European competitiveness, revisited

Since the start of the eurozone crisis, the word competitiveness has been on everyone’s lips. Loss of competitiveness is now widely (and wrongly) accepted as a primary cause of the crisis; and making Europe more ‘competitive’ has become a priority for policy-makers. What is most remarkable, however, is that there is no agreed definition of what competitiveness is – and most implicit meanings are incorrect. If Europe wants to become more competitive, it needs to focus on productivity growth, not wage reduction or current account surpluses. It also needs to put more thought into sequencing and prioritising reforms, taking into account the imperfections of Europe’s economies and the current macroeconomic backdrop. Finally, raising competitiveness, so defined, requires more, not less democracy.