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European Competitiveness Research Programme and ECR 2010

Michael Peneder (WIFO)

Budapest, Institute for World Economics, 25.01.2011

European CommissionEnterprise and Industry

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European Competitiveness Research History & consortium

Competitiveness A “dangerous obsession”? Firms, industries and the macro-level

The ECR 2010 Guiding questions Selected findings

Outline

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History of the ECR 1994 – Decision of the Council

1997 – First Competitiveness Report

2005 – Refocusing more on Lisbon Agenda

2010 – Support measure for Europe 2020

– New Framework Contract with ...

European CommissionEnterprise and Industry

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Total of 16 partners from 11 countries

WIFO – Austrian Institute of Economic Research (consortium lead, Vienna)

CEPII – Centre d’Etudes Prospectives et d’Information Internationales (Paris)

CIREM – Centre d’Information et de Recherche sur L’Economie Mondiale (Paris)

CPB – Netherlands Bureau for Economic Policy Analysis (Den Haag)

ECORYS Nederland B.V. (Rotterdam) Etlatieto Oy – The Research Inistitute of the

Finnish Economy (Helsinki) Idea Consult (Brussels)

The research consortium (a)

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IfW – The Kiel Institute for the World Economy IVIE – Instituto Valenciano de Investigaciones

Economicas NIESR – National Institute of Economic and Social

Research (London) NIFU – Nordic Institute for Studies in Innovation,

Research and Education (Oslo) SGH – World Economy Research Institute, Warsaw VKI – Institute for World Economics of the Hungarian

Academy of Sciences (Budapest) VTT – Technical Research Center Finland (Helsinki) wiiw – Vienna Institute for International Economic

Studies ZEW – Center for European Economic Studies

(Mannheim)

The research consortium (b)

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Associated (subcontractors or academic advisers)

EIM Business and Policy Research (Zoetermeer, Brussels)

ETH Zurich – Prof. Peter Egger, Dr. Heinz Hollenstein

Harvard Business School – Prof. Christian Ketels

Harvard University – Prof. Dale Jorgenson

Swansea University – Dr. Catherine Robinson

TNO – Dr. Frans van der Zee

University of Birmingham – Prof. Mary O’Mahony

University of Innsbruck – Prof. Michael Pfaffermayr

The research consortium (c)

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Competitiveness a “dangerous obsession”?

Paul Krugman (MIT Press, 1996) “So let’s start telling the truth: competitiveness

is a meaningless word when applied to national economies. And the obsession with competitiveness is both wrong and dangerous”

Main arguments Illusion of conflict; trade is no zero-sum-game Domestic spending has larger impact than

negative terms of trade effects Wages rise with productivity: low factor prices

indicate low competitiveness!

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Competitiveness a natural concern

Competition arises from scarcity, e.g. of Resources (capital, labour/skills, raw materials) Access to markets (EU integration;

international trade agreements; transport) Knowledge & competences (seeking rents

from high-value production)

Do these scarcities matter only for individual firms?

Sure, enterprises are at the core, but e.g. relative abundance of inputs affect industrial

location differences in productivity and industrial

structure affect aggregate income and the standards of living!

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Competitiveness a refined view

Openness: the very notion of “competitiveness” implies the willingness and ability to face competition, being domestic or from abroad

Focus on productivity: the objective is to raise incomes, not lower wages !

Policy must define the preferences and constraints to account for interdependencies with other goals of society, e.g.

Social cohesion Sustainable environment

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Competitiveness definitions – ECR 2010

“Competitiveness refers to the overall economic performance of a nation measured in terms of its ability to provide its citizens with growing living standards on a sustainable basis and broad access to jobs”

“... refers to the institutional and policy arrangements that create the conditions under which productivity can grow sustainably”

“external competitiveness refers to the ability to export goods and services in order to afford imports”

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Competitiveness firms

- Labour & skills

- Capital

- Intermediates

- Raw materials (incl. energy)

Inputs Processes Outcomes

- Entrepreneurship

- Management

- Organisation

- Technology

- Productivity- Survival- Profits - Growth - Market shares

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Competitiveness industries

Inputs Processes Outcomes

Industrial Organisation, e.g. Competition

Value chains

Technological Regimes

- Productivity

- Growth

- International market shares

- Profitability

Industrial Location, e.g. Firm entry

Foreign Direct Investment

Advanced customer base

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Competitiveness countries & regions

Inputs Processes Outcomes

Locational Advantages, e.g.

- Relative prices & abundance of inputs

- Infrastructure

- Market access

Regulation & institutions , e.g.

- Efficiency of factor markets

- Administrative burden

- National systems of innovation

- Productivity

- Factor incomes

- Employment

- Growth

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Competitivenessan integrated puzzle

Firm

s

Firm-level inputs

Inputs Processes Outcomes

Firm-level drivers

Firm performance

Industrial Location

Industrial Organisation

Industrial performance

Locational advantages

Regulation & institutions

Macro-performance

Ind

ust

ries

Cou

ntr

ies

/Reg

ion

s

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How did imbalances accumulate, and did they affect the external competitiveness of EU industries ?

European CommissionEnterprise and Industry

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Accumulation of disequilibria: speculative bubble and spiral in real estate prices >> overstated wealth Distorted choices: consumption vs. saving and

lending vs. borrowing Adjustment when bubble burst: households save

more and consume less Contagion of other countries (trade, financial

system)

Was there a direct impact of imbalances on EU external competitiveness?

no obvious indication for crowding out of productive investments or a decline in export performance because of wage inflation

ECR 2010Growing imbalances

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What share of value added does the EU capture when the production of a single phone is scattered all over the world?

European CommissionEnterprise and Industry

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Example of a Nokia ‘high-end’ mobile phone

Even when assembled in China and sold to the US, Europe captures 51% of the value

For high-tech goods, capturing value is largely detached from the physical flows, while attributed mainly to R&D, design, marketing, distribution and management

See presentation by Mats Marcusson …

ECR 2010Trade in intermediate

goods

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What if corporate R&D and innovation activities are increasingly off-shored?

European CommissionEnterprise and Industry

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Increasing internationalisation of R&D (though traditionally less easily offshored)

Only 5% of all patents of EU firms are invented outside Europe, mostly in the US

17% of EU patent inventions are foreign-owned, 9% by non-EU organisations

Foreign-owned firms have a lower innovation input intensity, but similar innovation output and similar degree of cooperation in host country

Links between EU-12 and EU-15 are rare Language, culture and history matter

much !

ECR 2010Foreign R&D and innovation

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Do you know which technologies can radically change the future of EU manufacturing?

European CommissionEnterprise and Industry

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New technologies of systemic relevance that facilitate innovation in many other industries

Selected areas Nanotechnology, micro- and nanoelectronics Industrial biotechnology Photonics Advanced materials Advanced manufacturing technologies

See presentation by Agnes Magai …

ECR 2010Key enabling technologies

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Why do activities such as media, design, software, video games and advertising matter so much for economic growth?

European CommissionEnterprise and Industry

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Activities at the Crossroads between the Arts, Business and Technology

Ideas & IPRs are major input and output

Competitive edge derived from originality, service and customization

Concentrated in urban areas

Promote technology diffusion & development

Positive impact on growth of local GDP p.c.

ECR 2010Creative industries

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Thank you for your attention!

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Annex: Old and new topicsinputs

Labour skills

Migration, skills and productivity (2009) Training, education and productivity (2009) Skill problems (2007) Human capital and productivity growth (2002)

Skill shortages in ICT (2001)

ICT ICT, regulation and productivity (2009) ICT-linked firm reorganisation and productivity gains (2003)

ICT, growth and productivity (2001)

Other Industrial non-energy raw materials (2011)

Intangible investments (1999)

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Old and new topicsprocesses

International economics

Trade in intermediate products and manufacturing supply chains (2010)

EU and BRICs (2009) Trade costs, openness and productivity: market access (2008)

Challenge of a rising Chinese economy (2004)

EU enlargement and competitiveness of manufacturing (2003)

Internationalisation of EU services (2000)

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Old and new topicsprocesses

Innovation

Convergence of knowledge intensive sectors (2011)

Foreign corporate R&D and innovation (2010)

Key Enabling Technologies (2010) Financing of innovation (2006) Lead Markets (2006) Productivity and public sector R&D (2004)

Impact of innovation (2001) Biotechnology (2001) Quality based competitiveness (2000) “B2B E-Commerce“ (2000) Technology and innovation (1998)

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Old and new topicsprocesses

SMEs Entrepreneurship and SMEs: Policy implications for the EU (2008)

Access to finance for SMEs (1999)

Regulation

Microeconomic reforms (2007) The regulatory environment in the context of the Strategy for Growth and Jobs (2006)

Synergies between EU enterprise and competition policies (2002)

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Old and new topicsoutcomes

General Growing imbalances of EU industry (2010)

Competitiveness and the crisis (2009) General developments (2008, 2007) Growth and standards of living (2006, 2001)

Growth, productivity and employment (2003)

Regional aspects of competitiveness (2003)

Sensitivity to external shocks (1999)

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Old and new topicsoutcomes

Structural change

Sectoral growth drivers (2008, 2007) The future of manufacturing (2007) Structural change (2000, 1999) External services and performance (2000)

Firm location (1999) Sectoral development (1998)

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Old and new topicsother

Sector studies

Space Sector (2011) Creative Industries (2010) Liberalisation of Energy markets (2006) ICT sector (2006) Pharmaceutical industry (2006) Productivity and the public sector (2004) Health sector (2004) Automotive sector (2004) Productivity growth in EU services (2002)

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Old and new topicsother

Societal goals

EU industry in a sustainable growth context (2011)

Competitiveness aspects of the Sustainable Industrial Policy (2008)

Corporate Social Responsibility (2008) Sustainable development in EU manufacturing (2002)