13 Annual report for 2003 on competitiveness
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15217/03
SEC(03) 1299
| Commission Staff Working Paper — European Competitiveness Report 2003
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| Legal base | — |
| Document originated | 17 November 2003
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| Deposited in Parliament | 10 December 2003
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| Department | Trade and Industry
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| Basis of consideration | EM of 6 January 2004
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| Previous Committee Report | None
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| To be discussed in Council | No discussion envisaged
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but further information requested
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Background
13.1 The Lisbon European Council of March 2000 set the EU the
goal for the next decade of becoming the most competitive and
dynamic knowledge-based economy in the world by 2010, capable
of sustainable economic growth with more and better jobs and greater
social cohesion. This annual Commission staff working paper aims
to provide an analytical contribution to the debate on how to
attain this goal by strengthening the competitiveness of European
industry.
The Commission Communication
13.2 As well as an annual review of trends in economic growth
and standards of living in the EU as compared with those of other
major economies, each year the report contains chapters considering
more specific issues. This year's special chapters focus on:
- reorganizing firms and improving performance through links
to Information and Communication Technologies (ICT);
- the regional aspects of competitiveness; and
- EU enlargement and the competitiveness of manufacturing
industries in the EU.
13.3 The report reiterates the key point in the 2002
report — that US productivity growth since the mid-1990s
has been considerably faster than that in the EU. It notes that
in the period 1995-2002, GDP per person employed in the EU rose
by 7.2%, compared to 16.2% in the US. On a GDP per hour worked
basis, this gap narrows to 9.2% in the EU compared to 13.8% in
the US. The report records the level of GDP growth achieved in
the EU in 2002 (1%) and calculates that it would take 98 years
to double living standards, should such poor EU growth continue.
The EU's general weaknesses, relative to the US, are noted in
respect of the employment rate, total hours worked and growth
in labour productivity. These weaknesses put at risk the achievement
of the Lisbon objectives.
13.4 In Chapter Two, the report concentrates on e-business
applications and their effect on productivity growth. It concludes
that there has been insufficient investment in the EU in e-business
applications relevant to organisational change. Companies and
governments can increase take-up of these applications by providing
training, and there is praise for the UK's business support networks
for small and medium-sized enterprises, which aim to provide knowledge
and practical assistance to help them to adopt e-business applications.
A key role for governments is to provide high-quality ICT infrastructure.
13.5 In Chapter Three the Commission considers regional
aspects of competitiveness across the EU. There are still substantial
regional differences in both wealth and competitiveness, despite
a slow convergence having taken place over the last two decades,
assisted by Structural Funds. Key aspects of successful regions
include research and development leading to higher productivity,
local specialisation in high-tech work and the numbers of people
receiving tertiary education. Links between the academic world
and businesses are important in the development and diffusion
of knowledge and the report emphasises the role for government
in promoting these links. Definite benefits can be gained from
proximity to high-technology clusters and networking with successful
neighbouring regions. Other important factors include the existence
of a strong entrepreneurial culture, local competition and good
communications.
13.6 Chapter Four reviews the likely implications
for manufacturing of an enlarged EU. Major changes have taken
place in the economic structures of the accession and candidate
states in Central and Eastern Europe since the early 1990s. However,
progress towards modernisation of their economies has been uneven.
There have been delays in reforming the financial sectors in
Poland, Slovenia and Slovakia. Slovakia lags significantly behind
in reforming its infrastructure, particularly in the quality of
its roads and telecommunications. Corruption is a "medium-sized
obstacle" in all the states, but more of a problem in Latvia,
Lithuania, Slovakia, Bulgaria and Romania than the others. However,
the report quotes the World Bank's 2000 World Business Environment
Survey as suggesting that bribes in most of the accession and
candidate states are "lower" than, for instance, in
France and Germany. The quote does not make it clear whether
"lower" refers to frequency or going rates.
13.7 The low level of unit labour costs gives a competitive
advantage to the Central and East European countries (some figures
for Cyprus and Malta are not available). However major currency
realignments or wage convergence toward the levels of the EU15,
exceeding the rate at which productivity catches up, could undermine
the cost advantage.
13.8 The accession and candidate states fall into
two groups: those with higher labour productivity and higher
wages, which are increasingly shifting their production towards
technology-driven industries; and those such as the Baltic States,
Bulgaria and Romania, with lower levels of productivity, which
compete essentially on the basis of lower labour costs. These
run the risk of being locked into patterns of production which
are labour-intensive or natural resource-intensive. The export-oriented
industries of the first group are often dominated by large enterprises
which have attracted substantial amounts of foreign direct investment
and they are relatively well prepared for accession.
13.9 The impact of enlargement on enterprises in
the present EU Member States is likely to be largest in the areas
bordering the accession states, in particular in Germany and Austria.
In the long run, the relatively high quality of the workforces
of the accession states should allow them to compete successfully
with the industries of all the existing northern EU Member States.
The Government's view
13.10 The Minister of State for Industry and the
Regions at the Department of Trade and Industry (Jacqui Smith)
comments that the Commission may draw on this report when considering
policy options. But, otherwise, it is simply a factual background
document with no direct policy implications.
Conclusion
13.11 We clear the document, but ask the Minister
whether an annual report such as this, which is 252 pages long
and which has been produced in response to a Council Resolution
of 24 November 1994, serves the intended purpose and justifies
the cost of production in terms of Commission staff time and effort,
including translation. If the Minister has doubts on this score,
we would expect the Government to suggest to the Council that
its Resolution should be amended so that the resources devoted
to responding to its request are proportionate to the value of
the end product.
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