Bursting the Bubble

EU Competition: One for All, or All for One?

15 May 2013 | by

The EU economic recovery has been a slow and tortuous process, the debate singularly focused on austerity with the pretence of balancing the books across the Union (no matter the market strength or diversification of that state), stalling all other avenues of economic debate. However, this increasingly jars with the economic rhetoric amongst the member states. Manufacturing and construction (industrial policy) is often labelled as the key source of recovery, exports will grow due to low exchange rates (or labour costs in the Euro area) and this will offset any welfare reduction or tax hikes – simplistically speaking. But with 27 (soon to be 28) member states competing in this race to the top in terms of manufacturing output, does this benefit the EU as a whole? Or will this detrimentally affect the nations which have already been unfairly maligned as lost causes through the Troika? Essentially, is the North vs. South stand-off once again occurring?

With just a quick analysis of the figures published in the 2012 EU Industrial Policy Performance Scoreboard, we can quickly see that the core issues at hand are endemic across the board. Investment naturally keeps pace with GDP growth in good times, in 2012 -2013, investment fell significantly below GDP growth (or stagnation) across the EU. Intra-EU trade has been on the slide due to the uncertainty within the Single Market and the low circulation of credit from banks, mainly due to the re-capitalisation of assets and compliance with regulations which now demand adequate insurance against investment instruments. And finally, the EU simply does not have the correct labour force, this is not an indictment, the quality and quantity of tertiary education should be lauded, but it does not – even to the most defiant of us – adequately support a manufacturing economy.

So who are the top performers for the EU in this regard? Well you have to be relative in terms of economic size and openness, for instance the GDP % of industrial policy in Germany is lower than that of Slovakia, but then their economy is 4x larger, so a degree of understanding has to be calculated when simply looking at the figures. Helpfully, the EU have categorised 3 main groups:

The Consistent Performers:

Broadly outlined as business friendly environments with “strong public-private collaboration [which] helps the commercialisation of technological knowledge”.

  • Germany, Denmark, Finland, Sweden, Austria, Ireland, Netherlands, UK, Belgium, France

Germany, Sweden, Finland and Denmark hold a significant comparative advantage even within this group.

The Uneven Performers:

Usually have high labour productivity but suffer “…difficulties in accessing finance… [and] bad payment behaviour of public authorities pose a serious threat to SMEs”

  • Estonia, Slovenia, Spain, Italy, Portugal, Greece, Malta, Cyprus and Luxembourg

Innovation is extremely high within Estonia, but virtually non-existent in Greece/Cyprus

Those Catching Up:

Face significant challenges in moving “towards a more knowledge and skills-orientated industry…hampered by weak innovation capacity and knowledge transfer”

  • Bulgaria, Romania, Czech Republic, Poland, Hungary, Slovakia, Latvia and Lithuania

Poland is the exemption in this group, steadily enhancing its business friendliness and access to funds

Obviously industrial policy has historic political links; some MS have invested more heavily than others over the decades and the EU is key in balancing this out, through it’s structural funds and investment programs. The EC has outlined 6 priority areas for investment to boost industrial policy going forward to 2020:

  1. Advanced Manufacturing technology
  2. Sustainable construction
  3. Clean Vehicles
  4. Bio Based products
  5. Key enabling technologies
  6. Smart grids.

Now, this is the crux of my argument. These 6 priorities look and sound great; however there is just one flaw in them which leads me to my original question of whether they are inadvertently entrenching a North/South EU divide. Only one initiative here can be automatically applied to, and enable growth within industry in the South (by South I mean the Mediterranean countries most symbolically linked with the Troika – Spain, Portugal, Greece, Italy and now Croatia) – sustainable construction. All other investment priorities focus on the comparative strengths of the consistent performers.

  • Who has the highly educated labour force for advanced manufacturing technology? UK/Sweden
  • Who will dominate the clean vehicles industry? Germany
  • Who can clean up with bio-based products? Belgium/Ireland
  • Who has the infrastructure to develop key enabling technology? Netherlands/Denmark
  • And smart grids? Well France for a start, but this also brings in the Eastern MS who dominate the energy sector.

For the South to be left with sustainable construction, a decidedly haphazard process of high intensity infrastructure development – which, lest we forget, was at the heart of the economic crash in Spain and Portugal in 2008 – the Commission seems to be dovetailing to the European Council’s wishes, not the EU collective; less “one for all”, more all for the North.

One Comment

  1. Thank you Ed for this awesome picture of the situatio. However as a Spaniard, I am really reluctant to think that construction -of any kind- would be the solution whilst the problem of Spain. It is true that within the context of green jobs, addapting existent buildings and households to a more energy efficient model may cause a double benefit -Job creation and energy savings-. Nevertheless, Still worth to remember that Spain has at the moment a stock of almost 4.000.000 empty houses, Autonomous Communities as Andalucia are adopting measures to expropiate Empty Houses from banks to avoid more evictions. Within this context, the prices of the houses and the demand of them are falling month by month, therefore the use of green jobs, and sustainable construction would only be available within a more structural reform of the economic systems of those countries towards a more sustainable model based on R&D, Sustainable development and decent work. I think construction-based fake models of growth has been proven as a unforunate way forward, which caused more pain than benefit. Coming back to them would only deepen in the crisis and make the life of Southern Europeans even more miserable than it is today. So unfortunately, and with all my devotion I have towards you, i cannot disagree more in the way forward you have proposed.

What do you think?