SPEECH/06/47
Günter Verheugen
Vice-President of the European Commission responsible for Enterprise and Industry Europe – an enterprise for all
Opening conference – Chambers of Commerce and Industry’s theme of the year 2006: More knowledge, competition and prosperity – the European Enterprise Berlin, 31 January 2006
The idea of a peaceful, united and strong Europe is one of Europe’s boldest dreams. The steps to make this dream a reality were spawned by the horrors of two world wars. Part of Europe was thereby given new hope and new confidence, borne by a powerful feeling of “never again”: no more war, never again the triumph of inhumanity, never again the destruction of everything that had been laboriously acquired and built up over generations.
What began as an economic community of six Member States has now become a vast community of destiny linking 25 countries of Europe.
The European integration project has bestowed peace, stable democracies and prosperity on the peoples involved. It has come to represent hope and set an example for other countries of this world, showing them that peace, understanding and broad prosperity are possible through cooperation. If we compare the situation in Europe today with that of 60 years ago or if we look at other parts of the world – torn by strife and wracked by poverty – we can only come to one conclusion: European integration has been an unparalleled success.
Why then is this great idea increasingly getting a bad name in the core Member States? Why do so many people no longer associate Europe with any feeling of security and positive expectations? Why do many people think – and Germany is no exception here – that Europe presents a threat to their jobs and hence their prosperity and social security?
There are explanations. Despite its many successes, Europe is still imperfect. Grand expectations on the part of the public do not seamlessly match actual possibilities. National egotism continues to prevent the European Union from fully developing and exercising its strengths, since in practice it can do no more than its members allow it to do. Nor can an association of 25 sovereign States be straightforward. What appears to be logical from one member’s viewpoint may appear quite different from another’s, and on top of this the responsibilities in the EU are not always clear-cut and the decision-making process is often painfully slow. Mutual understanding in the EU has always been a complicated matter and is often achieved only in terms of the lowest common denominator. Without this understanding, however, the heart of integration would stop beating.
The European institutions are also certainly too remote from the general public, even though no-one knows exactly nowadays how this situation could be improved to any great extent, given the lack of a European public awareness.
These are both correct and important explanations, but they do not get to the heart of the matter. I think rather that European integration has become a screen onto which people project their fears and uncertainties, which in reality stem from quite different causes. I get the impression that many people make the mistake of thinking that integration is to blame for the constant changes we are faced with and the dizzying speed at which these changes are taking place, regarding it as the driving force behind globalisation and not seeing it for what it is: our haven in the storm of globalisation.
Admittedly, with the end of the cold war the world did not become simpler. At the beginning of the 21st century we are experiencing a world full of unprecedented possibilities, but also of unprecedented risks, since what we call globalisation is not only an economic phenomenon. It is also an ongoing process of political, social and cultural change.
Together with the amazing new possibilities in the form of new knowledge, faster information, new experiences and new economic opportunities we are also faced with overwhelming new challenges: climate change, destitution and threats of conflicts between entire cultures, and, above all, the traditional economic world order has been disturbed. New major economic and technological powers are emerging that will also change the world politically, and no-one is sure where these changes will lead. What most people realise, however, is that we are all engaged in world-wide competition for survival, and this competition undermines traditional certainties.
Are we sufficiently prepared – intellectually and emotionally – for this new world that is emerging? We know more about the state of our world and its problems than any previous generation. Science, technology and the dynamics of the economy also afford possibilities for finding solutions that have never before been available. What is lacking, however, is a common will, a serious resolve and confidence that we can overcome all the threats of the modern world.
I am more convinced than ever, therefore, that the time has now come for Europe to really come into its own. No individual Member State is in a position nowadays to guarantee, single-handed, its citizens a secure and prosperous future. We can, however, achieve this if we all pull together. Europe is capable of directing political and economic change in such a way that we can continue to defend our European ideas of a society that is fit for humankind. Europe is not doomed to decline. We can assert ourselves, and we can – indeed, must – influence global developments in accordance with our ideas about ways of living. If we are to achieve this, however, we must also be politically and economically strong.
Only then will be a good partner for the poor countries of the world. Only then will be able to make globalisation a policy from which the developed countries and the developing countries alike will benefit. Only if we can act in concert will we be able to help settle conflicts. A weak Europe is of no use to anyone.
Europe bears a responsibility. Other peoples look to us. Perhaps this is what is so much lacking in Europe today: the awareness of a great common task. We have experienced a lot of petty squabbling recently. We should put this behind us and start to expect more of ourselves. Our partners have been doing this for some time. We should think about our strengths and take up the challenge. Let us face the globalised world! Let us establish a politically and economically strong Europe! Let us turn the crisis into the start of a genuine renaissance of the European ideal!
If this is the time for Europe to show its mettle, the people of Europe must also rise to the occasion. We need Europeans with conviction and an ability to take the lead who, thanks to their actions and the example they set, clearly point the way ahead. Europe is not the problem, Europe is the solution, and the European economy can and must be to the fore. German businessmen know perfectly well that European integration has made us strong. What would the German economy be without the open European market? Not a world-champion exporter at any rate.
The European offensive for more growth and employment starts by admitting a fundamental truth: there are no longer any alternatives to global competition. We cannot protect anyone from change. We can, however, direct the change in such a way that we emerge stronger and more efficient and new opportunities are opened up. Economic strength is not an end in itself. It will help us achieve social objectives – indeed, it is essential if we are to achieve these goals.
I do not know if there is any single European social model, but there is a shared European conviction that we need an adequate number of good and secure jobs if we want to live our lives in material security, dignity and, not least, peace.
There is a shared conviction in Europe that we must not destroy the natural bases of our lives, and for this reason we have what is ecologically wrong cannot be economically right. We are all convinced that we need social solidarity, together with individual performance and responsibility. We see social security as crucial for the stability of our societies. Sustainable development, social cohesion and a high quality of life – this is what the European social model means to me, and it clearly differs from other models. We will not, however, be able to achieve it without a firm economic base.
The position of the EU in international competition has deteriorated over the last ten years. We are falling behind the USA in terms of growth, production and the employment rate. Other dynamic regions are catching up. We look at China, and perhaps before long other regions, in fascination, with a mixture of admiration and fear. We see the opportunities: vast new markets are emerging. But we also see the risks: jobs are being shifted to countries with lower wages and lower standards. But in fact we have known for a long time what path we must take as Europeans.
We must seek to compete in areas where we are strong. There is no point in entering into competition where we will stand no chance of holding our own, and have no wish to do so. We do not want to destroy what we have achieved in terms of social and environmental standards. Our aim continues to be a high standard of living, and there is only one solution: we must compete on quality. We must always be better than the others. We must make the highest demands on the quality of our products. We must be in the forefront of technology. And we must be the most innovative. New technologies, new processes and new products that give us a lead over others – this is the opportunity we have.
This brings new policy issues into the centre of economic policy. Education, training, lifelong learning and above all research and development are the key to increasing our competitiveness. This idea is nothing new. I have been familiar with the phrase “our raw material is education” ever since the first party congress I attended in Germany, and that was forty years ago.
The most productive and successful businesses in the world share two features: they invest more than the average in staff training and they invest more than the average in research and development. The same is true of countries and regions. We can see this in Europe: countries that have progressed further on the road towards a knowledge-based society are more successful than others. And this same phenomenon can be observed at regional level, as can be seen from a comparison of the various Länder in Germany.
Of no less importance for strengthening our competitiveness is the regulatory framework. The market economy has established itself worldwide as the most effective form of economy, and in my view it is not only the most effective, but also the most humane. It is based on individual performance and personal freedom. Throughout Europe and beyond, economic policy is distancing itself from the idea that the State has to directive entrepreneurial activities. The market economy calls for a clear distinction between the State and the economy. Businesses make their own decisions.
The EU and its Member States have agreed on a framework that gives priority to growth and new job opportunities. It is up to business, the more than 23 million businesses – ranging from craft workshops, through cooperatives and medium-sized firms, to the relatively few global concerns – to take advantage of these conditions.
The State is responsible for providing a framework than ensures that the market is not the only yardstick but that the overall economic performance is also used with a view to achieving common social objectives. The market does not settle everything. It would be dangerous, therefore, not to provide a clear, predictable and reliable regulatory framework for the market economy on the basis of generally accepted values. A market economy without social values would soon degenerate into dog-eat-dog capitalism.
A social market economy of this kind is demanding. It requires the State to take a back seat and not yield to the temptation of trying to protect individual businesses or entire sectors from competition. The days of dirigisme – of State control and subsidies – are over. What we need now is a policy at national and European levels that is conducive to competition, that offers businesses the conditions under which they can grow, make profits, invest and create jobs most effectively. The new European industrial policy I have proposed and the new policy for SMEs are strictly based on these regulatory principles. This constitutes an offer of an effective alliance for growth and employment in Europe – an unspoken alliance that is not spelt out in terms of mutual obligations. The watchword is: EU policy seeks to establish the best possible conditions, while the economy seeks to create jobs. Yes, we want European businesses to invest in Europe and create jobs in Europe. That is at the heart of the European partnership for growth and employment.
You may remember the Lisbon Strategy of 2000. At that time the Heads of State and Government resolved to make Europe the most dynamic and competitive knowledge-based economy in the world by 2010. We will not achieve this by that date, but the goal remains: we are not striving to keep our place in the league but to win the championship. The main weaknesses of the Lisbon Strategy have been rectified. There were no clear priorities and no clear distribution of competencies and responsibilities. With the revised Lisbon Strategy we have both: concentration on the key tasks and a clear assignment of responsibility for those tasks.
The principle is partnership between the EU and its Member States. The EU has no specific powers for economic policy under the treaties. We must, therefore, agree on common goals and pursue them on our own responsibility, be it European or national.
I will not dwell on the details. But a year after the development of a new policy it is possible to do some initial stocktaking. The growth and employment strategy is beginning to bear fruit. On the basis of jointly agreed guidelines we now have 25 national reform plans and a Community action plan. For the first time, we have an economic policy that is coordinated at European level. We cannot expect any quantitative results yet, but the convoy has got under way and is moving in the same direction. With this policy we have already been able to strengthen the confidence of businesses and investors. I can detect a positive reaction in industry, but as they say in English “the proof of the pudding is in the eating”. 2005 was the year of strategic planning. 2006 must bring the first concrete results.
Where?
Our prime aim is that of fully exploiting the potential of Europe’s internal market. We have the biggest internal market in the world, but it is still not fully developed; the movement of goods and, in particular, services is still hampered by too many national regulations and protectionist practices. We want to eliminate these barriers, and I think that the planned liberalisation of the European market in services is the most important – and probably the most difficult – of the tasks facing us. It is not a question of introducing the freedom to provide services in Europe. That is enshrined in the Treaties. It is rather a matter of making this freedom effective and making use of an enormous potential for growth and employment. Services have long been the most important sector in all the national economies in Europe but they account for less cross-border trade than goods, which means that there is hardly any competition at European level. There have been vociferous protests against the opening of the market in services, but this will not stop the Commission from tabling a new proposal that takes account of justified criticism. The freedom to provide services will not open the floodgates for social dumping, environmental dumping or quality dumping, but it will permit competition and thus release economic potential.
I realise that there is particular opposition to this idea in Germany, and I sometimes wonder how a country so demonstrably competitive as Germany – also in terms of its export performance in the services sector – can be so afraid of competition!
I have already commented on industrial policy and will merely repeat that we will need strong and productive industries in the future too. We are doing everything we can to keep manufacturing industry in Europe, but in this area, even more than in others, without constant innovation we will continue to lose ground instead of regaining it.
I should like to mention two other projects in this connection. Last year, the Commission launched its biggest and most wide-ranging initiative to date for cutting red-tape and avoiding overregulation, and it gives me particular pleasure to note that the new Federal Government wholeheartedly supports this initiative and intends to follow the European example at national level. What will this involve? We want future European legislation to show clear improvements and to ensure that no European regulation will be introduced without a complete analysis of the costs it will entail for the economy. For the first time, we are screening the entire corpus of European legislation from the point of view of competitiveness. This will lead to appreciably fewer and simpler regulations. Now we are going a step further. We are developing a method for reliably measuring the costs of bureaucracy and gradually reducing them. I hope to achieve a significant reduction in bureaucratic costs for small and medium-sized businesses in particular. This “better lawmaking” project will need strong support from the public. You will not be surprised to learn that various interest groups are already organising resistance to this project for the sake of supposed established rights.
Small and medium-sized businesses have become the centre of interest. If we take a good look at the European economy, we see that it is these businesses that account for the lion’s share of jobs in the EU and not the household-name multinationals. We will be able to allay, and gradually solve, the employment problem in the EU, therefore, only if things go well for SMEs.
We need more business start-ups, more innovative businesses, more rapidly growing businesses. We also need unproblematic transfers of flourishing businesses when the owner wishes to retire. Fortunately, word has got about that the greatest potential businesses. Industry will of course continue to grow for the foreseeable future, but on balance without any overall positive effects on the labour market.
Throughout the EU nowadays, however, SMEs are all suffering from the same problems: insufficient capital, excessively complicated and inappropriate regulations, too little capacity for innovation, inadequate use of modern information and communication technologies and difficulties in gaining access to markets outside their traditional domestic market. Our SME policy addresses all of these questions, and the Member States are following suit. I have the impression that SMEs used to be more a subject of fine words than of actual policy. This is about to change. The Commission is putting the “think small first” principle into practice in all the areas for which it is responsible.
The next major task is the transition to a knowledge-based society. The problem here is an alarming gap between ambitions and reality. Everyone knows what we must do, where we must invest more, but not enough is actually happening. The way things are going, in 2010 we will still be far short of our goal of spending 3% of GDP on research and development.
We will be better in 2010 than we are today, but not enough. We must under no circumstances fall further behind the USA – otherwise we will never catch up where technology is concerned. Other regions are doubling and tripling their efforts, with the result that we in Europe end up under pressure from two sides.
A final point I would like to mention in connection with the strategy for growth and employment concerns access to the labour market. We cannot rely on growth alone solving the employment problem. We need a substantially higher employment rate practically everywhere in Europe, and particularly in Germany, since otherwise it will be impossible, given the demographic trends, to finance solid social security systems.
EU policy is focussing on four group for whom access to the labour market must be improved: women, older employees, young persons and immigrants. The range of policy instruments extends from better childcare arrangements to better integration of foreigners in our society . I should like to mention one specific aspect: youth unemployment. By 2010, we want to reach the point in all the Member States where young people, on finishing school, higher education or vocational training do not have to wait more than 100 days for a position as a trainee or a job. I think the least a society can do for its young people is to ensure that their start in the world of work does not begin with a long period of unemployment.
Growth and employment in Europe obviously also presuppose stable macroeconomic conditions. Despite all the sceptical forecasts and negative comments, monetary union has brought about considerable progress. Another of the myths that we must make decisive efforts to dispel is that the euro has not lived up to expectations. Germany benefits from the euro and the stability it has brought. Keeping to the stability criteria is therefore of the most fundamental importance for Germany.
If Germany, with the strongest economy in Europe, cannot meet the requirements of the stability pact, that will soon be the end of stability policy in the whole of Europe and we will revert to the previous situation. It is not a matter of following of a Treaty to the letter, and I am glad that the Federal Government also sees it this way: Germany must put its finances in order – above all in its own interests – since if it simply goes on incurring debts it will have no room for manoeuvre in carrying out urgent structural reforms.
Ladies and Gentlemen,
If we are to have a flourishing European economy, we need dynamic entrepreneurs, people who, as entrepreneurs, actually undertake something. There is clearly a shortage of such people. In the future we will need more people who are prepared to take the risk of becoming self-employed and following new paths – more people who are prepared to face competition on the market and fight for the economic success of their own ideas.
According to all the various surveys, most people in the EU today do not regard self-employment as a worthwhile goal. There are reasons for this, and they no doubt include the underappreciation of entrepreneurs in our society. Successful entrepreneurs in Europe today are not, however, soulless creatures from another planet who only think in terms of short-term double-figure profit margins, but human beings who are firmly rooted in our society and realise how much their employees contribute to their success in business and who press for innovation and top performance for the very reason that they are also conscious of their own role as employer in the location or region in question.
It is time to correct the image that the public has of the modern entrepreneur. It is time to give success in business a human face and to show it to society at large. This may make people – and particularly young people – realise that entrepreneurship is a worthwhile option for their own lives and it may encourage entrepreneurs to seek new success in their own businesses. We should not allow the few people in business who are only interested in maximising their profits in the short term to bring an essential part of our society into disrepute.
We also need more support for unsuccessful entrepreneurs – for those who did not make the grade in their first attempt on the market. There is still a stigma attached to business failures, even though we all know there is no such thing as a world that knows only success, particularly given the fickle nature of the market. We therefore need a “second-chance” policy, and this starts with openly accepting the fact that a serious business idea may come to nothing.
Wide-ranging public communication on entrepreneurship today is important but not sufficient. Self-employment must become an option on an equal footing with any other. We need people who have the will and the courage to embark on an independent venture, together with the knowledge and skills needed to make a go of it. Education plays a decisive role here from the earliest stages. As we all know, children pick things up more quickly, and entrepreneurial abilities should be among the core skills of any school-leaver in the EU. It can only be to the advantage of a society if as many people as possible have a clear idea of what business involves and the range of possible occupations is widened for individuals. In university and college education too there should be more training in entrepreneurial skills. The United States provides a good example of the fact that this pays off not only in the form of more self-employment among graduates with entrepreneurial training but also in a strengthening of the innovative capacity in the various disciplines to which these graduates remain attached when they embark on business ventures.
Here again, if others can do it, we can do it too, providing that we adopt the right approach.
More freedom for entrepreneurs nowadays also means more responsibility on the part of individual entrepreneurs – responsibility for themselves, for their business, for their employees, for their location and for society. The social market economy is not only a matter of standards and rules; entrepreneurs who act in a responsible fashion also play a decisive part. Now that the conflict between systems is a thing of the past, entrepreneurs bear an even greater responsibility. I see it as an extremely encouraging sign that virtually all businesses in Germany – big and small alike - not only accept their social responsibility in theory but are committed to it in practice. To make social commitments over and above what is required by law can and should become a trademark of European enterprise. Not out of a false sense of philanthropy, but because of a fundamental realisation that business nowadays must keep itself in check if it is not to degenerate and if it is to be successful in the long term. There is, however, a short-term conflict between the costs and benefits of social responsibility. In the long term, businesses that seek to integrate social responsibility into their own activities in appropriate ways are always more successful, since they build up innovative skills, exhibit responsible management and enhance their reputation and – let us not forget – their attractiveness for employees, who have long made it clear that they expect something of a business to which they would be glad to commit themselves.
I would also like to comment on the role of entrepreneurs in structural change. Larger businesses in particular tend to have a fairly clear idea of how their competitive position is going to develop in the coming years. Structural change, which means the end of jobs in unprofitable sectors of production or locations that have become unprofitable, never happens from one day to the next. I think, therefore, that we need to anticipate change to a much greater extent than in the past, instead of always trying to patch things up after the event. And I am not only referring to policy-making here; if businesses see jobs coming under pressure, they have a responsibility to look for solutions in their own activities. Entrepreneurs who take stock of technological developments and assess their own competitiveness should consequently do more than in the past to promote innovation and the acquisition by their employees of further skills. Simply reducing the number of jobs will continue to be the worst of all possible solutions.
It is for this reason that I have launched the sectoral industrial policy initiatives, but I also urge businesses to give more thought to the question of how incipient structural change can be handled in such a was as to result in increased competitiveness and innovative capacity and new applications for their employees.
Ladies and gentlemen,
I should like to conclude on a relatively optimistic note. I am confident that the European Union is able to bring about improvements in growth and employment in Europe. We have all the necessary know-how. We know our weaknesses and shortcomings. We know what we need to do. If we want to leave no room for Euroscepticism in our own country either, we will really have to put our intentions into practice.
The rebirth of the European idea that I spoke of at the beginning will only be a success if Europe makes a tangible contribution towards offering its citizens a secure future. I am very grateful that the German Chambers of Trade and Industry are shouldering their responsibility and have made Europe their theme of the year. I wish them every success.
