The CBI at Harrogate: Europe's task is to learn from its successes

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The Independent Online
What can Europe do that other regions of the world cannot do more cheaply? That was the fundamental question implicit in the speech that Jacques Delors was unable, through illness, to give in person to the CBI conference yesterday.

The nub of Mr Delors' speech was that while European costs, particularly non-wage costs, made it hard to compete with other parts of the world, Europe could not compete on costs alone. 'An effective long-term policy to generate growth and employment must be geared also to increasing productivity,' he said.

He added that Europe would run into economic difficulties if its strategy to boost competitiveness focused largely on attempts to emulate low-cost producers elsewhere, including Eastern Europe.

He is quite right, of course, in the sense that Europe should not aim to become a low-wage area. That may happen if we cannot find ways of adding more value per worker than competitors in North America and East Asia. If we cannot do so our real wages will gradually decline, at least in relation to those in other similarly skilled areas. But the low-wage, or at least lower-waged, economy should not be an aim.

But that does not answer the really big question. In an age when manufacturing technology flows across national boundaries in a matter of weeks, capital moves around the world in seconds and managerial talent can be hired by any company anywhere if it is prepared to pay for it, what is left that is particular to Europe? What is our comparative advantage?

Europe has a few pockets of excellence in manufacturing, particularly in the upper-middle- technology range, which neither North America nor Japan can match. But there are not many where is it objectively the best. It has some excellent pharmaceutical and oil companies and the greatest export centre for financial services. But Europe's comparative advantage in conventional industry is quite thin.

If, however, one looks at the individual European countries in detail, the picture is more encouraging. Each has a handful of points of excellence that it would be very difficult for any other country - even other European countries - to match.

All, for example, have a high- quality craft manufacturing sector, but each produces very different items. To take a few at random: England has racing car manufacturing; Scotland, whisky; France, perfume and toiletries; Italy, quality clothing; Germany, medical and dental equipment. It is very hard to see Taiwan - or, looking ahead, mainland China - competing effectively in any of those areas.

Widen the net to include services and one could draw up a similar list of points of excellence, where again it would be very difficult for other nations to compete. Again picking at random: Britain would have its popular music; Italy its design; France and Spain their tourist industries. (Do not sneer at tourism; it is the world's largest industry.)

These are all areas where it is very difficult for the new industrial nations to compete effectively, either because of their location or because of language or cultural barriers. Japan is in many ways a delightful country to visit, but it is hard to see it developing as a leading tourist destination.

But in building these services, in which local culture plays a large part in providing the glue that holds the package together, it is important that the country is true to its own cultural traditions. France has a world-class tourist industry but has failed, so far, to make a success of Europe's largest tourist attraction, Euro Disneyland.

If this line of argument is right and the comparative advantage of European countries is very different in each case, what should the policy recommendations be? What should people like Mr Delors be urging European political leaders to do?

There are no easy answers. In general terms the objective should be to encourage each country to play to its strengths - to find ways of using the cultural diversity of Europe in a positive direction. But to translate that objective into practical policies is to wrestle with a jelly.

Europe has become very good at delivering goods across national boundaries. The Netherlands exports around 60 per cent of its GDP, higher than any comparable country in the world.

But Europe is less good at delivering services. It is always much harder to control the quality of services than it is to control the quality of manufactured products.

The latter can be checked as they leave the factory, whereas maintaining quality of service means control at point of delivery. North America has achieved consistency in its service industries and has developed an export business, as McDonald's has shown. Europe has, in comparison, failed.

But there are a few things that can be done from the centre. One is to remove rigidities in communications, important barriers to cross-European delivery of services. Cutting telephone charges and air fares would help.

If the European Union were really a union it would cost no more to ring Amsterdam from London than it does Edinburgh - the distance is, after all, the same. It would cost no more to fly to Athens than it does to fly to New York - in fact it ought to be cheaper. As it is, it is cheaper to fly from London to New York than it is to fly to Luxembourg.

Another would be to look at the individual points of excellence and see how these might be promoted to non-European markets. Europe does not market itself as an entity, and that is probably just as well. Indeed, it does just the opposite, for when Europe is represented at things like the Gatt talks it is trying to protect its old inefficient industries rather than boosting its many new ones.

But twisting the balance of the EU bureaucracy so that it is designed to project, as well as protect, is something Mr Delors himself could set in train.

A third way forward would simply be to collect information about points of excellence. European bureaucracy, both in the Commission and in national governments, is preoccupied with its failures.

It is at present studying unemployment. Quite right too, for the fact that this continent should have vastly higher unemployment than any other industrial region of the world is a grave failure.

But why not also study growth points? Have a conference on these. Learn from successes in one country and see whether these could be applied elsewhere.

Mr Delors' analysis is right, but the focus of much of the work of Brussels is wrong.

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