Here's a unique chance to create a Europe that works

Were you designing the European Commission now, you would make something very different

PATCH AND fiddle or think anew? You have to be profoundly pessimistic to think that the reconstructed European Commission will not make radical changes to the way it operates - if only because were it to fail to reform itself, the European Parliament would bite its head off again. But there is, nevertheless, a profoundly important choice its new leader, Romano Prodi, will have to face. Does he take the broad line of development of the Commission of the past, and indeed of the EU itself, as a given? Or does he take the opportunity of rethinking the Commission's whole raison d'etre?

You do not get many shots at reforming large bureaucracies; this is a once-in-a-generation opportunity. Were you designing the European Commission now, you would come up with quite a different organisation. So, start from first principles and ask: what are the comparative advantages of Europe?

Forty years ago it was clear that the various European countries provided too small a market for their large commercial companies to enjoy economies of scale. Initially in coal and steel and then more generally in other traded goods, Europe needed a common market. Most of the subsequent triumph of European development has been the result of exploiting such economies of scale. The better European companies have been able to expand across the continent, while the worse have gone to the wall.

What was needed was a Commission that could push forward the efficiencies that would result from this larger trading zone, remove barriers, promote fairer competition and so on. It also had to administer an agricultural policy, but that, from an economic point of view as opposed to a financial one, was the lesser task.

I think that the Commission deserves considerable credit for the way it has pursued that goal. The European economy is vastly more efficient as a result of its work, and you could certainly argue that the single currency will extract further gains from economies of scale, as prices and costs become more directly comparable across Europe and greater efficiency follows.

But that is the position as of now. The nature of the world economy has moved on, and while there may well be further gains in efficiency to be made, the growth points of the world economy are no longer in manufactured goods but rather in services. What are Europe's strengths and weaknesses in this new world?

The most remarkable thing about Europe's economy is its diversity. Different regions are good at quite different things. There is a common theme in luxury goods: the world's best luxury products, from Paris and Milan fashions to German cars to Scotch whisky, are made in Europe.

But that apart, the variety is more notable than the similarities. While Europe as a whole has a strong record in the medium and upper-medium technologies, it is not so strong at the very top end of the scale. Nor is it strong in the new computer-related technologies - with the exception of Scandinavia, which dominates global mobile communications, and the partial exception of the UK which does well in some software, as well as in pharmaceuticals.

From a European perspective one of the disturbing lessons of the 1990s is that many of the new information technologies have been developed in the US, and not in Europe. Indeed the gap between Europe and North America, which had been narrowing until about 1990, has started to widen again.

Why is this? I don't think is it possible at the moment to give more than an intuitive answer, but when the economic history of the Nineties comes to be written, I suspect that one key conclusion will be that Europe had, by 1990, extracted most of the gains that could be made from closer economic integration - not all, but most.

Europe was no longer big enough; it was no longer sufficient to be strong in one of the three time zones. To move forward meant thinking not Continental but global. Companies which did that, such as the Finnish group Nokia, could dominate the world market for their products. Companies which continued to think of Europe as their main market stagnated.

Britain is in the interesting position of being the least European and most American of the EU economies. Having pulled itself back from catastrophe in the Seventies, it still has a legacy of weakness in the older industries. That legacy continues to cast a shadow over many parts of the country. But the UK has been good at creating new industries - not as good as the US, but better than most European competitors - with around 40 per cent of the European venture capital market.

Now ask the central question. What sort of Commission does Europe need to help it to become more competitive vis-a-vis the rest of the world over the next generation, given that most of the power will remain for the time being with the national governments, and given that most of the gains from economies of scale have been achieved?

I have a suggestion. It is that the Commission should start to think of itself much more as a super development agency, charged with continuing the European countries' economic success story in the very different economic conditions of the new century.

This is a task which does not particularly need big money but rather big brains. It requires clever people to identify blockages in the path of further development and then cajole governments into clearing them, to identify growth areas in the world economy and lift Europe's game.

There are a host of practical measures on which Europe compares badly with the US. Why is Europe so bad at creating private sector jobs? Why are new business start-ups so low, and why are they lower in some countries than others? Most important of all, how can Europe turn its cultural diversity from a potential weakness into a practical strength?

This is a wholly new way of thinking of the role of government, but one more tuned to the the next century. Instead of exerting power by taxing and spending, governments all over the world are having to operate by a much more subtle mixture of forces: being an effective catalyst for change, being an efficient regulator, being a good presenter of policies. Potentially Mr Prodi has a much more interesting job than poor old Mr Santer. New century equals new politics and new Commission?