Select Committee on European Scrutiny Fifth Report


9 Enterprise policy scoreboard 2004

(26135)

14639/04

SEC(04) 1427

Commission staff working paper entitled: "Benchmarking Enterprise Policy: Results from the 2003 Scoreboard"

Legal base
Document originated10 November 2004
Deposited in Parliament17 November 2004
DepartmentTrade and Industry
Basis of considerationEM of 7 December 2004
Previous Committee ReportNone
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared, but relevant to any debate on the mid-term review of the Lisbon Strategy

Background

9.1 The March 2000 Lisbon European Council set the strategic goal for the EU to become the world's most competitive and dynamic knowledge-based economy by 2010, capable of sustainable economic growth with more and better jobs and greater social cohesion. Since 2000, the Commission has each year published an Enterprise Policy Scoreboard that offers an overview of the business environment in Member States and the EU as a whole. They are designed to contribute to the review of competitiveness and to influence policies intended to achieve the Lisbon goal. The 2004 scoreboard was produced before the report by the high-level group chaired by Mr Wim Kok, former Prime Minister of the Netherlands, which was commissioned by the European Council in March 2004 as a contribution to the mid-term review of the Lisbon Strategy which the Commission is preparing for the Spring European Council in March 2005.

The scoreboard

9.2 The Commission staff working document is helpfully summarized in the Explanatory Memorandum of 7 December 2004 by the Parliamentary Under-Secretary of State for Construction, Small Business and Enterprise at the Department of Trade and Industry (Mr Nigel Griffiths):

"The 2004 edition follows the pattern of the 2003 report by recording progress in business environment indicators and national quantitative targets adopted by Member States, Candidate Countries and Norway. It also again enables comparisons to be made with the United States and Japan. However, for the first time the Scoreboard includes a chapter on taxation. The other eight chapters concern: access to finance; the regulatory and administrative environment; open and well-functioning markets; entrepreneurship; human resources; innovation and knowledge diffusion; ICT; and sustainable development. Where countries have voluntarily offered national targets in areas of enterprise policy for wider EU consideration (as most countries have done), they are mentioned in the text.

"The executive summary suggests that there have been modest improvements in the business environment, despite slow economic growth. However, the picture is varied in almost all of the nine areas examined. The report does not offer a comprehensive comparison between the EU, the US and Japan but mentions several areas where the EU, or individual countries, are out-performing them. However, it mentions a greater number of areas where the US and Japan remain ahead.

"In access to finance (chapter 1), the report shows that negative trends for equity markets eased in 2003, and that market capitalisation increased in most countries. Numbers of business angel networks increased sharply, particularly in the UK and Sweden. On the other hand, new listings continued to fall relative to existing firms. Venture capital investments also continued to decline, particularly in start-ups and in high technology, although this trend might have reversed early in 2004. Several northern and central European Member States countries, including the UK, offer a favourable bank credit environment, but a number of southern countries do not.

"The regulatory and administrative environment (chapter II) continues to be a high policy priority area. Several Member States have set quantitative targets to reduce burdens, and application of impact assessments has become more widespread. However, there remains strong evidence that small firms are burdened disproportionately more than large firms.

"The report notes that taxation (chapter III) is an important part of the business environment. The top all-in statutory corporate tax rate has decreased in most Member States since 1995, and tax rates have converged in the pre-Accession EU-15 save for Ireland which has drastically reduced its rate. However, the implicit tax rate on corporate income rose in most of those Member States for which data was available. There were mixed increases and decreases in implicit tax rates on labour across the EU-15. In its response to the Commission on the Scoreboard, the DTI said that the UK Government considered it inappropriate to include taxation, which is a Member State competence.

"Chapter IV notes that the share of international transactions in each Member State's GDP (trade integration) in 2003 remained generally the same as in 2002. Most of the new Member States showed high trade integration. Foreign direct investment has declined in most Member States, but countries have progressed further in reducing the share of state aid in GDP and re-directing state aid towards horizontal objectives.

"European aims in entrepreneurship (chapter V) remain to improve attitudes towards self-employment, increase the number of entrepreneurs and stimulate growth of incumbent companies. In 2003 the rate of self-employment remained generally unchanged at about 13% of civilian workers. The female self-employment rate was up marginally to 28%, compared with the US's 45%. Sluggish growth has affected willingness to consider entrepreneurship and, since 2000, the propensity towards self-employment has declined continuously in the EU-I5 (and in the US). On the other hand, the gross birth rates of EU enterprises was only 2% less than in the US.

"On human resources (chapter VI), 79% of all 22-year-olds had completed upper secondary education. Although the number of tertiary graduates increased, they constituted a considerably smaller proportion of the population and labour force than in the US (though the UK was among five countries that had a higher number of tertiary graduates relative to the relevant age group than the US). Life-long learning participation remained unchanged or decreased in several countries.

"The EU-25 continues to lag behind the US on innovation and knowledge diffusion (chapter VII), though Sweden and Finland out-perform both the US and Japan. Business expenditure on R&D remained at previous levels, and patent applications decreased (as they did in the US). Preliminary data suggested that technology transfer from science to enterprises needed to be strengthened.

"The EU's under-performance in productivity growth partly reflects a lack of ICT modernisation (chapter VIII). IT expenditure as a proportion of GDP in the EU-15 declined over 2001 and 2002 and, unlike in the US, did not improve in 2003. On the other hand, Internet usage has risen markedly, to over 80% in most of the EU-15. Broadband, too, has continued to rise. However, significant market reforms in telecommunications have not led to narrow price differences.

"The report on sustainable development (chapter IX) is comprehensively positive. Virtually all Member States have significantly improved their eco-efficiency in manufacturing, and in 2002 there was further progress in reducing emissions of greenhouse and acidifying gases and ozone precursors."

The Government's view

9.3 The Minister briefly comments that "the document data will be taken into account by officials in their recommendations to Ministers and policy inputs to Commission and other Member State deliberations on enterprise matters" and that "the Commission itself may well draw upon the Scoreboard, along with other evidence, when formulating policy proposals".

Conclusion

9.4 There is a depressing sense of déjà vu about this document. Last year, in considering the 2003 scoreboard, we noted that these annual papers provide much factual information on and insights into the main features of the EU economy, but we wondered whether they really assisted in pointing to remedies, or whether Member States would be seriously disposed to implement any such remedies.[24] The same applies now. Moreover, there is little to suggest, any more than there was a year ago, that the EU economy is beginning to close any of the serious gaps between it and the US (and Japan).

9.5 We said then, and now repeat, that what is lacking is a comprehensive, in-depth analysis of why the US continues to do so much better, to which should now be added analysis of the additional challenges posed by the rapidly industrialising and modernising economies of China and India. We hope that the Commission's mid-term review of the Lisbon Strategy will address these fundamental questions. Many of the relevant considerations are also explored in the 2004 edition of the Commission's annual report on competitiveness in the Union and in the Kok report. When we cleared those two documents on 12 January 2005,[25] we considered them relevant to any debate on the mid-term review of the Lisbon Strategy. The same applies to this document, which we also clear.




24   (25123) 15036/03; see HC 42-ix (2003-04), para 28 (4 February 2004). Back

25   (26146) - (26161) 14509/04; see HC 38-iii (2004-05), para 35 (12 January 2005).

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