Industrial change and globalisation:Challenges for the European Social Model

Economic growth scoreboardAfghanistan 29.0%Turkmenistan 23.1%Equatorial Guinea 20.0%Chad 15.0%Isle of Man 13.5%Azerbaijan 11.2%Liechtenstein 11.0%Faeroe Islands 10.0%Armenia 9.9%Ukraine 9.4%Kazakhstan 9.2%China 9.1%Lithuania 9.0%Argentina 8.7%

Qatar 8.5%India 8.3%Bhutan 7.7%San Marino 7.5%Algeria 7.4%Latvia 7.4%Russia 7.3%Botswana 7.2%Vietnam 7.2%Cook Islands 7.1%Nigeria 7.1%Albania 7.0%Tajikistan 7.0%Mozambique 7.0%

CIA: World Fact Book 2003-04

Balance of payments scoreboard (Billion USD)

Japan 135,9Germany 57,2Switzerland 36,0Russia 35,9China 31,2Norway 29,3Taiwan 28,6Singapore 26,2Saudi Arabia 22,2Sweden 19,6Canada 18,6

Hong Kong 17,4France 13,8Malaysia 13,4United Arab Emirates 12,5South Korea 12,3Netherlands 12,1Belgium 10,7Finland 10,3Venezuela 9,7…….United Kingdom -7,6USA -541,8

0

10

20

30

40

50

60

70

1999 2000 2001 2002 2003 2004

Europe Canada Japan Hong Kong China India

US FDI - % of total – (2004: 1st + 2nd Q)

%

US Direct investment abroad. US Dep. of Commerce.

%

0

10

20

30

40

50

60

1998 1999 2000 2001 2002 2003

EU US Japan Hong Kong China India

UK Foreign Direct Investment - % of total %

Direct investment abroad. UK National Statistics

Financially viable

The ’real’ economy

Economic growth

Employment

The financial economy

Balance of payments

Government budget

-1

0

1

2

3

4

5

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5

USA EU

0

2

4

6

8

10

12

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4

USA EU

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4

USA EU

-7

-6

-5

-4

-3

-2

-1

0

1

2

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4

USA EU

GDP Growth Unemployment

Government budget Balance of Payments

EU - US

US current account 1889 – 2004 - % of GDP

-8

-6

-4

-2

0

2

4

6

8

89 94 99 4 9 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99 4

Source: OECD Economic Outlook no. 76

World Economic Forum scoreboard 2004GLOBAL:1. Finland2. USA3. Sweden4. Taiwan5. Denmark6. Norway7. Singapore8. Switzerland9. Japan10. Iceland11. UK12. Netherlands13. Germany14. Australia15. Canada

EU:1. Finland2. Sweden3. Denmark4. UK5. Netherlands6. Germany7. Austria8. Estonia9. Spain10. Portugal11. Belgium12. Luxembourg13. France14. Ireland15. Malta

16. Slovenia17. Lithuania18. Greece19. Cyprus20. Hungary21. Czech Republic22. Slovakia23. Latvia24. Italy25. Poland

Based on broad concept. Results very similar to Lisbon benchmarking

Economic policies

Monetary Policy

Fiscal Policy

Structural Policies

The introduction of the Euro put focus on Structural Policies

Lisbon was an answer

Did politicians listen?

The Lisbon process – the target

Adopted by Heads of State and Government in Lisbon Spring 2000:

To make Europe the most competitive, knowledge-based economy in the world by 2010, based on social cohesion and environmental sustainability

Progress to be measured by the Open Method of Coordination: Benchmarking and adoption of best practices

Sustainability issues added one year later in Gothenburg

The Lisbon process

Primarily inspired by the growth, jobs and productivity gap to US

A ten-year plan to restore European Competitiveness

‘Soft’ rather than ‘hard’ law (different from Internal Market)

Open method of Coordination

There is a European Economic and Social Model

and it is characterised by large public sector, focus on welfare state and emphasis on the environment.

Taxes as % of GDP:

China: 16%

India: 17%

Japan: 26%

USA: 25%EU-15: 40%

European Economic and Social sub models

Anglo-Saxon

Northern

Continental

Southern

Eastern?

European Economic and Social sub models

Anglo-Saxon Northern

Continental

Similarities: Hands-off approach to marketsDifferences: Size of welfare state

Similarities: Large welfare sectorDifferences: Approach to market

OECD: Countries with relatively liberal attitude to product market regulation:UK, Ireland, Denmark, Slovakia, Sweden, Finland, Netherlands.

Countries with relatively restrictive attitudes:Germany, Spain, France, Czech Rep., Italy, Hungary

OECD: Product Market Regulation 1998-2003. February 2005

European Economic and Social sub models

Anglo-Saxon

Northern

Continental

Similarities: Hands-off approach to marketsDifferences: Size of welfare state

Similarities: Large welfare sectorDifferences: Approach to market

Nordic model combines a liberal approach to markets with high quality welfare sector and provides ‘flexicurity’

Government budgets in Nordic and Anglo-Saxon models

-6

-4

-2

0

2

4

6

8

99 0 1 2 3 4

Den

Swe

Fin

UK

US

Current accounts in Nordic and Anglo-Saxon models

-8

-6

-4

-2

0

2

4

6

8

10

99 0 1 2 3 4

Den

Swe

Fin

UK

US

Re-introduction of Structural Policies

Global competition requires flexibility and a higher knowledge base

European population requires confidence and security

Target: Combining flexibility and security = Flexicurity

Does a big state prevent competitiveness?

Apparently not. This issue is not quantity but quality.

Public sector and competitiveness

30% 40% 50%

UK

Den

Swe

Spa

Fra

Ger

Ita

Fin

Bel

Tax of GDP

WEF score

4

5

6

Public sector and competitiveness

Public sector reforms are essential for competitiveness agenda:

•Value for money•Combat corruption•Modernisation (eGovernment)•Good infrastructures•From passive to active

Globalisation is working

€30 €85

Consumers get richer, but can we adapt and create new, sustainable jobs?

From the industrial society to today

Production

Logistics - distribution

IT

Design

R&D

Outsourcing – and insourcing

In some countries the debate focusess only on outsourcing

In others a more balanced debate on outsourcing and insourcing

Globalisation is not just about loosing, also winning

The negative debate shows fear for lack of competitvness and thus lack of strucutral reform

Attitudes towards globalisation in Europe

0 1 2 3 4 5 6 7 8

Den

Net

Ire

Swe

Fin

UK

Ger

Bel

CR

Spa

Ita

Pol

Fra

Source: IMD survey 2004. Index 0-10.

Need for reform

Reforms are at least needed in :labour market and social welfareInnovation, entrepreneurship and market

Labour market and social welfare

Life cycles are shorter and shorter

Need for constant knowledge upgrade

Calls for flexible labour market with security and Active Labour Market Policy

Ageing population requires life-long learning and longer working life

Innovation entrepreneurship and the markets

Europe must be better to grow SME’s

Innovation must be brought to the markets – closer links between research and real life

Europe’s risk culture underdeveloped

EU budget

EU budget can in general contribute in a limited way to development of European competitiveness. Budget is only 1% of GDP – and ½ is for CAP

Coordination of national policies would be stronger

Focus and link to overall targets could help, but

the debate is now on marginal issues on overall size and fight for national corners

Some examples of Lisbon benchmarking

0

50

100

150

200

250

Lux Ire Den Aus Net UK Bel Swe Fin Fra Ger Ita Spa Gre Por

GDP per Capita – 2005 Index. EU-15 = 100. PPS

US: 158,8 Japan: 118,9

GDP per Capita – 2005 Index. EU-15 = 100. PPS

0

50

100

150

200

250

Lu

x

Ire

Den

Au

s

Net

UK

Bel

Sw

e

Fin

Fra

Ger

Ita

Sp

a

Gre

Slo

ve

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CR

Hu

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Slo

va

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Lit

Pol

La

t

GDP growth rate – 2005 Percentage change over previous year

0

1

2

3

4

5

6

7

La

t

Lit

Est

Po

l

Ire

Slo

va

CR

Hu

n

Slo

ve

Lu

x

Gre

Sw

e

Fin

UK

Sp

a

Bel

Den

Au

s

Fra

Po

r

Ita

Net

Ger

US: 3,0 Japan: 2,1

Total unemployment rate -2004 (%)

0

2

4

6

8

10

12

14

16

18

20

Lu

x

Au

s

Ire

UK

Net

Cy

p

Den

Hu

n

Slo

n

Sw

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Po

r

Ma

l

Bel

CR

Ita

Fin

Est

Ger

Fra

Gre

La

t

Sp

a

Lit

Slo

v

Po

l

%

USA: 5,5

Labour productivity per person employed 2005GDP in PPS per person employed relative to EU-25 = 100

0

20

40

60

80

100

120

140

%

Gross domestic expenditure on R&D % of GDP - 2003

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5%

US: 1.91 – Canada: 2.67 – Japan: 3.12

Spending on Human Resources Spending on education as % of GDP

0

1

2

3

4

5

6

7

8

9%

US: 5,35 – Japan: 3.60

Life-long learning % of population 25-64 participating in education and training

0

5

10

15

20

25

30

35

40%

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

Internet penetration in EU households - 2004

%

0

5

10

15

20

Broadband penetration rate – 2004Number of broadband lines in % of population

%

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

Den Aus Swe Fin Ire UK Fra Ita Ger Spa Por Bel Gre Net Lux

E-government on-line availability 2003

%

0

50

100

150

200

250

300

350

Sw

e

Fin

Ger

Net

Den

Lu

x

Au

s

Bel

Fra

UK

Ire

Ita

Slo

vn

Sp

a

Hu

n

Ma

l

CR

Cy

p

Est

Gre

La

t

Slo

v

Po

r

Po

l

Lit

Patent applications to European Patent OfficePer 1 million inhabitants - 2002

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

Lu

x

UK

Sw

e

Net

Den

Fin

CR

Fra

Au

s

Ger

Bel

Hu

n

Po

l

Est

La

t

Slo

v

Slo

vn

Po

r

Ita

Ire

Lit

Sp

a

Gre

ICT Expenditure 2004As % of GDP

US: 5,5 – Japan: 3,5

Energy intensity of the economy Consumption of energy divided by GDP. Kg of oil equivalent per 1000 Euro. 2002

0

200

400

600

800

1000

1200

1400

Lit

Est

Slo

va

CR

La

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Hu

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Slo

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Cyp

Fin

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a

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UK

Net

Lu

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Fra

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Ire

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s

Den

Level of corruption

0

1

2

3

4

5

6

7

8

9

10

Fin

Den

Sw

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Net

UK

Lu

x

Au

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Bel

Ire

Fra

Sp

a

Por

Cyp

Slo

ve

Est

Ita

Hu

n

Lit

Gre

CR

Lat

Slo

va

Pol

Transparency International 2003 US: 7.5 – Canada: 8.5

Flexibility of business environment

0

5

10

15

20

25

Ire Fin Den Net Aus Spa Ger CR Fra Ita Pol

Composite index. Danish Industry

Labour market regulation

0

1

2

3

4

5

6

7

8

9

Den Aus Spa Ita Net Bel Pol Fra Ger

IMD survey-2004

Flexibility and agility

0

1

2

3

4

5

6

7

8

Fin Den Net Spa UK Ita Pol Ger Fra

IMD survey, 2004

Open method of coordination

Are models transferable:

No, but solutions are to a large extent

Why did France have to go through the No vote to discover the Nordic Model?

OMC may now work, but not because of EU or Lisbon, but because of desperate search for models that work!