EU’S LAGGING COMPETITIVENESS

International business cases

THE EU’S LAGGING COMPETITIVENESS
In a report produced for the European Commission, published in November 1998, it was argued that the EU lags behind the USA and Japan on most measures of international competitiveness. Gross domestic product per capita, sometimes used as an indicator of international competitiveness at the country level, was 33 per cent lower in the EU as a whole than in the USA and 13 per cent lower than in Japan. The EU’s poor record in creating employment was singled out for particular criticism. As this appeared to apply across the board in most industrial sectors, it suggested that the EU’s poor performance related to the business environment in general and, in particular, to the inflexibility of Europe’s labour markets for goods and services. A shortage of risk capital for advanced technological development and high cost and inefficiency of Europe’s financial services were also highlighted by the report. For one reason or another, European industries generally lag behind in technology industries. If measured by the number of inventions patented in at least two countries, the USA is well ahead of most European countries, as well as Japan. Despite these shortcomings, the report’s authors focus attention on flexible markets, market liberalisation, and the creation of a competitive business environment rather than on targeted intervention by the EU or national authorities.
1. Is gross domestic product per capita a useful indicator of International competitiveness in the EU?
2. Is it fair to point the blame for the EU’s poor international competitiveness at inflexible labour markets, regulated goods and services markets, and a general lack of competition? What alternative explanations might be suggested?