The Brief – Who cares about competitiveness?

5 months ago 14

Sometime next month, former European Central Bank chief Mario Draghi—“the guy who saved the euro”—will publish his much-anticipated report on the competitiveness of the European economy.

The report’s release, originally supposed to take place before the European elections earlier this month, is widely suspected of having been postponed for fear that it would amplify populist right-wing parties’ narratives about the EU’s alleged propensity to waste public funds.

Populist politicians were especially enraged by Draghi’s suggestion in February this year that the EU must find an “enormous amount” of money, equating to roughly €500 billion per year, to finance the green and digital transitions—one-third of which, Draghi said, should come from the public sector.

“This is a huge amount of money that cannot possibly be borne by European taxpayers,” Jean-Paul Garraud, an MEP for the French far-right Rassemblement national, said in April. “Citizens have the right to know what [the report] contains in order to vote in full knowledge of the facts.”

Philipp Lausberg, an analyst at the European Policy Centre, stressed that, aside from Draghi’s specific policy proposals, the topic of “competitiveness” is inherently highly contentious.

“Deciding which industries to support and which not—I think this is very much what this report is really about,” Lausberg told Euractiv. “And that will create winners and losers. And that will also create lobbies for and against what he says.”

Despite the controversial nature of the report, the view that competitiveness should be a core focus of EU policymaking over the coming years is almost entirely uncontested among EU policymakers.

This is corroborated by the fact that Hungary, which takes over the rotating EU Council presidency from Belgium on 1 July, has announced that it will continue its predecessor’s policy of making competitiveness a key part of its agenda.

Among professional economists, however, policymakers’ emphasis on competitiveness is far from uncontroversial—if anything, there is a consensus that they shouldn’t focus on it at all.

In a much-cited article published in Foreign Affairs in 1994, Paul Krugman, who later won the Nobel Prize for economics, labelled policymakers’ focus on competitiveness a “dangerous obsession”, and explicitly criticised former European Commission president Jacques Delors’ frequent usage of the term.

Krugman’s basic argument was that competitiveness is a concept drawn from the business world, where companies indeed compete with one another for greater market share.

However, he noted, competitiveness has little, if any, relevance to countries’ economies, whose abilities to grow are by and large not mutually exclusive and which predominantly produce goods and services for their own domestic consumption.

Moreover, Krugman pointed out, a country could theoretically boost its competitiveness relative to other nations by devaluing its currency—but this would ultimately make its citizens poorer.

In an especially prescient prediction, Krugman also warned that, by viewing other countries as economic competitors rather than potential trade partners, competitiveness might lay the ideological foundations for future trade conflicts—or “perhaps even [a] world trade war”.

“To make a harsh but not entirely unjustified analogy, a government wedded to the ideology of competitiveness is as unlikely to make good economic policy as a government committed to creationism is to make good science policy, even in areas that have no direct relationship to the theory of evolution,” Krugman wrote.

Draghi, a former academic, is certainly aware of Krugman’s criticisms.

Indeed, at the very beginning of a speech in April where he outlined his report’s proposals for the first time, Draghi explicitly referred to Krugman’s article—although, as Niclas Poitiers of EU policy think-tank Bruegel pointed out, he ultimately failed to address its main criticisms.

“Draghi doesn’t really use this argument of Paul Krugman, but I think it’s a wink to the economic community,” Poitiers told Euractiv. “He’s saying: ‘Oh, I’m not entirely sure about this either.’”

One might legitimately wonder whether the report’s focus on competitiveness is merely a symptom of a broader problem – that the focus on competitiveness in general, and Draghi’s report in particular, might induce policymakers to introduce a raft of pro-business, anti-worker legislation.

“For too long, the discussion on competitiveness has been centred on corner-cutting that leads to dangerous workplaces, higher inequality, and more pollution,” European Trade Union Confederation General Secretary Esther Lynch told Euractiv.

Lynch, however, also stressed that Draghi appears to be broadly sympathetic to workers’ concerns—a fact corroborated by another speech Draghi gave in Spain last week, emphasising that Europe’s “high levels of social protection and redistribution” are “non-negotiable”.

“When he met the ETUC, [Draghi pointed] to the Nordic social model, a central component of which is the high level of collective bargaining, as an example for the rest of Europe to follow,” Lynch said. “I hope his report is consistent with that vision.”

We will find out soon enough.

The Roundup

The EU is considering a range of measures, including sanctions on top government officials, cutting financial assistance and restricting visa-free travel, in response to the Georgian government’s controversial ‘foreign agents’ law, according to an internal document seen by Euractiv.

The European People’s Party failed to show up at a court hearing in Brussels for a case in which the plaintiff is trying to have them remove Ursula von der Leyen as their top candidate for the European Commission presidency.

The Czech ANO movement announced its departure from the liberal ALDE and the Renew group in the European Parliament, as its chairman Andrej Babiš, the former Czech prime minister, declared his party could not fulfil its program in its current European political family.

NATO members are looking to craft more than a political support package for Ukraine to deliver at the Washington summit in July, but a formal invitation for membership remains unlikely as they are divided over the timeline for Kyiv’s potential entry.

After months of stalemate over the rules for innovative biotech crops, EU ambassadors will next week discuss the latest compromise text, seen by Euractiv, with new proposals on patentability.

Ministers gathering in Luxembourg on Friday for the final Health Council of the Belgian EU Council presidency will grapple with one of the thorniest issues of the pharmaceutical package, that of incentives.

Closer monitoring of the consequences on European ports of the EU’s Emissions Trading Scheme extension is needed, according to Spain’s position expressed at Tuesday’s Transport Council.

For more policy news, don’t miss this week’s Economy Brief, Tech Brief, and the Agrifood Brief.