Looking back over time, we can see that the Information Age has made our economies and our society knowledge-driven; our main drivers of growth have become based on pushing bits up and down (digital services) and on connectivity improvements which have made delivering those bits quicker, and ubiquitous, all throughout the world. In sum, we are assembling the “space shuttle” for globalisation.
In today’s world, the biggest transport company doesn’t own a single car. The foremost house rental company doesn’t own a single house or apartment. The space race is being carried out not by state agencies but by energy, automotive and online payment companies (SpaceX founded by Elon Musk), by a company that started as a record shop (Virgin Galactic, founded by Sir Richard Branson) and even by the world’s biggest retail company (Blue Origin, founded by Amazon CEO Jeff Bezos).
The car industry is being challenged by Internet companies which have yet to produce a single car. Recently, an Internet/TV company went global, disrupting the TV industry’s decades-long reign. Trade is global, companies are going global; the workforce and talent pool are becoming more and more global as well.
In the time since we have unleashed the information society, our economies have undergone incredible transformation, causing me to wonder, “Are we taking this transformation seriously?” I don’t think so.
Our so-called modern societies, democracies, governments and institutions are still not organised with an agile mindset that will enable them to engage in decision-making and policy-making that is able to cope with such transformation and speed. The way we think and govern this transformation is still rooted in a sectoral approach, not focused or centred on the citizen.
Governments, politicians and institutions should give to digital policies the same weight, the same holistic approach which they do for those dealing with education, health, social issues, the economy and even foreign affairs and defence.
We fail to consider how the digital transformation is being disseminated horizontally, economically and across sectors (e.g. in education, health, manufacturing, farming, etc.) and how vertically it is impacting our society.
The Internet has become the veins of the modern economy and of modern society — and data the lifeblood within, rendering cyberspace analogous to The Good, the Bad and the Ugly for every middle-aged or older politician.
The Good, because it has brought about increases in productivity and therefore growth; the Bad, because it has increased inequality and has apparently led to lower incomes and to the erosion of low-skilled jobs; and the Ugly, because it has been regarded as an unruly space facilitating cyberattacks, fake news and terrorism.
We must then prepare our society and institutions for the radical change that is underway. Governments, politicians and institutions should give to digital policies the same weight, the same holistic approach which they do for those dealing with education, health, social issues, the economy and even foreign affairs and defence.
At EU level, this Commission (EC) has built a political structure to underpin the Digital Single Market (DSM) for concentrating efforts on the market dimension horizontally. Still lacking, however, is proper coordination or structure on cyber-diplomacy in order to address and promote a values-based and a rules-based global cyberspace — an EU Digital Ambassador is needed.
In the European Parliament (EP), digital affairs are done either in the Industry, Research and Energy (ITRE) Committee or in the Internal Market and Consumer Protection Committee (IMCO). But due to the cross-sector nature of the digital files, some files end up having five committees involved. This brings slowness and lack of agility on delivering pieces of legislation: a Digital Affairs Committee is badly needed!
In the Council of the EU (Council), whilst digital files are discussed in the Transport, Telecommunications and Energy Council configuration (TTE) and in the Competitiveness Council configuration (COMPET), most of these files end up being dealt with in more than just one Council configuration, within the framework of a particular sector, thus losing the horizontal vision needed in the digital transformation. Here, and again, it’s about time to devise a Digital Affairs Council.
A Digital Affairs Council would bring together a specially designated digital minister from every Member State, who would address the “digital present” but also devise a borderless and human-centred digital future. A digital minister would enable its Member State to no longer regard the digital realm merely as a sector, framed within his country’s own borders.
As a matter of fact, with digitalisation taking place in every sector, citizens will also be equally demanding toward their respective Member States, either in terms of “public” services or public policies: soon, domestic policies will have to deal with algorithms and the virtual world as well.
Concerns over privacy must be addressed, as do other recent phenomena, such as cyberbullying and online behaviour. We should be looking at how new digital technologies are re-shaping the family structure as we have traditionally conceived it, at how they are affecting our sense of time, our critical-thinking capacity to evaluate information and our standards of knowledge themselves — which are fundamentally changing our perceptions of the world. Before long, we should be questioning which values we want to preserve and nurture in a society that is turning digital.
New generations born in a hyper-connected world will hardly understand the concepts of borders or sovereignty — even the languages which are seen by today’s generations as barriers will be transformed by technology into enablers. We need to cope with their aim for flexibility — working from anywhere to reach everyone in the world.
It’s being said that globalisation and digitalisation are destroying jobs — or at least destroying more than they create. I’m not fully convinced of this; I believe there will be changes in jobs rather than losses: changes, for example, from low-skilled to high-skilled work.
Governments should thus be preparing society for a massive movement of workers from one profession to another, putting the right employment and social policies in place to incentivise workers, and encouraging the private sector to invest more in skilling, up-skilling and re-skilling human capital.
In the same way, discussions have started to appear regarding what some call “the negative effects of automation”. The ideas range from Universal Basic Income to taxing robots, although the point remains valid that “there is no single magic bullet for poverty” and inequality. But these tools can be valuable instruments when contextualised within a broader strategy — such as an education, fiscal and social reform — and targeted such as to maximise effectiveness.
We need to prepare future generations for jobs that don’t yet exist. For this, deep reform of our educational systems is of the utmost importance. Kids should master creativity, critical thinking, communications and adaptability. Throughout their lives, they will have to face a world in rapid and constant change, in which their ability to adapt to this change will be key to surviving. We must nurture a natural process of learning, unlearning and relearning.
Quick adaptability to change, therefore, is key to success, be it at EU level or Member State level, in the public or the private sector, or even at the level of the individual.Gonçalo Carriço Business Economy Innovation Internet Technology
Are we prepared for the digital transformation?
22 Jul 2017
Technology is transforming the world around us at a growing pace. It affects the way we live, the way we study, the way we trade, the way we communicate. And it can be disruptive. It puts into question long cherished assumptions, it makes communities more fragmented and fluid and – crucially – it can destroy jobs in the industries it challenges. Are we to conclude that the world would have been better off if we had artificially restricted the development and commercialization of trains, cars and electric devises? Obviously not. This lesson is still valid for tomorrow’s technological developments.
It’s around these pressing issues that experts from all over Europe gathered for the 7th Economic Ideas Forum. Organized by the Wilfried Martens Centre for European Studies, the official think tank of the EPP, the EIF’s aim is to act as a laboratory for policy-oriented ideas. This year’s edition has six main takeaways to pick our brains:
1. Keep Calm and No Basic Income
Today, the majority of jobs in Europe are still full time, permanent positions. But labor markets are changing as technological advances and flexible working options increasingly dominate the discussion. Basic income, many people say, offers a potential solution to the emerging realities of tomorrow’s labor market. But according to one speaker, a universal basic income will simply let big business off the hook in terms of providing corporate and social responsibility. In Europe, we should distinguish between being more educated and being more skilled.
2. Creative Bravery: Celebrating Failure, Changing Europe
One participant quoted Nobel Prize winner economist Wassily Leontief: ‘The role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the introduction of tractors’. We need to move towards a system in which individuals and firms can innovate ‘without permission’ as regulations often distort or prevent the creative process. In Europe, the risk reward balance needs to be reset. Failure is an option, because out of failure comes innovations which change the world.
3. To Be Digitalized or Marginalized: That is the Question!
The European Fund for Strategic Investments (EFSI) offers huge potential for the EU to close the digital infrastructure gap with other global economies. For this to happen, public money needs the support of private capital in order to tackle market failures. The right regulatory framework requires a light and flexible approach, allowing private enterprise to bring their strengths to the next-generation digital economy. In Europe, fierce competition is the best way to ensure lower prices and higher investments.
4. Conscious Uncoupling: Living Happily Even after Brexit
The success of EU integration has been constituted by the internal market and the free movement of goods, capitals, services, people. These principles constitute the basis of the market economy model. To build walls and limit freedom of movement now would be not just counterproductive but also impossible. Free movement of people and jurisdiction of the European Court of Justice are two key negotiation points. If the United Kingdom accepts these principles, an agreement may be possible. However, according to Alexander Stubb, former Prime Minister of Finland and speaker at the head-to-head session on Brexit, this seems to be an unlikely scenario.
5. ‘Nothing is lost, nothing is created, everything is transformed’
Fragmentation must be overcome. Only through combining the strengths of member states can the EU hope to add value at an industrial scale. European industry is going through a fourth industrial revolution: digital transformation is changing how companies do business on a daily basis. European industries still need to challenge fragmented markets, fragmented standards and fragmented national regulations. In Europe, we need to think globally.
6. Can Cows Save Europe?
Agricultural policy has been at the heart of EU policy since the Treaty of Rome. Research just doesn’t happen in factories and labs; it happens every day in millions of farms throughout the EU. In a time of huge global population change, land scarcity and increased environmental awareness, research and innovation in agriculture matters more than ever. For the EU, this means not just ensuring European farmers have the best knowledge transfer gained from private sector companies, but also helping farmers in emerging countries learn from our expertise. In Europe, agriculture must remain one of the most innovative and research intensive sectors in our economy.Agriculture Business Economy EU Member States Innovation
Tomorrow’s Europe in Six Steps
09 Dec 2016
Professor Lars Jonung warning Sweden’s current economic momentum is unsustainable
According to economy expert Lars Jonung, the two drivers of the Swedish economy, expansionary monetary policy and the very loose fiscal policies that had led to over 20 years of continuous property price growth are likely to result in a real estate bubble based on credit expansion.
Jonung, who is a Professor Emeritus with the Knut Wicksell Centre for Financial Studies at Lund University, made his remarks during an event organised on October 11, 2016 in Brussels by the Martens Centre as part of its Food for Thought Country Series.
Professor Jonung argued that monetary policy cannot correct this trend by itself, but only in combination with fiscal, tax and regulatory policies. The Country Series events are designed to provide a discussion of the economic challenges facing member states in the EU.
Sweden’s economy grew by 3.6% in 2015 making it one of the fastest growing economies in the EU. According to European Commission data, in the short to medium term, economic prospects continue to look favourable with growth projected to moderate to 2.9% by 2017. Unemployment is projected to fall under 7% in 2016 with government debt stable at around 44% of Gross Domestic Product (GDP).
However, the Swedish economy faces a number of downside risks which jeopardise future growth potential. The arrival of over 160,000 refugees in 2015 poses longer term challenges regarding labour market integration.
To counter the rise of populists, the centre-right in Sweden will have to come up with long-term solutions and alternatives. MEP Gunnar Hokmark
Brexit and the potential for weaker growth among key trading partners also poses external risks. Internally, the dramatic rise in house prices and household debt is complemented by expansionary fiscal and monetary policies at government level, including negative interest rates.
To the question “Has Sweden reached the point of no return?”, Jonung cited American economist Robert Aliber, who had in the past stated that a large number of building cranes on a city’s skyline was the sign of an upcoming crisis. “In Stockholm there are too many cranes”, Jonung concluded, “however a number of changes can still be made to give us a soft landing”.
Swedish Member of the European Parliament Gunnar Hokmark, also a speaker at the event, disagreed with Professor Jonung on the crane phenomenon, arguing that in order to cope with the high demand of housing in Stockholm, both a rise in prices and more construction is necessary.
According to him, addressing the challenges in the supply side of the economy is what Sweden needs. “Contrary to what many think, we are not a socialist country anymore, we are quite liberal. However, deregulation in the housing and the labour market are still needed”, MEP Hӧkmark stated.
Fredrik Erixon, Director of the European Centre for International Political Economy, a Brussels-based think tank, shared a rather pessimistic view about the future of Sweden. According to him, the Central Bank is the main source of monetary distortion. “Free money leads to a misallocation of resources, which will come back at some point and bite Sweden in the back”, according to Erixon.
During the Q&A session, several other points were raised such as managing the current levels of growth in a more sustainable way, investment and deregulation, as well as lessons learned from Ireland, Spain or Greece over the past decade.
The political consequences of any future economic slowdown were also raised, specifically how such a slowdown could strengthen populist political parties. A key issue raised by the panellists was that traditional centre-right political parties need to propose new solutions to combat the current economic imbalances.
Household debt in relation to disposable income in Sweden, the UK and the US, 1995–2014, with the Riksbank’s forecast for Sweden until 2019Business Crisis EU Member States Macroeconomics
Finance expert: Sweden’s booming economy not what it seems
13 Oct 2016
Yesterday Russia had an election that yet again disappointed hopes for a functional and reasonable parliament instead of “the mad printer” (that adopted all inhumane and reactionary laws given to it by presidential administration), as the previous Duma was commonly known.
Taking a deeper look at the prospects of the Russian business community raising a political voice, or at least a whisper, some myths, popular among certain western policy makers, are revealed: a) there is a possible split of business elites and b) some private businessmen will surely want to defend themselves from crazy Kremlin adventures abroad.
The harsh reality is that an overwhelming majority of Russian business – from oligarchs and large corporations to small and medium entrepreneurs – remain politically loyal to the Kremlin and are therefore self-censored.
Oligarchs depend on contracts and favours from the State and have such a long and compromising history of engagement with the Kremlin’s criminalised bureaucracy that not a single one of them has dared to protest against Putin in the last decade. The bravest they can afford to do is to mildly criticise the puppet government of Prime Minister Dmitry Medvedev on its economic policies.
Small- and medium-sized enterprises (SMEs) have shown a bit more protest activity. Disparate regional movements of farmers, truckers and owners of small kiosks in the cities have protested against arbitrary use of power by regional authorities and they also went on hunger strikes and marches to Moscow.
But they have never properly – as a movement – dared to criticise Putin or the Kremlin administration or raised any significant political demands. In fact, many of them tried to appeal to a kind Tsar (to be read President). Owners of kiosks even put up portraits of Putin next to icons in shop windows, only to be demolished anyway if those in power decide so one day.
Western sanctions are quite superficial: they merely send the signal that the West is not continuing business as usual.
Western policy-makers should face an inconvenient truth that is difficult to accept: there is not going to be a split of elites. The monopolistic model of the state economy had already been in deep crisis long before Western sanctions against Russia over Ukraine started and oil prices collapsed.
However, the Russian government and businesses are reluctant to publicly admit this and they find ways to get by. Western sanctions are quite superficial: they merely send the signal that the West is not continuing business as usual (which would be outright appeasement) and they warn Russia of what more may come if the Kremlin continues to advance in Ukraine.
However, less than ten cronies of Putin feature on the US and EU sanctions lists: that is not enough to seriously change Russia’s aggressive foreign policy or lead to a split of elites. The superficial sanctions can reduce the Kremlin’s ability to execute its policies, but not change its overall course. The West has a choice to expand the individual sanction list to include hundreds of individuals, or introduce large-scale sector-wide sanctions (e.g. a ban on Russian oil and gas exports to Europe, as was with Iran).
However, in doing so, the West would risk seriously escalating the conflict with Russia, and Western policy-makers are currently incapable of this. Instead, it appears that the West is betting on the long-term game of patience and the slow strangling effect of mild sanctions—that are unlikely to bring about a change in the regime’s policies until several years have passed, and perhaps even a decade.
Hence, if stronger sanctions are not an option, then at least the current ones should be maintained for a long time to come.Ilya Zaslavsky Business Elections EU-Russia
Business as usual? Russian oligarchs and Russia’s parliamentary election
19 Sep 2016
A remarkable degree of consensus has emerged in the “Brussels Bubble” regarding the recent Commission decision against Ireland’s alleged tax (or rather non-tax) agreements with Apple. The issues of tax fairness and equality – as highlighted in recent years by Wikileaks and the subsequent Panama Papers – have strengthened the hand of the EU in seeking to ensure that all multi-national companies do not benefit unduly from gaps in international tax laws. This is a policy supported by the vast majority of European citizens.
However, the ferocity of the response from Dublin regarding the recent Commission decision highlights that there is another side to this debate which must be considered. For a small member state such as Ireland (perhaps the most open economy in Europe) the Commission decision is symptomatic of an EU bureaucracy that is steadily encroaching on areas of national competence.
The use of state-aid policy to retrospectively challenge national taxation policies is not how the EU usually does business. Nor (as recent revelations from Irish policymakers highlight) can the Commission decision be divorced from the reality of Brussels decade’s long campaign to force Ireland to increase its business taxes.
From Dublin, the recent decision highlights the increasing ability of larger member states (generally high tax, high social spending economies) to impose their priorities on smaller, more flexible economies. There are many reasons why Ireland was able to return to growth so successfully after the 2010-13 bailout.
Having an economy characterised by inflexible labour laws; an investment climate restricted by high business taxes and poor labour mobility are not among them. Yet, these are exactly the characteristics of some of the member states now seeking to impose higher taxes in Ireland.
There is a much wider context to be considered regarding the Apple decision. In particular, three key points are relevant:
- Everybody – in the EU and Ireland – believes that companies, both large and small, should pay a fair rate of taxation. What is required is a global solution that includes the problematic issue of reforming the US tax code. Taxing global companies is not like selling cookies at the weekend market. Global consensus is required for meaningful global action. Through its recent actions the Commission have undermined the valuable work being undertaken by the Organisation for Economic Co-operation and Development (OECD) through its Action Plan on base erosion and profit shifting.
- Taxation, including corporate taxation, remains a national competence in the EU. However, the concept of harmonising corporate tax rates has been an objective of the Commission (and some member states) since the 1960s. Whereas smaller member states focus on flexibility, larger states tend to focus on scale as a competitive advantage. The feeling in Ireland is that by cleverly merging the issue of tax fairness/evasion with that of corporate tax harmonisation (through initially proposing a relatively harmless consolidated tax base) the Commission is attempting to finally achieve its long term objective. Let’s be honest, the Commission’s case is not about how much tax Apple pays, it’s part of a longer term political game concerning which (larger) government gets a bigger share of the cash.
- The centralising tendencies of the Commission (and some larger member states) spell economic disaster for many of the EU’s geographically peripheral members. The continental economic model of very high taxation (both personal and business) is not a model that is desirable for more Anglo-Saxon influenced economies like Ireland and the Baltic states. Italy, Germany and France all choose to have headline corporation tax rates of 29%-33%. In Ireland the long established rate is 12.5% and the average for the Baltics is under 17%. Corporate tax competition at a national level is vital for a healthy EU economy. The use of state aid rules to retrospectively over-ride national vetoes will reduce investment in the EU (especially in more open, peripheral economies lacking large capital bases) and reduce the attractiveness of the EU as global investment location. Perhaps Commission officials should talk to Airbus and Volkswagen to find out about the importance of state level incentives in Alabama and Tennessee respectively.
So what solutions can the centre-right in Ireland offer to these wider issues?
- First, we should restate our commitment to real tax fairness. That is in redesigning the global tax system to ensure that all companies pay what is due. We should underline our commitment to global efforts in this regard.
- Second, the concept of national competence over taxation policy should be restated and we should support the concept of corporate tax competition as being vital to the healthy development of a balanced European economy. In a current environment characterised by rising populism and Euroscepticism are future moves to establishing more fiscal integration really desirable (and politically achievable)?
- Third, we need to take a leading role in combatting the rise of protectionism and anti-American feeling across the EU. Although it is sometimes hard to remember given the prevalence of such feelings in Europe, the US is Europe’s most important economic and security partner.
It is easy for those of us in the “Brussels Bubble” to support making big companies pay their fair share of taxes and to accuse Ireland of illegal behaviour. But, to do so misses the much bigger picture.Eoin Drea Business Centre-Right EU Member States
The European Commission, Apple and Ireland: the view from the Emerald Isle
07 Sep 2016
“Pleased to make your acquaintance,” European Commission Vice President Jyrki Katainen meets 3D-printed life-sized robot InMoov at Makerstown.
Held on 24 May 2016 at the Square Meeting Centre, Makerstown was the first event of its kind in Brussels. It brought to the European capital 50 young and innovative Makers — a new generation of entrepreneurs and DIY experts empowered by Web 3.0 tools, technology and crowdfunding. From 3D printing to robotics, wearable technology to new ICT and food to fashion, the Makers selected from all over Europe might just be tomorrow’s Robert Bosch, Enzo Ferrari or Arthur Guinness.
Part fair, part conference, Makerstown was organised by the Wilfried Martens Centre for European Studies, the official think tank of the European People’s Party, and by Think Young, the first think tank to lobby for young people.
Speakers included Jyrki Katainen, vice president of the European Commission responsible for Jobs, Growth, Investment and Competitiveness; and Carlos Moedas, European Commissioner responsible for Research, Science and Innovation, as well as members of the European Parliament and business leaders. Industry 4.0, public and private finance for entrepreneurs, women’s entrepreneurship, start-ups and scale-ups were the order of the day.
1. Ideas are assets. Makers are leading the way
Twenty years ago, our biggest challenge was digitalising information. Now we are entering a new era in which the digital world is affecting and transforming the physical world in unpredictable ways. It is the age of the fourth industrial revolution and of the peer-to-peer economy. In this age, innovative Makers at the cutting-edge of the technological frontier are our best hope to revive our ailing economies.
Start-ups in Europe represent only 5 percent of firms, but they already account for a disproportionately high percentage of job creation. This is destined to rise due to the increasing interpenetration between digital and physical world. We must be ready to exploit this opportunity.
2. The three Fs of funding: Friends, family and fools
For innovative start-ups launched by visionary Makers, financing is often the main initial hurdle. In the early stages, often only friends, family and fools will be bold enough to believe in a new idea. In some contexts, public money can partly remedy this shortcoming, and innovative financial instruments have been developed by the European Commission and the European Investment Bank in the last few years.
Such versatile instruments are often not well known by makers and it is important to raise their awareness on this topic. However, public money should be used with great caution, as it can backfire and discourage the investment of private money.
Europe’s real problem today does not seem to be the availability of finance – markets are actually flooded with liquidity – but the lack of an adequate ecosystem. In the U.S., public money is much more limited than in Europe, and yet Silicon Valley is in California, not in Germany or France.
3. We can make it: Female entrepreneurship
Women are an under tapped source of economic growth and innovation. While more than half the European population is female, women represent only a third of the self-employed and 30 percent of start-uppers in the EU. This happens in spite of excellent educational achievements. The EU has traditionally been at the forefront of initiatives promoting gender equality and equal opportunities.
It could potentially do more in the field of education, which is essential in fostering a new mindset that would encourage women to live up to their potential. This needs not come at the expense of maternity and family life: intelligent policies can help women reach a balance between family and career engagements.
4. Creative bravery: Celebrating failure, changing the world
According to Organisation for Economic Co-operation and Development (OECD) figures, 60-70 percent of productivity growth stems from innovation. Taking initiative is therefore essential. Recent years have seen a few success stories of innovation in Europe, for example the Estonian policy of abolishing tax for new companies, arguably one reason why Skype was born in Estonia.
However, some countries are doing better than others and policymakers should be open to bolder initiatives. In the U.S. more universities are introducing commercialisation offices to help students develop their ideas and bring them to the market. The initiative can be valuable for Europe, too.
Other important policy initiatives include increasing personal security on the Internet, strengthening the presence of technology and science in schools and decreasing transportation costs. Why not even allow reformist zeal to carry us away? The introduction of a ‘failure day’ could celebrate entrepreneurial failure and help eliminate the stigma it carries.
5. Ecosystems are essential
Only the right ecosystem can allow entrepreneurial spirit to create start-ups. The first element of a successful ecosystem is a big continental market. Europe has in place all the institutional instruments to create such a market, but national tensions mean services, digital and energy remain closed to competitive pressure.
The second essential element is an environment with few regulations, little bureaucracy and a very high level of flexibility. The EU has not always been up to the task. The EU and its member states should minimise regulation and allow as much innovation as possible. The third element is a mindset open to failure as a stepping stone towards success, and not paralysed by it as a shame to avoid. Although it’s unlikely that a single European Silicon Valley will emerge, we can be optimistic that Europe’s innovative future is bright.
After a day of demos and discussions, everyone who attended the event could agree on at least two things: Europe’s manufacturing tradition IS getting an update, and Makerstown was THE place to experience it first-hand! Breaking free from the confines of a regular EU-bubble conference, it was anything but a talking shop. Instead, it was streets ahead, celebrating European innovation in a dynamic, engaging, and inspiring way. Missed the action this year? No worries, Makerstown 2.0 will be back in town in spring 2017.Business Economy Industry Innovation Technology
Europe, get ready for the Makers Revolution!
25 May 2016
Europe and the US are witnessing a trend towards a more diffused production of services. This can be seen in the entry of a new kind of platform-based company into services markets. The driving economic factor behind this development is collapsing transaction costs enabled by new applications of the Internet.
It is a move towards what can be called a ‘People-to-People Economy’ (P2PE), in which self-employed individuals offer services in areas such as transportation, accommodation, cleaning and dining through platforms that connect demand and supply. This article explains, first, the concept of the P2PE and, second, how it has the potential to make the European economy more flexible.
It argues that the centre–right should not oppose, but support this development. The P2PE has the potential to transform European culture and entrepreneurship. Nonetheless, there are plenty of challenges ahead, which require policy responses such as modernising labour legislation, revising outdated regulations, tackling vested interests and providing social security for the growing number of self-employed people.
This article will take an unwaveringly positive approach to the P2PE since this new economy will likely increase the efficiency of service production and lead to gains for the economy as a whole.
Read the full FREE article published in the December 2015 issue of the European View, the Martens Centre policy journal.Juha-Pekka Nurvala Business Economy Innovation Resources
‘Uberisation’ is the future of the digitalised labour market
08 Dec 2015
A crucial negotiating session will take place in Miami, Florida from 19 to 23 October on the terms of a possible US-EU trade and investment pact. An independent study by Copenhagen Economics has calculated that a Transatlantic Trade and Investment Pact (TTIP) would add 1.1% to Ireland’s GDP. This is twice the rate of gain that would be experienced by the European Union as a whole.
I spoke recently at a seminar organised by the European Ideas Network (EIN) which is a think tank associated with the parliamentary group of the European Peoples Party, the biggest party in the European Parliament. I said that TTIP would be good for Europe because:
- It would reduce the cost of regulation by eliminating the necessity for duplicate standard setting and inspection regimes, the cost of which has to me met by the consumer without any compensating benefit
- The reductions in the cost of regulation would disproportionately help small and medium sized businesses to break into the transatlantic market. The present duplicative system acts as a barrier to entry and helps bigger well established companies keep markets to themselves
- It would open the US Federal, State and local government market to European tenders, who are now discriminated against by “buy America” rules, which deliver poor value to US taxpayers
- It would help high tech start up businesses on both sides of the Atlantic by creating a single market of almost 1 billion consumers
- It would help to keep Britain in the EU, in order for it to access this market. A failure to conclude TTIP could, on the other hand, push the UK towards the exit, on the supposition that it might be able to negotiate better on its own
- It would give a confidence boost to the global economy at a time when the burden of debt precludes other forms of stimulus
There is, unfortunately, quite a bit of opposition, in Germany and Austria in particular, to the conclusion of TTIP. This seems to be linked to a general suspicion of globalisation and a perception that it adds to inequality. Austrians are 53% to 35% against, Germans 41% to 39% and Luxembourgers 43% to 40% against. The rest of the EU is pretty overwhelmingly in favour with the biggest favourable votes in Ireland and Denmark, at 71%.
On the far side of the Atlantic, trade is not a big concern of Americans. Their big concerns, according the Pew Research Centre, remain international terrorism and building up their own economy. 69% of American under 28 believe trade deals are good, as against only 50% of over 65s.
Interestingly, 59% of Democrats favour concluding TTIP, whereas only 45% of Republican voters do so. This is opposite to the traditional position in the US Congress, where Republican Congress members generally favoured freer trade, and Democrats often did not. US public opinion will be less willing to accept European standards until the trust, damaged by the Volkswagen and LIBOR scandals, is repaired.
It is also important to recognise that differing standards sometimes reflect genuine differences in priorities among populations. For example, Europeans put a higher value on data privacy. Americans probably put a higher value on national security. So the negotiations will be intensely political..John Bruton Business Economy EU-US Trade
Why TTIP is good
12 Oct 2015
Kumardev Chatterjee is not only involved in shaping European innovation and entrepreneurship policy as the Founder and President of the European Young Innovators Forum, he actually started his first profit-making company at the age of 19. In this interview he talks about why he thinks new start-ups do not flourish in Europe as well as they do in the USA.
Mr Chatterjee, you were one of the 45 world leading digital thinkers requested by the European Commission to write a chapter for the project “Digital Minds for a New Europe” that aimed to articulate a vision for Europe in 2020. What is your vision of Europe 2020?
My vision is that Europe in 2020 will focus strongly on innovation and entrepreneurship, not only in the area of products, services and business processes, but also in the area of public procurement and government services. Some people think that innovation and entrepreneurship are the ‘cool stuff’, the ‘edge stuff’, but that is not yet the mainstream opinion. We need to have this absolutely reversed by 2020 so that entrepreneurship is seen as being mainstream, something that is driving more sectors of the economy.
How can we achieve this? If we come up with more financial instruments, many people, especially in business, will say that it is just another level of bureaucracy.
Innovation and entrepreneurship needs young innovators and robust private sector involvement in tandem with strong government policies and flexible financial support.
A lot of people don’t know that Silicon Valley, which has ended up becoming the paradise of private funding, innovation and entrepreneurship, started off as an area with companies and projects funded by the US Government for decades. Government directly funded certain projects there which led to the initial development of the ecosystem before it became self-sustaining and scaled massively.
Government helped create an ecosystem where companies could grow to the extent that they are now run completely privately. There is no shame in saying that public funding can help to bring down barriers that we have put up, it can seed the market and create an environment that is required to foster growth. This is particularly true for Europe, where public action is key to bringing down barriers. We will never have quite that level of ecosystem here in Europe if public funding and public action is not taken.
Yes, some people will say: ‘oh, but that is fake’. Well, is Spotify fake? Is Skype fake? I don’t think so. There are real success stories and the fact that some public financing helped them in the initial part of the story is completely linked to the fact that we have a high-tax regime and strong regulatory barriers. Why should the tax not be spent on creating an ecosystem where individuals are free of state dependency and create self-sustaining entities that further growth, jobs and prosperity?
Isn’t the main problem administrative barriers in Europe? In some countries it takes hundreds of days to start a company.
You are absolutely right. Just try as a citizen of one EU country to go to another EU country and set up a business there. It will take up to six months for the banks just to agree that you, as a European citizen with all the existing credentials in your home country – address proof, identity proof, bank proof, can actually open a bank account for business in another country.
So yes, administrative barriers are huge, but why are they there? I think it is pretty straight forward: they are there because of Member States’ inaction in this area. The Member States want to have oversight over everything. I don’t see the reason why each Member State should have control of European business transactions. The Commission and the European Parliament operate at the right level to deal with this.
So we need more EU level legislation?
Yes, we need the EU Member States to acknowledge that the market has to function according to European rules and not national rules. Of course there are national priorities and derogations in some areas but why should opening a bank account for business in another country be a national issue? Banks should be absolutely mandated to do that. If you are already known as a good bank customer in one Member State, you should automatically be able to open a bank account in another Member State.
Why are there no venture funds in Europe that could complement the bank system?
There is a lot of venture funding in Europe today compared to, let’s say, five years ago when the situation was quite dire. Some venture funds from the US and elsewhere have set up shop here but it’s all about access to finance.
Let’s say that you are in Bratislava and you try to access some money from a Spanish bank: you have to jump through several regulatory hoops just for that. And if you are a bank backing a start-up, it had better be in an area where cross-border trade is easy to do, otherwise you won’t get the financing.
The money is there but the will to invest is not at the same level as in the USA. Do an analysis of the number of pitch events where entrepreneurs can pitch and get money in Europe and it’s at one tenth of the US. A common anecdote says that the same pitch for a start-up that will make you hundred thousand dollars in Europe will make you a million in the US, because there you will not find so many administrative barriers to scaling up, on the contrary there is a robust single market where you can easily get your investment back.
So you think that Europeans have entrepreneurial spirit but we lag behind the USA because of administrative barriers?
If you go to Silicon Valley or any other major innovation centre in the world, you see that Europeans are there. And this is because we are innovative, we have a lot of ideas, we have a lot of creativity, we are highly educated. In fact we have the elements required at the level of the individual to build successful startups.
So, it has nothing to do with the fact that we are not innovative. It has to do with the mindset that we are not encouraged to take risk. Having creative ideas is not the same as actually taking the risk to set up a company to put your idea into action.
That’s the first part and the second aspect is, as I’ve said, that there are so many barriers, starting with access to finance, access to market, with all the regulation. The USA is actually the reverse. Even with a fairly basic idea you can get some money and get to the market pretty quickly, fail fast and then try something else.
Can digitalization help reduce these barriers? What should an ordinary citizen understand is meant by the word ‘digital market’ that is stressed so much by Jean-Claude Juncker’s Commision?
The citizen should hope to have an easier digital life. So, that means, for example, that instead of going to ten offices for one paper that you need, you can do it online from your home. Why should you run at least twice to the office when you need a driving license?
Several countries have awful digitalization because the public sector often opposes it. ‘Oh, if you digitalize, jobs will be lost in the public sector.’ But there will be maybe more jobs created in the private sector! We have to focus on the consumer, the end-user of the product.
The governments always have to ask: is this an innovation? Does the consumer benefit from this innovation? Or does the bureaucracy benefit from this? This is the crucial question: ‘Who should it benefit?’
Interviewed by Vladka Vojtiskova, proofread by Eoin O’Driscoll.
Kumardev Chatterjee was a speaker during the fifth annual Economic Ideas Forum that took place in Bratislava on 16-17 October 2014. He is a Young Innovation leader, top-tier ICT industry professional, European Commission appointed expert and New York Times published opinion leader, all by the age of 35. Chatterjee’s vision, opinions and views have been published by the New York Times, World Economic Forum, European Commission, European Business Summit, Microsoft and leading tech media across Europe. Chatterjee is one of the 45 leading digital minds around the world who have been invited to contribute to the European Commission’s “Visions for Europe’s future in the new digital era”, alongside Eric Schmidt of Google. He is an Advisory Board member of the Journal of Innovation Management with Henry Chesbrough. In recognition of his Innovation leadership and the high-impact achievements of EYIF, the European Commission and INTEL have awarded him as an Innovation Luminary – Young Innovation Champion.Business Innovation Jobs
Market has to function according to European rules and not national ones
09 Dec 2014
This week’s developments regarding the allegations of fraud and money laundering against Lukoil’s operations in Romania are an excellent case-study of EU politicians’ positions towards Russia. It highlights the difference between the EPP-affiliated, pro-European President Traian Basescu, and the Socialist, pro-Russian Prime Minister, Victor Ponta. We now see who walks the walk and who just talks the talk. It also shows a powerful Russian company trying to threaten and blackmail an EU member state; it just happens that in this case, the company’s position is very weak.
On 6 October 2014 Romanian prosecutors seized assets of a Lukoil refinery in Romania for allegations of fraud and money laundering amounting to 230 mil EUR. The Russian oil giant reacted by threatening to close down its operations in Romania and lay off 3500 people. Centre-left Prime Minister Ponta reacted by threatening prosecutors for jeopardizing the Romanian economy.
Centre-right President Traian Basescu explained in clear words that the Russian company has to respect Romanian laws and EU standards, if it wants to operate in Romania. He said that “Putin-style laws” do not apply in Romania; the Russian company should leave for Moscow, if it wants to operate according to “Putin-style laws”. “Leave the country, if you are not ready to obey Romanian law”, he said.
The behaviour of the Russian company and the positioning of the two Romanian leaders is highly relevant for EU’s attitude towards Russia: Traian Basescu, a second term president not seeking re-election in November’s presidential election, is known for his pro-European course and tough stance on Russia. Centre-left Prime Minister Ponta, affiliated with the European Socialists, is running in November’s Presidential elections seeking to become the country’s first Socialist President in a decade. Mr Ponta’s priority is to keep social peace ahead of the presidential elections. Any social unrest triggered by eventual lay-offs would jeopardize his campaign. Mr Ponta is ready to jeopardise the independence of the judiciary in order to keep social peace and to satisfy the interests of a Russian company suspected of having broken Romanian laws.
Lukoil painted a dark picture for its employees and for the Romanian consumers, in case it will have to close down its operations: closing down the refinery would lead to 3500 redundancies. This number is exaggerated, given that Lukoil employs only a total of 1100 people in the foreseen subsidiaries. This did not keep Prime Minister Ponta from adoptingtheir exaggerated number. Not being able to process its crude oil in the Romanian refinery would lead to fuel price increases at Lukoil’s gas stations, Lukoil claims.
Coincidence or not, on Thursday, Gazprom reduced by 15% the gas deliveries to Romania – this being just one of many similar measures taken lately. We are all familiar with Russian price blackmails, but in this case it will not work: Lukoil has a market share of just 20% on the fuel markets in Romania; this is far from a monopoly. If prices at Lukoil’s gas stations increase, every single consumer would just buy his or her fuel at any other European station across the street: An opportunity for every citizen to turn to European companies and to judge politicians on their behaviour in real crisis situations.Siegfried Mureşan Business Eastern Europe Energy EU Member States EU-Russia
Effectively Deterring Russia
10 Oct 2014
What have the following in common?
+ The Scottish 45% YES to break up the UK….
+ The Growth of National Front in France….
+ English anti EU sentiment and support for UKIP….
+ The strength of Tea Party and the polarisation of politics in the USA and
+ The growing support for anti immigrant parties in Sweden, Denmark, and the Netherlands
They have this in common: all these parties want to withdraw from some international commitment or other and shut the doors of their nation to outside influences.
What support for these parties shows is that an introverted and recessive Nationalism is on the rise again. This is a reaction against globalisation by those who have benefited less from it than others did. It should be noted that all have benefited from globalisation through cheaper food, clothes, and cheaper communications. But some have benefited much more than others, and the “others” are expressing their disgruntlement through votes for these populist parties.
These parties want a repatriation of powers to the national level, and even complete withdrawal from international bodies like the WTO, the European Union and the European Convention on Human Rights. People supporting these parties say they do not understand how Brussels works, or how Westminster or Washington works. But do they really understand any better how their local council works ?
This is why I am unconvinced that concession of their literal demands would actually remove the discontents that lie behind support for these parties. For example, I am not convinced that an elaborate system of federalism within UK, or UK withdrawal from the EU, would actually assuage the anger being expressed through UKIP votes. The experience of post Franco regional devolution in Spain is not completely reassuring.
In Scotland, the younger and the poorer sections of population were the most alienated, and voted most strongly for Scottish independence . This is despite the fact that public spending per head, on which poorer people depend more, is already higher in Scotland than it is in England. It is £10,152 per head in Scotland, as against £8,529 in England. On those figures, complete fiscal would worsen the position of poorer Scots.
A SENSE OF BEING RESPECTED IS WHAT IS MISSING
I believe these vote reflect a sense of not being listened to, of not being respected, than they do a demand for particular constitutional or institutional changes. Do Scots feel respected, and listened to, in UK? Do working class voters of the National Front, UKIP, and the Tea Party voters feel respected by metropolitan elites? I fear the answer in “No” in all cases.
FEAR OF THE FUTURE
Fear of what may happen in the future drives people in the direction of populist solutions and parties. States have made health promises and pension promises that will become unaffordable, as the proportion of the population that is elderly grows. Meanwhile, many private pension schemes are underfunded. Another pervasive fear is that of redundancy in mid life. In such a circumstance, it is difficult to know what new skills to go for, and it is equally difficult to move to another city to find work, after a certain age.
ANTI IMMIGRANT SENTIMENT
These fears feed anti immigrant sentiment. Immigration disturbs the bucolic image some people have of their ideal national environment..forgetting that, if they actually lived in their ideal environment, they would probably find it claustrophobic and boring. There IS also competition for low skilled jobs, and immigration DOES drive some wage rates down. But automation and labour saving devices are devaluing all forms of low skilled work anyway and probably are more important drivers of income inequality.
INEQUALITY OF INCOMES
The growth in inequality in incomes is also a factor in the growth in support for populist parties. Inequality is driven by many factors. It is driven by technology: technology replaces low skilled workers, while increasing the rewards of the higher skilled people, or insiders, who control the technology. One should not ignore the importance of celebrity in causing inequality. Celebrity brings disproportionate increases in relative income. Celebrity footballers, and celebrity CEO’s, represent the same phenomenon. A firm’s stock price is driven partly by the reputation of its CEO and that means a well known CEO can command a higher salary package. Inequality is also driven by access to financial leverage, and assets that can be used for leverage.
Thus high financial sector incomes evoke particular concern. These are all issues that need to be dealt with by national governments, through the tax system. But they should not be used to justify turning away from the EU or from the benefits that globalisation has brought.
THE MEANING OF NATIONAL IDENTITY
We are not going back to a world of Empires in which Europeans, or people of European ancestry, could make the rules of the game to suit themselves. We can perhaps limit the pace of immigration, but we cannot stop it.
So we need updated civic education of ourselves, and of immigrants to our shores, on questions like “What does it mean to be British?”, “Can one be British, Scottish and European all at the same time?”, “What does it mean to the Irish and European, but of African ancestry?”, ” What are the values that underlie these statements?”
We also need to work out the practical implications of reciprocity as a principle of international relations.
Let me illustrate this by reference to debates now taking place in the UK. If EU citizens immigrating to UK to work are to have restricted access to state benefits, how might that affect the entitlement to health service of the 2m UK citizens living in other EU countries? If the UK want access to an EU Single market to sell its goods and services does that means accepting common EU standards for those goods and services, even fiddling rules on thing that seem not to matter, unless we all recognise everyone else’s standards regardless which could be bad for consumers?
In particular, the UK wants a single EU market for services; but services are provided by people, and these people may need to travel to another country to provide those services, which gets you back into the immigration debate
If Britain wants a veto on certain EU laws, rather than have them decided by majority, 27 other countries will also have to get that veto too. If, as some Conservatives propose, the UK withdraws from the European Convention on Human Rights, what effect will that have on the hard won agreement on policing in Northern Ireland, which depends on access for police complainants to the EHCR? Is the plan just to take England out of the EHCR, or to take Northern Ireland out as well?
DEMOCRACY IS THE KEY TO RESPECT
If the EU is to survive, EU citizens need a sense that they can cast a vote to change the men or women at the top in the EU, in the same way as they can change the people at the top in Dail Eireann, in Westminster, in Birmingham city council, or in their local tennis club. It is not that citizens want to get into the details, but they do want a vote on the EU’s direction of travel.
Globalisation has been taking key decisions above the level of individual states for a long time. That is nothing new. But the time has come to make it more democratic. The International Telegraph Union dates back to 1865. The International Court in the Hague dates back to 1945. Traditionally the rules, governing bodies like these, were negotiated in private in the form of inter state Treaties, between diplomats, and later interpreted by judges. Elected people were often only involved at end of process in saying a simple YES or No to result, by ratifying the Treaty or not.
The EU is different. In the EU, politicians in the Commission initiate laws, and politicians in the European Parliament and the Council decide if these laws will come into effect. In this sense, the EU is MORE democratic than virtually all other international organisation in the world, but it’s not democratic ENOUGH.
I believe the direct election of the President of the European Commission by the 500 million people of the EU, not simply by the 28 heads of EU Governments, is needed. Only in that way will we create a well informed democratic EU public opinion. That would be the best answer of all to the populists.
WHY EUROPE NEEDS TO GET ITS ACT TOGETHER
Gorbachev’s advisor Alexander Arbatov said in 1989 at the time of the collapse of the Soviet Union to a western diplomat: “we have done you the worst of services, we have deprived you of an enemy” Since then, the lack of perceived external threat has led to weak economic management in Europe, to an unnecessary war in Iraq, to increasing debt, to weakened military strength, and to the making of insincere promises that could not be fulfilled when to going got tough.
Now, that period is over. We now see, thanks in part to ill considered promises of eventual NATO membership to Ukraine and Georgia, that those countries have suffered pre-emptive annexations of parts of their territory by force by Russia. The UN Charter and the Helsinki accords on territorial integrity of states have been binned. In Eastern Ukraine we are now witnessing I recently heard a US general describe as “a new kind of warfare”.
Meanwhile, the growing strength of China’s navy distracts US from Europe, and European and US interests are diverging because the US is becoming energy self sufficient, whereas Europe is not.
And productivity in Europe is lagging. According to the OECD, EU labour productivity is growing at 0.6% pa, while productivity in the rest of the OECD is growing at 1.2% a year.
Rather than contemplating separatism, Europeans should be thinking about our precarious position in the 21st century world and uniting to do what we can do about it.
[Based on a speech delivered at the Textile Services Association National Conference 2014, Dublin]John Bruton Business Euroscepticism
Respect and reciprocity: the keys to the future of the EU
06 Oct 2014
The triple crises in Europe affected business innovation and R&D in a negative way. The market entry of innovative businesses in Europe was obstructed and risk capital dried out. Investment in innovation suffered due to the unstable market conditions and the macroeconomic situation. Surely, in times of uncertainty fewer companies would boost R&D spending and invest in innovation. This is especially valid for the small and medium enterprises (SMEs).
The crises were a stress test for the small companies and many failed to pass it. At the same time innovation demand for SMEs grew higher than ever because it meant survival, productivity, growth and competitiveness. Small companies innovate to maintain market share and achieve greater efficiency. Currently, 99.8% of all firms in the EU are SMEs and this is why small innovative companies are crucial for the economic growth and sustainability. In the long-run, economic growth depends on the establishment and support of business environment that fosters innovation. Innovation-intensive countries which create and implement new technologies develop faster than countries that do not innovate. This is why innovative businesses have a special place in the long-run development of the EU.
Innovations and R&D are hardly digestible in our daily round and the best way to tell the story is to look at real life examples. In 2013 I did research on 256 young innovative companies in Belgium. They are small, highly innovative with products and services that reshape and create markets. Due to the high risk nature many of these companies do not survive through their first critical years. Many of these firms co-exist in clusters such as science and industrial parks. That is where a network of enterprises, organisations and academic institutions houses knowledge transfer, suppliers and expert capacity. Many of the young innovative companies in Belgium are university spin-offs – a bridge between universities and businesses, providing jobs and added value to society.
A typical example of innovative businesses concentration is the Louvain-la-Neuve Science Park – a large cluster of small innovative businesses. Established in 1971 as part of the Catholic University of Louvain, it is the first of its kind in Belgium and it is the biggest one in the region of Wallonia. The area of the science park is 231 hectares and it is the home to almost 200 companies that have committed investment amounting to €440 million. Approximately 5,200 employees work there and the majority of them are scientific workers. Louvain-la-Neuve Science Park is specialised in life sciences, engineering, ICT, chemicals and other fields. The park itself is part of a local group of scientific and technology parks which includes the Scientific Park Monnet, Einstein Scientific Park, Fleming Scientific Park, Scientific Park Général and Scientific Park Athena. Louvain-la-Neuve Science Park is a mixture of academics, on the one hand and innovative companies, scientific and research organisations, on the other. This combination of factors creates a suitable environment for small innovative firms to start-up, grow and generate added value through innovation.
Zooming in at individual companies, my research revealed that some of the small innovative companies are established as spin-offs from the Université Catholique de Louvain (KU Leuven). Following the business path of such companies is of particular importance in order to understand how such firms initiate their activities. The KU Leuven Research and Development, a specialised organisation for setting up spin-offs, plays a major role. Initially a project proposal based on a scientific discovery is submitted and thoroughly reviewed. After the approval of the idea, the KU Leuven Research and Development provides assistance to the researchers in creating a business plan for a start-up and for identifying investors. In order to ensure knowledge transfer, the KU Leuven Research and Development allows the know-how to be utilised later for educational and research purposes. Once the company is created, it starts operating in the cluster environment which provides networking and partnership opportunities. The cluster provides more security for such companies because joint research projects drive the cost of R&D down to an affordable level. This is how a small company, engaging creative ideas of young researchers, might become a disruptive innovator, capable of reshaping markets. Successful cases, on the other hand, attract more of the usually scarce risk investment, both public and private. More entrepreneurs and innovators are attracted too. In the end, all these ingredients create an almost self-sustaining cycle that provides jobs, economic growth and added value to people.
There are many cases like the one I described and their cumulative effect will create a big difference on a larger scale in the EU. This is why investment in innovation and R&D, focused on small firms and their clustering, is a must-have for the European economy. Such investment will transform the European SME sector to a competitive and productive population of firms. The market value and employment capacity of small innovative businesses will be improved significantly. In addition, such companies have the capacity to close the gap between universities and businesses. Finally, small innovative companies could contribute to the economic convergence in the EU and to the long-run goal of economic growth and sustainability.Kalin Zahariev Business Innovation
Small innovative companies make a big difference
11 Mar 2014
At a recent presentation by the Danish Center for Political Studies (CEPOS) on the highly praised Nordic Model of reform, I gained more insight into how this model really works. Along with a paper entitled “The Nordic Way”, a contribution to the World Economic Forum in Davos, this presentation by CEPOS President, Martin Agerup, was a real eye opener and discussed some of the myths behind one of the most successful economic models in the world.
From the beginning, it was made clear that the Nordic Model is more influenced by individualism rather than community. To quote the authors of the paper, the Nordic Model is ‘less tied down by legal, practical or moral obligations within families’ but is instead based on ‘individuals of both sexes’ becoming ‘more flexible and available for productive work in a market economy.’ This individualism, in combination with a positive view of the state, leads to a higher level of social trust, which in turn benefits economic performance through a subsequent decrease in transaction costs, corruption and a greater respect for the rule of law.
Much to my surprise, the presentation underlined that the Nordic Model does not exist and highlighted that we should instead speak about ‘continuous socio-economic reform’ as the ‘Model’. These continuous reforms were much more concentrated on strict budget rules, an independent central bank, liberalisation of markets, deregulation of labour legislation and decreasing the ‘security’ component in the flexicurity model. This, in reality, may not have been evident to the many advocates of the Nordic Model. Furthermore, the Danish experience has showed that unemployment figures started to decrease once the duration of the unemployment benefit scheme was reduced from 7 years to 4 years, the pension age was increased and early retirement schemes were lowered financially.
In the past, the World Economic Forum has released ranking indices on competitiveness, which are essentially productivity indicators, and has always seen the Nordic countries placed in the top 20. However, in this system, labour costs are not taken into account and if they were, it is argued that Nordic countries would appear much lower in the ranking order. This reality has already been acknowledged by a large majority of Nordic businesses and economists for a while already. In Denmark, out of a population of 5.5 million people, 1.2 million benefited from transfer payments or were public sector employees. By 2012, this number had risen to 2.9 million leading to an increase in numerous taxes, including labour, which have helped weaken the Danish economy through an increase in cost of production and by decreasing its competitiveness on the world market. As a consequence, the employment in the sector of industrial production has declined as well as foreign direct investments.
To summarise, the Nordic Model is a system that includes continuous reforms and is built on individualism and a strong state. The reforms have focused on introducing free market components into the economic model. However, in order to preserve the high standards of living, further reforms will be necessary with a reduction in the high taxation levels.
Link to the paper: http://www.slideshare.net/abcsjf/davos-the-nordic-way; CEPOS: www.cepos.dkStefaan De Corte Business Economy EU Member States Macroeconomics
Stefaan De Corte
The Nordic Model: three myths exposed
20 Sep 2013
With respect for common rules and values, solidarity but also strong national responsibility, and the EU functioning in a way the citizens can support it and feel it as their own, Prime Minister Jyrki Katainen highlighted.
PRESS RELEASE, 6th June 2013 Helsinki
Today in Helsinki, the Prime Minister of Finland, Jyrki Katainen, opened the 4th Economic Ideas Forum (EIF) organised by the Centre for European Studies (CES) with the title “From Reform to Growth: A Roadmap for Europe”, by emphasising the need to keep Europe united. “Europe cannot afford divisions between Member States. Leadership is about unity, not about divisions.” PM Katainen stressed that leaders have to be responsible. In his speech he pointed out the need for a profound debate about Europe’s future, “we should not allow dogmatic voices to dominate it”. He reminded the audience of both populists, who attempt to blame the EU without offering solutions, and of those who demand the immediate creation of a United States of Europe. Instead, he advocated a modern, pro-European pragmatism that includes both ‘more Europe’ and more national responsibility. “We need more Europe, but fair Europe”, with respect for common rules and values, solidarity but also strong national responsibility, and the EU functioning in a way the citizens can support it and feel it as their own. PM Katainen said it’s time Europe regained its self-confidence: we need to highlight what has worked, reminding the international audience of that the euro has been successfully stabilised and the eurozone kept intact. “In Greece, the talk is now of “Greekovery“ instead of Grexit”. He also mentioned the importance of strengthening the Economic and Monetary Union, for instance by establishing the banking union, reminding, however, that more needs to be done. According to the Prime Minister, unemployment remains the biggest challenge, especially with the youth. Measures are also needed to improve financing for small and medium-sized companies and to make Europe strong enough to meet global competition. “We have to also protect our continent from protectionism”, he added. Prime Minister Katainen lauded the Economic Ideas Forum for providing a good opportunity for leaders to exchange views without time constraints. On Friday 7th June the EIF will welcome discussants such as Enda Kenny, Taoiseach of Ireland, Antonis Samaras, Prime Minister of Greece,Valdis Dombrovskis, Prime Minister of Latvia, Olli Rehn, Vice-President of the European Commission, and Michel Barnier, European Commissioner for Internal Market and Services, among others.Business Centre-Right Crisis Economy Jobs
We need a united and fair Europe
06 Jun 2013
Today, no one disputes that credit is vital for small and medium enterprises. Despite the momentum that big businesses give to our economies, SMEs are still the basis of the Spanish productive sector and the ones employing the majority of citizens in Spain and in Europe.
With the crisis, the challenges facing SMEs have become more pronounced. Not only because of the drop in sales as it is the case for other companies, but because of major difficulties in accessing credit. A few years ago, almost any solvent SMEs in Europe could take out a loan. However, the situation has changed and today, the financial market is “fragmented”. What do we actually mean with this? Simply that the criteria for accessing credit varies greatly across Europe. For example, an SME in Spain must satisfy vastly different criteria than an SME in Germany in order to take out a loan.. The result of this is that banks are failing to grant loans to companies in Spain, while similar companies in Germany are being provided with the credit they need. Moreover, even in cases where they can access loans, Spanish companies end up paying a hefty premium, estimated by Deutsche Bank to be in the region of three and four percent.
This fact is drowning many small and medium Spanish enterprises and therefore affecting the recovery of the country and of Europe as a whole. If SMEs do not have access to credit, their ability to run a business is severely impeded and this in turn has serious consequences on the employment situation and economic growth. We need to consider the different possibilities available to solve this problem. The ECB is expected to cut the interest rate by 0.5% in a few months. However, we have observed how a decrease in interest rates will not solve the fragmentation in the financial markets. We should therefore consider measures such as the ECB changing its collateral policy and authorising banks to use SMEs debt to access credit from the ECB. There is also possibility that the ECB could buy SMEs debt directly from banks in the periphery countries.
These measures, as opposed to low interest rates, would have a direct impact on SMEs, as they could access credit and thus bring us back to the path of growth. The two questions that will decide the future are: will Germany accept such measures? Will the ECB assume a role that it has until now refused? I have no doubt that something is moving in the ECB.Pablo Zalba Banking Business Crisis Growth Jobs
SMEs: A Solution from Europe
30 Apr 2013
WHY ARE MODERN BUSINESS REGULATIONS SO COMPLEX?
I believe that across the western world we may be reaching some sort of limit in the complexity of rules governing business. The response to the financial crisis has been ever more complex rules, that only a tiny number of professional advisors could ever hope to remember or understand properly. In the United States, the Glass-Steagall Act, introduced to regulate banking after the Depression of the 1930’s ran to 37 pages; in contrast, the Dodd-Frank Act, introduced in the wake of the recent crisis, runs to 848 pages of basic text, plus 30,000 pages of implementing rules. In the UK, the 1979 banking act ran to 75 pages, while the 2012 Financial Services act runs to 534 pages. It is the same with taxation: in 1997, Tolley’s guide to the UK tax system had around 5000 pages, while the latest edition has 17,795 pages. I have no doubt the pattern is similar in other countries and in other areas of regulation.
Why is this happening? I think the explanation is ethical, political and legal. Ethics may have declined in many organisations to a point that something is deemed acceptable so long as it is legal, even if it may be very unfair to customers, creditors or the taxpayer. This may be accompanied by other excuses like “everyone else is doing it” or “we must do this to keep market share.” In politics, the” gotcha” principle may be at work: no politician or administrator wants the buck to stop with them if something goes wrong. As a result, they make ever more complex rules to pass the responsibility on to some other body, preferably to an anonymous quango. Also businesses themselves lobby for “certainty” in legislation, which often involves more and more complex exceptions and qualifications. The ingenuity of lawyers in devising complex ways of getting around rules also drives rule makers to introduce new complexities to close loopholes. Some of these new laws are so long that parts of them are never properly debated, or even understood, in parliaments.
A REGRESSIVE TAX
Complex rules are a sort of regressive tax. They give an artificial advantage to those who can hire “the most sophisticated risk modeler, the slickest tax accountant” as Andrew Haldane of the Bank of England pointed out in a speech earlier this month. These complex rules carry huge economic costs. They divert talent, time and money away from productive activity to an activity that adds nothing to the competitiveness of our economies in international markets. Andrew Haldane asked the question: “If complex frameworks come with economic and social costs-why has society not done more to tackle them Resistance is strong, particularly among those who gain most from squeezing through the loopholes. There is also an inbuilt professional inertia among regulators, lawyers and tax accountants with large amounts of human capital invested in complexity.” Simplifying regulations must be part of any serious effort to make the European economy more competitive.
A RETURN TO BASIC ETHICAL QUESTIONS IS NEEDED
Rather than ever more complex rules, covering every conceivable thing that could go wrong, we may need to return to simpler, more general rules and rely on the courts to decide whether people acted in accordance with the spirit and intent of those rules. For example, instead of prescribing in ever greater detail what companies must put in their annual reports, we may need to simply lay down a rule like ”the company must disclose all material facts that shareholders, customers and creditors would need to know in their own interests.” Then leave it to the courts to decide if the company has disclosed all those material facts and provide harsh penalties if the courts decide they have not. That may mean businesses living with more uncertainty: rather than know for sure whether some shortcut they are proposing to take is legal or illegal, and if legal feel free to go ahead with it, businesses in future may have to ask themselves the question “is this action right, fair to my customers, fair to my shareholders, and fair to the general public?” If the answer is “no” to any part of that question, they should decide of their own accord without consulting any regulator or professional advisor, that they will not do it.John Bruton Business Crisis
Who are the real winners from complex financial regulations?
29 Apr 2013
Israel has in the last 20 years achieved some impressive economic results. It was the last country to enter the great recession and the first to come out and its economy grew by 4.8% in 2011. Israel also has the highest number of start-ups per capita in the world and has the highest relative number of people working in R&D. Furthermore, multinationals like Intel, Google, Cisco and AG Siemens all have important research and production facilities in the country.
So how can Europe learn from Israel’s achievements in order to improve its own economic prospects? The book ‘Start-up Nation: The Story of Israel Economic Miracle’ by Dan Senor and Saul Singer offers some answers.
Firstly, the State of Israel has been, and still is, a country built by immigrants. Around 90% of Israelis have a migration story in their recent family history. Immigrants are more likely to start from scratch and build something themselves. Israel has also used the potential of educated immigrants to the maximum, with many of them working in the high tech industry or creating start-ups.
Secondly, the role of venture capital is also very important. Israel attracts around two billion dollars a year in venture capital, the highest per capita in the world and more than Germany and France combined. This flow of capital began in the 1980s with a number of private sector initiatives, but started to increase from 1993 with the introduction of the government initiative ‘Yozma’, which offered co-financing and tax incentives for foreign venture capital investments in Israel.
Thirdly, Israel is a country with a strong entrepreneurial spirit. While elsewhere mothers may wish for their children to become doctors or lawyers, in Israel mothers hope that their children will start their own business. It is considered normal to take risks and found a start-up.
The last and perhaps the most important consideration is the cultural factor of ‘chutzpah’. This Hebrew word can be translated as audacity and focusses on the attitude in Israeli society of assertiveness, of informality and of questioning authority and things as they are. This leads to an urge for improvisation and innovation and allowed companies like Intel to make some of their biggest R&D successes is Israel.
[picture source:theyeshivaworld.com]Christophe Christiaens Business Macroeconomics Middle East Neighbourhood Policy
The Israeli economic miracle, lessons for Europe
25 Mar 2013
Lewis Carroll’s Humpty Dumpty says (in a rather scornful tone): “When I use a word, it means exactly what I choose it to mean – neither more nor less.” In the debate about last weekend’s Swiss referendum on bonuses of top managers, we are all little Humpty Dumptys. We are ascribing a meaning to the outcome which it legally does not have. Let’s remember, the referendum was about whether managers’ salaries were to be determined by the boards of corporations, as up to now – or by the shareholders, as the “Initiative against corporate rip-offs” demanded. The decision now taken does not at all automatically mean that bonuses will be capped, or reduced in any significant way. Quite the contrary. Seeing that the majority of shares of a given corporation is usually held by one or several other big corporations and not by the proverbial small shareholders, one can easily imagine that the bonus decision will not exactly be taken from an anti-capitalist perspective – or from any other point of view hostile to top managers’ interests. In other words, we will only know in a year or so what the real effects of this vote are: in terms of the development of bonuses, and in terms of Swiss top managers’ reaction to this.
So much for the facts. And yet, the referendum was made out to be an outcry against managerial greed – some would even say against global capitalism – by the Left, whereas mighty employers’ federations and wealthy bankers spent record sums to convince voters that a Yes would mean the end of economic freedom. Both notions have little to do with the outcome of the referendum. But they say a lot about the current state of debate in Europe. Come Monday evening, many in Brussels, Berlin and Paris were enviously advocating that the EU (for once!) should learn from the Swiss, and there were already fears that today’s EU Finance Ministers’ meeting would much too hesitant in its conclusion that the Commission should make proposals for a bonus cap by the end of 2013.
Of course, it is legitimate to question bonuses of several million Euros, no matter what the track record of the recipient. And, yes, one may indeed ask whether anybody should make fifty or a hundred or two hundred times as much as the lowest income. But then one should also reflect upon the eminent question whether governments rightfully should intervene in the fixing of salaries – at least, on the upper end of the scale. Of course, a 75 % income tax may come in handy at this point. But ever since Socialist President Hollande introduced it, not only Gerard Depardieu has migrated: The upper echelons of the Brussels real estate market have been swept by new arrivals from the Paris’ 16th arrondissement. The point is that there are usually ways around any type of income limitation by the state. And, even more importantly, there are already a number of companies, or individual top managers, that have limited or decreased bonuses on their own, mindful of the shift of the public mood in Europe. As soon as some do this, others will feel more pressure to follow.
Which all goes to say that instead of screaming for more toughness against evil managers, we should all take a good long look through the looking glass, and check whether what we believe to see is really what we have in front of us. And we should learn from the Swiss in the true sense, that is wait and see what the result of Sunday’s Swiss referendum really will be, before we copy and paste.
[Picture source: teenbusinesscentral.com]Roland Freudenstein Business Democracy Ethics
Through the looking glass: greed, business and democracy
05 Mar 2013
A recent study conducted by Deutsche Bank concluded: “Based on this approach the authors could identify improvements in competitiveness in the GIPS countries (Greece, Ireland, Portugal and Spain), but not in Italy and France. This suggests that the reduction in Italy’s current account deficit has been cyclical. The persistence of the French deficit is consistent with the lack of competitiveness and more robust domestic demand growth.”
In short, while some European countries such as Spain are improving the competitiveness of their economies, others are making no such progress. Should this trend continue, economic imbalances in Europe could emerge. In order to emerge from the crisis we need to improve productivity. The only alternative would be to lower wages. All European countries should strive towards creating innovative economies that can sustain relatively high wages and good working conditions. Europe cannot compete on the basis of labour costs. Rather, Europe must compete in terms of innovation and talent.
The second issue on which we should reflect is the lack of competitiveness of the French and Italian economies, as found by Deutsche Bank. Economic experts are concerned about both economies. France has become less and less competitive because of a failure to introduce necessary structural reforms. In Italy, the forthcoming elections make it unclear whether or not an agenda of structural reforms, of the sort which benefited countries such as Spain, will actually be introduced.
Hopefully in the coming months, Italy and France will resume a reform agenda and begin to experience economic growth once again. Not only for the good of their respective citizens, but for the good of all Europeans.
Restoring Europe’s competitiveness
14 Feb 2013
The financial transaction tax (FTT) has been in the limelight ever since the European Commission President, José Manuel Barroso, presented his proposal to the MEPs in Strasbourg in his ‘state of the Union’ speech (28/09/2011). In the current economic turmoil, this proposal revives an old debate and adds more food for thought to the general discussion on European economic governance.
The proposal will have to be approved unanimously by the 27 Member States at the Council of Ministers, following the opinion of the European Parliament. The FTT raison d’être is twofold: on the one hand, it is meant as a fair contribution from the financial sector to the cost of the economic crisis or, in other words, a way to make banks and similar institutions pay their share of the burden of adjustment; on the other hand, the proposal is expected to reinforce EU’s internal market by preventing financial speculative activities and competitive distortions from happening.
By introducing a FTT first at EU level, the measure is also projected to set up the appropriate grounds to eventually work on a similar tax at global level. The proposal has wide support from European citizens (65% according to the latest Eurobarometer) and has been fostered by the French-German axis. For this reason, critical voices speak about a ‘political’ proposal, while questioning its viability from an economic standpoint. Most of the criticism has come so far from Sweden and the UK. One of the main arguments put forward by the detractors of the proposal is its potential negative side-effects on the economy, namely the relocation of the financial institutions, the resulting loss of competitiveness and, eventually, the possibility of clients bearing the burden of the tax. Swedish economist Anders Aaslund has recently criticised the proposal recalling Sweden’s experience with the so-called Tobin Tax back in the 1980s. According to Aaslund, the revenue of the tax amounted at the time SEK80 million, while SEK1.5 billion was foreseen.
Furthermore, most of the securities market left the country as a reaction to the tax. A similar situation is foreseeable, in his opinion, with the security trade abandoning the EU. For that reason, the Swedish government is expected to reject the proposal and, always according to Aaslund, the Nordic and Baltic governments in general would reject it too. The UK’s opposition to the FTT is perhaps more difficult to explain, particularly if we take into account that there is already a sort of financial transaction tax in place in this country. However, according to some studies, the so-called Stamp Duty Reserve Tax actually exempts more than 70% of the total UK stock market volume from the tax. This situation would change with the introduction of a FTT at European level. Besides this economic argument, internal politics are likely to be an influential factor for the rejection of the proposal, mainly because the introduction of the FTT would mean a step towards more of the EU’s own resources. Other voices, such as the one from the European Central Bank President, Jean-Claude Trichet, do not criticize the idea of having a FTT per se, but emphasize the fact that it should be applied everywhere in the world. If not implemented at global level, the proposal would have disrupting effects on the economy, he asserts. In spite of the above mentioned criticism, the Commission proposal has the strong support of the European Parliament, as well as with the backing of French and German leaders.
When defending the FTT, there are many arguments to point out. Firstly, the proposal has the support of the majority of the European citizenry. Secondly, it is regarded by the Commission as a first step to a global transaction tax, this being the ultimate goal, which will probably be introduced in the next G20 meeting as a subject for discussion. Thirdly, the proposal addresses the financial services, which have benefited so far from preferential treatment when it comes to taxation compared to other sectors (financial services are, in general, exempted from paying VAT). Fourthly, it will only affect transactions on financial instruments between financial institutions, in other words, it will not be detrimental to private households or SMEs. Fifthly, the tax rates will vary from 0.1% and 0.001% depending on the product – this would be the minimum for Member States to implement – therefore not representing a threat for financial institutions and therefore an incentive to relocate. Sixthly, the tax is expected to raise revenue of approximately €57 billion per year, a part of which is meant to go directly to the EU Budget, thus reducing the Member State’s GNI-based contributions. What can be the expected outcome of the FTT proposal? As already mentioned, it is highly improbable that it will make its way through a Council deciding unanimously. It is more probable, however, that the FTT would begin its journey within the eurozone, as suggested already by some, like the Belgium Finance Minister Didier Reynders. Nevertheless, the approval of every country from the eurozone cannot be taken for granted either, since there is speculation that The Netherlands and Spain – two countries with powerful banking sectors – would be reluctant to approve the proposal. Another option would be a selected team of countries willing to participate under enhanced cooperation procedure but, in such a scenario, the ambition of having a universal FTT would be far from realized.Banking Business Economy Social Policy
Financial Transaction Tax – a controversial proposal
19 Oct 2012
Itʹs official. The General Data Protection Regulation (GDPR) has started to apply directly in all member states with the aim of safeguarding the processing of personal data of all natural persons within the European Union. The Regulation is seen as the most comprehensive ‘upgrade’ of data protection rules over the last two decades as it repeals Directive 95/46/EC enacted in the distant 1995. GDPR standardises and strengthens citizensʹ rights when it comes to collecting and processing personal data while also empowering national data protection authorities to supervise this new ambitious framework, by enhancing their responsibilities and ensuring the possibility of heavy fines at their disposal. European and global businesses (big and small) had two years to adapt to the new onerous requirements which demanded administrative, technical and even strategic changes in the way they operate. The following In Brief aims to highlight the essence of the Regulationʹs 99 Articles and analyse the potential impact of GDPR on both users and business.Business Ethics Internet Technology
The Impact of GDPR on Users and Business: The Good, The Bad and the Uncertain
05 Jun 2018
Despite deteriorating economic conditions, the Russian business community has remained loyal to the Kremlin. It has not protested or even questioned Vladimir Putin’s main domestic and foreign policies. A state monopolistic model of the economy had already been in deep crisis before Western sanctions against Russia over Ukraine started and oil prices collapsed.
However, both the government and business are reluctant to publicly admit this. Instead, the Kremlin has promised to help small and medium-sized businesses with predictable fiscal policy and relaxed regulation, but it has consistently failed to do so.
The entrepreneurs, in turn, have mostly reacted with more austerity and by moving into a shadow economy. As for the oligarchs, the elites have not become divided over the relatively mild Western sanctions, as Putin has managed to keep the wealthiest power brokers at bay through a variety of carrot-and-stick policies.
Large commercial entities continue to rely on state contracts and other government support, while the Kremlin’s business insiders have been finding innovative ways to circumvent Western sanctions. Given the current level of relatively superficial sanctions, the US and the EU will probably have to play a long-term game before the Kremlin changes its aggressive domestic and foreign policies.Business Elections EU-Russia
The Tsar and His Business Serfs: Russian Oligarchs and SMEs Did Not Surprise Putin at the Elections
20 Sep 2016
Business Economy Youth
Overcoming the stigma of failure: Perceptions of the European youth
23 Dec 2013
The third annual Economic Ideas Forum, EIF12 took place in Dublin on the 19th and 20th of April and brought together experts and policymakers from across Europe and beyond. Participants included EU officials, parliamentarians and senior Irish politicians, as well as high-level representatives of major corporations. As Europe continues to struggle, fresh ideas are urgently needed for revitalising the economy, generating growth and creating jobs. This unique gathering of speakers and participants provided an ideal opportunity to discuss current economic issues and challenges while offering innovative policy ideas and solutions.Over the course of five panel discussions, as well as keynote addresses by EU officials, ministers and heads of government, significant and timely topics were tackled including greater integration in the European Single Market, greater fiscal responsibility in all Member States, closer economic coordination with Europe’s partners, especially the United States and creating a stronger European identity and sense of solidarity among citizens.Business Crisis Economy Eurozone Growth
Economic Ideas Forum Dublin 2012 – Conference Report
02 Jul 2012
The second annual Economic Ideas Forum, EIF11 took place in London on the 25th and 26th of May and brought together high-level government officials, business leaders and other influential stakeholders from across Europe and the United States. Participants included EU officials, parliamentarians and senior British politicians, as well as high-level representatives of major corporations. This unique gathering of speakers and participants provided an ideal opportunity to discuss current economic issues and challenges while offering innovative policy ideas and solutions. Over 200 participants took part in EIF11, which counted on the support of our partners the Stockholm Network and Business for New Europe.Business Crisis Economy Growth Macroeconomics
Economic Ideas Forum London 2011 – Conference Report
25 Jul 2011
The first annual Economic Ideas Forum brought together high-level economic experts, Ministers of Economy, EU Commissioners, former Prime Ministers and Ministers of EU Member States and business representatives from around the world in an effort to set in motion a synergetic chain by involving EU leaders with the business community and inspiring them with strategic insights. The Forum took place in Madrid, 15 April 2010 during the ECOFIN Meeting of Ministers of Economy and Finance and was a perfect opportunity to present new ideas and offer solutions for overcoming the current global financial and economic crisis. The Forum tackled the hottest topics in the economic agenda: international cooperation; coordination of strategies; economic dynamism; the promotion of a value-driven economy; building a competitive and sustainable economy that promotes green investments, innovation, the promotion of small and medium-sized enterprises, and the activation of sustainable recovery actions. Over 250 participants joined in the Forum, which counted on the support of the two of the Centre’s member foundations, FAES (Fundación para el análisis y los estudios sociales) from Spain and KAS (Konrad-Adenauer-Stiftung) from Germany.Business Crisis Economy Globalisation Growth
Economic Ideas Forum Madrid 2010 – Conference Report
01 Jun 2010