Transcript Slide 1

European Commission
Enterprise and Industry
Directorate General
EU’s economic reform challenges
- European Competitiveness Report
2006
Gert Jan Koopman, Director for Industrial Policy
and Economic Reforms
Brussels, 1 December 2006
The Competitiveness Report
• The European Competitiveness report is an
annual publication produced since 1997, at
the request of the Council (Resolution of 21
November 1994). This is its 9th edition.
• It is an analytical paper. It examines key
developments and factors that explain
competitiveness -and are relevant to policyfrom the point of view of economic theory
and empirical research.
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The Competitiveness Report
• The 2006 Report has been redesigned to serve the analytical
foundations of the microeconomic pillar of Lisbon strategy.
This brought it closer to the policy agenda.
• It reviewed a number of reforms:
–
–
–
–
Liberalisation of energy markets;
Business environment and better regulation;
Financing of innovation;
Designing innovation policies taking into account the lead markets
concept.
• and the competitive position of two industrial sectors:
– the producers of Information and Communication Technology goods
and services; and
– The pharmaceutical industry.
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Structure of presentation
I.
Facts on EU growth and productivity
performance
II.
Key policy challenges: innovation,
energy, business environment
III. Competitiveness of EU
manufacturing sectors
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I.
Recent economic performance:
GDP and productivity growth
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EU-25 growth: contributions of employment and
labour productivity
3.5
Labour productivity
Employment
3.0
2.5
2.0
1.5
%
1.0
0.5
0.0
-0.5
-1.0
1990 - 1995
1995 - 2000
2000 - 2005
2005
2006f
2007f
2008f
Note:
The two components sum up to the average annual GDP growth rate in the respective periods.
Data source: European Commission (AMECO).
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European Competitiveness Report 2006
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Data source: European Commission (AMECO).
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EU=100
Productivity levels by Member State
160
140
120
100
80
60
40
20
0
Labour productivity defined as GDP per employed person.
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Average growth of labour productivity by
country, 2000-2005
7.0
6.0
5.0
% p.a.
4.0
3.0
2.0
1.0
0.0
-1.0
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Labour productivity defined as GDP per employed person.
Data source: European Commission (AMECO).
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II. Key policy challenges: energy
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Electricity markets in the Member States
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UK
Estonia
Latvia
Lithuania
Poland
Czech R
Slovakia
Hungary
Slovenia
Cyprus
Malta
Quantity of active
generators and
suppliers
Medium
Low
High
High
Low
Medium
Low
Low
Medium
Low
Medium
Low
Medium
High
High
Low
Low
Low
Medium
Medium
Medium
Medium
Low
Low
Low
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Industrial price level
Degree of
interconnection
medium
medium
medium
low
low
high
medium
high
high
low
medium
medium
medium
low
medium
low
low
low
low
medium
medium
medium
medium
high
medium
high
high
high
medium
medium
medium
medium
low
low
high
medium
low
low
high
low
high
high
high
low
high
high
high
high
Source: European Commission report to the Economic Policy Committee,10
October 2006.
Liberalisation of European energy markets
Challenges and policy options
• The European energy markets have been
going through a process of liberalisation
since the early 1990s.
• Based on existing economic literature
discussing both EU and non-EU experience,
the Report presents an assessment of some
of the effects of liberalising the European
electricity and gas markets.
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Liberalisation of European energy markets
Challenges and policy options
Liberalisation and efficiency
• Liberalisation of energy markets will generate
efficiency gains if competition is increased.
• As competition in energy markets is still limited,
we have not yet reaped the full benefits from
liberalisation.
• Competition in energy markets will entice firms to
shift their R&D efforts towards efficiencyenhancing technologies.
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Liberalisation of European energy markets
Challenges and policy options
Liberalisation and security of supply
• Before liberalisation, security of supply was achieved by high
level of overcapacity for which consumers paid the price.
• Less overcapacity will lower energy prices but could also lead
to larger price volatility.
• Consumers can protect themselves through long-term fixed
price contracts.
• The internal energy market will promote reliability of
networks, provided that interconnections are sufficient.
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Liberalisation of European energy markets
Challenges and policy options
Liberalisation and environment
• Impact of liberalisation on environment
ambiguous as aggregate effect can be positive or
negative, depending also on initial conditions.
• Liberalisation can strengthen the effect of market
based environmental instruments such as the
European Emissions Trading Scheme.
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II. Key policy challenges: business
environment
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The Regulatory Environment in the context of the
strategy for Growth and Jobs: findings from
empirical research
Effects of product market reforms (PMR):
• Product market reforms in OECD countries over the period 1985–1995 contributed to an
increase of 0.2 – 0.3 percentage points in total factor productivity growth in the long run;
• Moving to US levels of regulation in the EU would lead to a labour productivity growth
rate increase of 0.15 percentage points in the long run;
• Regulatory reforms aligning the overall regulatory stance with that of the most liberal
OECD country could increase the annual rate of total factor productivity growth in
continental EU by between 0.4 and 1.1% over 10 years.
PMR facilitating firm entry
• Entry liberalisation in service would boost annual multi-factor productivity growth in the
overall business sector by about 0.1 to 0.2 percentage points in certain countries. Indirect
effects would boost manufacturing annual productivity growth by 0.1 to 0.2 percentage
points in certain European countries, most notably Germany, France, Italy and Greece.
• Increasing the current firm entry rate by one percent lead to an increase in labour
productivity by 0.60% and an increase in employment growth of 2.67%.
• A 1% increase in the entry rate leads to an increase in output, employment and labour
productivity growth rate of 2.2%, 2.7% and 0.6% respectively A 1% increase in exit rate
reduces output growth rate of 0.8% (one year lag), while increases labour productivity
growth by 0.7% (2-year lag)
• Reducing the level of state control and entry barriers to entry to the best OECD practice
would
Increase
long-termReport
employment
rates by between 1.3 and 2.5 percentage points
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Competitiveness
2006
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(lower-bound estimate).
The Regulatory Environment in the context of the
strategy for Growth and Jobs: findings from
empirical research -2
PMR enhancing competition
• Product markets reform aiming at increasing competition would lead to a GDP
increase of about 2% in the medium run (acceleration of output growth by almost
a quarter of a percentage point annually over a period of 7 to 8 years).
• Competition-friendly product market reforms reducing the price-mark-up in the
euro area by 10 percentage points would produce a long term increase in the GDP
level in the euro area of 4.3%.
• Product market reforms reducing the price mark-up in the euro area to US levels
would bring a GDP level increase in the euro area of 8.6% (relative to its baseline
level) in the long run.
Reduction in administrative costs
• A reduction of 25% in administrative burdens in the EU would lead to a real GDP
level increase of 1% in the short run and a real GDP level increase of 1.4% in the
long run.
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The Regulatory Environment in the context of the
strategy for Growth and Jobs: findings from
empirical research –an example
The Ease of Starting a Business and Per Capita GDP
35,0
30,0
25,0
20,0
15,0
10,0
5,0
0,0
Starting a Business
European Competitiveness Report 2006
Source: European Commission calculations on the basis
of data from the World Bank “doing business” database.
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The Regulatory Environment in the context of the
strategy for Growth and Jobs: findings from
empirical research –an example
Cumulative GDP effects by 2025 of a 25% reduction in administrative costs (DG ENTR
and CPB, 2006)
3
Percentage of GDP
2.5
2
1.5
1
0.5
G
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The Regulatory Environment in the context of the
strategy for Growth and Jobs
Situation in Member States:
• Different sets if indicators: OECD, WB, ID, Fraser
Institute/World Economic Forum;
• The group of countries with less restrictive
regulatory environments: Cyprus, Denmark,
Estonia, Finland, Ireland, Luxemburg, the
Netherlands and the UK;
• The group of countries with a more restrictive
regulatory environment comprises the Czech
Republic, Greece, Italy, Lithuania, Poland,
Portugal and Spain.
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The Regulatory Environment in the context of the
strategy for Growth and Jobs
National efforts, in terms of setting up:
•
•
•
•
•
explicit Better Regulation strategies;
Impact assessment systems
Simplification programmes;
Systematic consultation of stakeholders;
Programmes for measuring and reducing administrative
costs.
 Conclusion: we are at the beginning of a long process.
Those starting from a less favourable position should
do more.
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II. Key policy challenges: innovation
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The Financing of Innovation
The rationale for public intervention:
• Limited appropriability of innovation
– Response: direct subsidies and fiscal incentives
• Imperfections of the capital markets: (information
asymmetries, adverse selection and moral hazard).
– Response: business angels, venture capital, loans and
guarantees.
• The chapter looks at what MS propose to do (in
their NRPs) and draws conclusions on possible
policy gaps.
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The Financing of Innovation – the findings
25
No. of Member States
20
15
10
5
0
Fiscal
measures
Direct
grants
Business
angels
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Venture
capital
Loans
• Wide variation on
delivery mechanisms
for grants and tax
incentives;
• New measures favour
tax incentives more;
• Particular attention to
seed and early stage
venture capital;
• Schemes change
frequently and often
are complex.
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The Financing of Innovation
Policy gaps:
•
•
Need to facilitate venture capital mobility;
More consideration should be given to facilitate
debt finance of innovation;
• There is scope for mutual learning and exchange of
best practice;
•
Need for more systematic evaluation of existing
measures.
 Not to forget: finance is an important but small
part of the innovation process.
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The Lead Markets approach in Innovation policy
• Objective: What is a lead market? Is there a
case for policy intervention? If yes, through
which mechanisms?
• Varied meanings of the term in economic
literature.
• Most common definition: the market where
an innovation is first widely used that later
becomes successful internationally
regardless of where that innovation was
invented
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Lead Markets: stylised international diffusion pattern of an
innovation design (source: ZEW)
100
90
80
Penetration rate
in percent
Lead market
70
60
Lag markets
50
40
30
20
10
0
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Lead Markets: diffusion of Internet in selected
countries (source: ITU)
User per 1000 people
600
USA
500
Japan
Germ any
400
300
France
200
100
0
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
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The Lead Markets approach in Innovation policy:
conclusions
• The conclusion of the Report is that innovation and
technology policies should incorporate those
factors that contribute to a successful lead market
strategy:
– incorporation of foreign market needs, preferences of
global customers, global trends;
– emphasis on lowering costs of production;
– allowing competition among different innovation
designs.
• There is little empirical evidence in support of
policies to administratively create lead markets for
specific “champion” products and technologies.
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III. Competitiveness of manufacturing
sectors
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Manufacturing sectors in EU-25 with highest
production growth in 2001-2005
4.5
4.0
3.5
% p.a.
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Recycling
Chemicals and
Motor vehicles, Medical, precision Food products and
chemical products trailers and semiand optical
beverages
trailers
instruments,
watches and
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clocks
Total
manufacturing
31
Manufacturing sectors in EU-25 with steepest
decline in production in 2001-2005
2.0
1.0
0.0
-1.0
% p.a.
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
-8.0
-9.0
Office machinery Tobacco products
and computers
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Textiles
Wearing apparel; Tanning, dressing
dressing; dyeing
of leather;
of fur
manufacture of
luggage
Total
manufacturing
32
Sectors in EU-25 with highest productivity
growth in 2001-2005
4.5
4.0
3.5
% p.a.
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Chemicals and Radio, television
chemical products
and
communication
equipment and
apparatus
European Competitiveness Report 2006
Coke, refined
petroleum
products and
nuclear fuel
Pulp, paper and
paper products
Basic metals
Total
manufacturing
33
Sectors in EU-25 with slowest productivity
growth in 2001-2005
3.0
2.0
% p.a.
1.0
0.0
-1.0
-2.0
-3.0
Furniture;
manufacturing
n.e.c.
Recycling
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Wearing apparel; Tobacco products Tanning. dressing
dressing; dyeing
of leather;
of fur
manufacture of
luggage
Total
manufacturing
34
Sectors in EU-25 with strongest Revealed
Comparative Advantage in 2004
RCA index
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Machinery and equipment
n.e.c.
Publishing, printing,
reproduction of recorded
media
Chemicals and chemical
products
Other non-metallic mineral
products
Other transport equipment
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Sectors in EU-25 with weakest Revealed
Comparative Advantage in 2004
RCA index
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Wood and products of wood
and cork
Textiles
Wearing apparel; dressing;
dyeing of fur
Radio, television and
communication equipment
and apparatus
Office machinery and
computers
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The competitiveness of the EU ICT sector
The importance of ICT, direct:
– In 2003, the ICT sector represented 3% of total EU25 employment and
4% of GDP.
– In 2003, ICT services accounted for 70% of total EU25 ICT sector
employment, 80% of value added and for about 90% of its enterprises.
– In 2003, the EU15 ICT sector contributed to 45% of total EU15 market
economy labour productivity growth.
• The importance of ICT, indirect:
– ICT impacts on the rest of the economy through ICT investment, ICT
production and ICT use. ICT uptake is one of the major drivers enabling
firms in the rest of the economy to increase their productivity and
competitiveness.
– ICT capital contribution in EU15 amounted to 32% of total EU15 GDP
growth between 1995 and 2004.
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The competitiveness of the EU ICT sector
Strengths…
• The EU ICT sector is successful in producing
sophisticated and high-quality ICT products (scientific
instruments, electronic components and
telecommunication equipment).
• It is particularly strong in chip design, software
development and ICT services.
• One of the key strengths of the EU ICT sector is its
human capital.
• Strategic R&D is performed in the EU while less
knowledge-intensive market oriented R&D is located in
South-East Asia.
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0
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China
Japan
USA
EU
Germany
Singapore
Korea
Taiwan
Malaysia
Netherlands
10
United Kingdom
Mexico
France
8
Ireland
Thailand
Hungary
Sweden
EU
Italy
Philippines
Belgium
Finland
Czech Rep.
Spain
Austria
Denmark
Poland
Portugal
6
Slovakia
ICT 1995
Malta
Estonia
Luxembourg
Lithuania
Greece
Slovenia
Latvia
Cyprus
The competitiveness of the EU ICT sector:
export shares in ICT manufacturing industries 1995 and 2004 (percent).
20
18
ICT 2004
16
14
12
E
U
EU
EU
4
2
The competitiveness of the EU ICT sector
•
•
•
•
•
…and weaknesses
The ICT manufacturing trade deficit was 55 billion
euros in 2004.
Large parts of ICT hardware production software
coding have been relocated to South-East Asia.
The ICT uptake in other parts of the economy is slower
than in USA and Japan.
Lower investment growth than in emerging economies
threatens lower value added activities in the EU.
Lower R&D intensity than US or Japan, R&D
concentrated in larger companies.
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The competitiveness of the EU ICT sector
Conclusions
• The answer to the challenge from low-cost producers
lies in further climbing up the quality ladder.
• Raising R&D investments of the EU ICT sector and
ensuring the availability of skilled labour will be
crucial for the EU ICT sector’s future competitiveness.
• Policies that matter most for the EU ICT sector’s
competitiveness include those fostering R&D and
innovation, entrepreneurship, IPR, e-skills, ICT uptake
and completing the Single Market (i.e. Growth and
Jobs strategy).
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Pharmaceuticals
• A fast growing global market of around 450bn€ in
2005. Two major players:
– US market: a little less than 50%
– EU: around 30%
• In both markets, production, employment and
productivity are rising.
• Moreover, the EU has a positive and growing
trade balance while the US turned negative,
especially with the EU.
• US investments in the EU explain these trends.
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Pharmaceuticals
•
The bad news
the pharmaceutical innovation system
becomes global and is increasingly
dominated by the US:
–
–
–
Increasing share of US held patents;
Increasing value of US patents (on basis of
citations);
Central US position in collaborative R&D
projects.
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Pharmaceuticals
The bad news (continued)
• The central role of smaller, dedicated
biotechnology firms in the innovation
system: Much more present in the US, both
as initiator and developer, of collaborative
R&D projects.
• The fast rise of China, Brazil, India in
pharma R&D.
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Pharmaceuticals
Different market dynamisms
–
–
–
–
US market more concentrated and more
contested than EU: new drugs command
much higher prices, when patents elapse –or
more innovative drugs appear- prices drop
abruptly;
Product turnover much slower in Europe;
European markets remain fragmented by
different regulatory regimes; but,
A visible price convergence exists in the EU.
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Pharmaceuticals
Price convergence in EU25, median prices, 19942004 (EU-15 average price = 1).
Factors:
1,4
1,2
DEU(◆)
AUS(∆)
GBR(*)
FRA(◊) SWE(+) FIN(■) NET (+)
1
DEN(-) BEL(■) LUX(+)
ITA(◆)
IRE(◊)
POR(X) New Member States
ESP(○) POL LTU
GRC(□) LVA EST
SVK HUN
CZE
0,8
0,6
• Parallel trade;
• regulation at
national level;
• External
reference
pricing.
 Lower price group:
SP, PT, EL, EU-10.
0,4
0,2
1994
1995
1996
1997
1998
1999
2000
2001
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2003
2004
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Pharmaceuticals
Policy implications
• Sector level: Pharmaceutical Forum
– Cost-containment policies and innovation;
– Unifying effectiveness testing of drugs.
• Horizontal level: Strategy for Jobs and
growth:
– R&D;
– Innovative entrepreneurship.
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