Europe still lags behind rivals on competitiveness

Date: 05/11/1998

By Peter Chapman

EUROPE still lags far behind its Japanese and US rivals when it comes to job creation and boosting standards of living, according to a hard-hitting report on EU competitiveness funded by the European Commission.

The damning report, which is set to be unveiled to Union industry ministers at a meeting on 16 November, warns that Europe's “inability to create new jobs” is widening the gap between employment rates in the Union and those in the US and Japan.

“This is one of the main reasons behind the lower standard of living in Europe compared to the US,” it states, pointing out that the European average lags the US by 33&percent; and Japan by 13&percent;.

The report lays much of the blame for this poor performance on “rigidities” in Europe's financial, labour and product markets.

It says the cost of basic services such as energy, transport and telecoms are “of great importance in staying competitive”, and adds: “Despite the single market programme and its positive effects on competition and liberalisation, Europe still has more restrictions and distortions of competition in these service industries than the US.”

The report, compiled by analysts from four economic consultancies, prescribes a dose of red-tape cutting to help the EU catch up with its rivals.

It also blames Europe's inability to move quickly into promising new sectors such as information technology - relying instead on its strengths in mainstream manufacturing - for low levels of job creation in the EU.

“Where the US has created jobs in technically advanced industries and transformed itself into a service economy, Europe is lagging behind,” states the report.

It concludes that one of the reasons for this is the poor level of research and development carried out by businesses in Europe. It says universities and public institutions in Europe tend to pursue less commercially viable R&D than their US counterparts, and argues that EU research suffers from a lack of access to adequate risk capital.

The study concludes that, in general, most jobs are created by a small minority of high growth, often technology orientated, companies.

It points out that 3&percent; of firms accounted for 80&percent; of the new jobs created in the US between 1991 and 1995, and warns that the competitive position of such companies is affected by the “availability of a wide range of efficiently priced financial services”.

However, the report says Europe's employment performance was weaker in all sectors during the decade covered by the analysis (1985 to 1995) compared with its American and Japanese rivals. It concludes that EU policy should therefore attack general structural weaknesses in Europe's economy rather than following a tactic of “picking winners”.

But the report's findings contain a glimmer of hope for European industry.

It argues that many of the gaps between the EU and its main rivals in labour productivity are caused by huge disparities within the Union itself and says that if southern member states such as Greece, Portugal and Spain could exploit the “huge potential” they have for catching up with their European rivals, many of these could be plugged.

The report concludes that the “diffusion of best practices within the EU is therefore an important policy target”.