Europe Banks on Brains Not Brawn

By Hawser, Anita | Global Finance, June 2006 | Go to article overview

Europe Banks on Brains Not Brawn


Hawser, Anita, Global Finance


The European Union wants to create a region-wide knowledge-based economy. Realizing that vision is proving to be a major headache.

In recent months as political and economic events have unfolded within Europe, the EU has come to resemble a recalcitrant beast loath to embrace much-needed economic and structural reforms in order to carve a niche for itself in the globally networked economy. There was the "No" vote in key European states against the European constitution, the "bra wars," which tried to prevent cheaper Asian clothing imports from affecting European manufacturers, a series of rolling strikes and protests in France against labor market reforms and, to cap it all off, high unemployment and sluggish economic growth in the EU's economic powerhouses.

Behind the economic travails of individual EU countries, a much bigger issue is at stake, which has far-reaching implications for the EU as a whole. In 2000 in Lisbon, Portugal, the European Council announced its Lisbon Strategy, which declared the EU would become "the world's most dynamic and competitive economy" by 2010. At the heart of the Lisbon Strategy is the concept of transforming Europe into a "knowledge-based economy," with sectors such as high-tech, services, software, telecommunications and research centers becoming key drivers for economic growth and productivity.

Alain Quévreux, head of the Europe department at Paris-based ANRT (Association Nationale de la Recherché Technique), which conducts research on behalf of the European Commission's Enterprise Directorate-General, defines a knowledge economy as "one based on validating and creating value from knowledge," which he says is a sea change from traditional industry thinking. "It [a knowledge economy] is not about starting from what you have achieved before, but instead looking at new capacities to innovate," he explains.

In some parts of Europe-the United Kingdom, France, Germany, Spain, Ireland and the Nordic countries-the move toward becoming knowledge based is progressing apace, evidenced by those countries' sustainable investment in R&D and flourishing high-tech industry sectors. Increasingly, though, academics, researchers and policy makers are concerned that the transformation will remain patchy. With the recent EU enlargement, this concern has become even more pressing. As more countries join, there are fears that they won't be able to compete on an equal footing.

A Fork in the Road

With few of its targets met and unemployment in its largest economies remaining stubbornly high, the EU is finding its Lisbon Strategy dubbed an "embarrassing debacle" by some critics. They have a point: The EU is anything but a harmonious whole. The single currency hasn't prompted economic convergence; in fact, EU ministers have expressed alarm at the divergent economic growth rates across the eurozone, which was highlighted in the first half of 2005 when the German economy reported growth of 1% while the Italian economy plunged into "technical recession" with first-quarter 2005 growth of-0.5%.

There are encouraging signs, however. ESPON, the European Spatial Planning Observation Network, which is partially funded by the EC and EU member states, notes that substantial changes have occurred over the past five decades in terms of world share of GDP purchasing power parities between regions within Europe. Mediterranean countries such as Spain, Greece and Cyprus showed strong economic growth in the past half century, while the UK, Switzerland and eastern parts of the EU demonstrated less favorable growth rates. Peter Mehlbye, director, ESPON Coordination Unit in Luxembourg, says there is a "leveling" process going on within Europe, meaning that the highest growth rates can currently be found in countries with the lowest level of GDP per capita. Within many countries, however, growth is currently highest in metropolitan and capital regions.

Evidence continues to mount, though, that regions within the EU may be on a different trajectory when it comes to their ability to meet the objectives of the Lisbon Strategy. …

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