Europe has a plan

Long-term economic planning is not limited to the former USSR and China.  Every country has one, and here is Europe’s version of it.

As it is everywhere else, “competitiveness” is on people’s mind.

The Lisbon agenda, the predecessor to the EU 2020 strategy that targeted Europe as the most competitive economy in the world by 2010, was a confused strategy with conflicting ambitions that silently left the centre of EU politics long before the crisis started.

Only the childishly innocent think it will be different this time. The 2020 strategy has fired up the chattering classes in Brussels. It panders to those who believe governments can steer economies to growth and that the solution to every economic problem in Europe is stronger harmonization of policy.

But despite reductionist pandering, the last 10-year-plan didn’t quite go as planned, and little has changed since then.  Again, its singled-minded insistence of an imaginarily uniform market neglect the realities of internal competition within the region.

[T]he belief that one central strategy can fit the entire EU, with 27 disparate economies of different profiles and reform requirements, borders to a mentality of economic planning that can only do damage to ambitions of growth.

The second issue is assessing just exactly what Europe should be competitive in.

The 2020 strategy gives voice to a vexing conception of competitiveness that lately has been growing in Europe: the perception that competitiveness means global commercial dominance in all sectors.  It is a perception that feasts on fear – a fear similar to the transatlantic doomsday notion in the 1980s that held that Japan would out-compete Europe and the United States. This time it is China, emerging markets and other fast-growers that represent the outside threat.

Now it motivates a program that aims at beefing up the competitiveness of the agricultural, industrial (heavy, light and advanced) and services sectors – of all production in Europe. In Europe’s 2020 paradigm that involves a return of industrial policy activism – the belief that governments can “pick winners” by writing cheques to coddled sectors.

Dangerous indeed.  Will Europe pursue its comparative advantages, namely its relatively stable political system and internal commercial market as defined by the EU and the EEC, leverage its good education system towards a productive and flexible workforce, and lead the way in innovation? Or will it continue to write wasteful checks to increasingly uncompetitive industries, all in the name of national interest and job protection?

In reality, the choice is not so clear cut.  Again, regional political, economic, and social disparities will make any generalized prescription meaningless.  Countries like Germany, France, and Sweden will not abandon their heavy industries yet.  How much longer Europe can afford to subsidize its protected industries is not clear. But right now, there’s certainly no shortage of ill-directed funds going to a range of industries, including the vast and controversial agricultural subsidies, airline industry, fossil fuel and nuclear energy industries, to electric cars purchasing in hopes of saving the auto industry.  And let’s not forget the occasional case of fraud that makes everyone involved look like fools.

With ruthless competition coming through now from not just the US, but Asia and Latin America, will Europe’s leadership finally reconcile political dogma with economic reality?

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