require over-regulating, and they should certainly be given greater incentives to participate more in economic development.

Energy is crucial to industrial competitiveness. Securing energy supplies at a comparatively affordable price level must be a top priority for Europe. The U.S. is today more attractive for investments in energy intensive industries thanks to its much cheaper energy as a result of the shale ‘revolution’. This will last for long time, so making the EU competitive in the energy field is a difficult nut to crack. It touches on the energy mix, on the creation of a genuinely interconnected energy market, on a focused effort to improve energy efficiency, and on a balanced and targeted climate policy.

All this will need huge investment: new power plants, more renewable sources of energy, and smart distribution grids. There are already fierce public debates around nuclear energy, climate policy, shale gas exploration, and the cost of renewables, and these are discussions that political leaders should conduct openly and transparently.

The greatest challenge of all is ensuring the supply of people with the right skills. How can the gap be closed between Europe’s million or more vacancies in science, technology, engineering and mathematics related jobs and the supply of graduates and qualified personnel? Closer cooperation between businesses, schools and universities and governments is badly needed, and together they should be looking at more effective educational and vocational training systems.

These factors alone are not enough. Framework conditions must be “business friendly”, which raises the question of whether all the regulations decided at the European and national level are useful and smart? The Juncker Commission’s agenda is that regulations should be based on impact assessments to “think small” first in order to help SMEs to “think big”.

The EU also needs to streamline trade policy with an offensive strategy to open foreign markets and secure investments abroad. The WTO Trade Facilitation accord in Bali in 2013 that was finally accepted by all WTO members is a real breakthrough. Europe should continue to negotiate bilateral trade and investment agreements with important economies, including the U.S. The much-debated Transatlantic Trade and Investments Partnership (TTIP) negotiations should press ahead; not to dominate world trade but truly open our markets to each other and to strengthen bilateral economic relations. This will create growth and jobs because the greatest beneficiaries will be the SMEs that are the sole source of new jobs. Encouragingly, the European Economic and Social Committee has moved from strong opposition to an opinion fostering constructive support from all stakeholders. The emotional objections to TTIP show just how difficult it can be in a time of crisis to gather a majority behind a competitiveness agenda. Opinion leaders have their own views, but translating them into a broad agreement takes something more.

We in the European Union have the tools to reach a broad consensus, and the ‘Grand Coalition’ of Left and Right in the European Parliament could yield a political accord on an effective competitiveness agenda. The same kind of agreement also needs to be reached between the employers and the trade unions. John Monks, the former leader of the European trade unions, insists that “Social Europe is far from dead”. Accepting this will help to broaden the European discussion on how to transform the economy and make it successful both for companies and their employees. Without social acceptance of the need to reform on a basis of competitive and united policies, the EU will suffer from permanent euro-scepticism.

* Philippe De Buck is Member of the European Economic and Social Committee (EESC), former President of Business Europe and now President of Belgian Business for Europe