Caselet 1

THE EU'S LAGGING COMPETITIVENESS

In a report produced for the European Commission, published in November 1998, it was argued that

the EU lags behind the USA and Japan on most measures of international competitiveness. Gross

domestic product per capita, sometimes used as an indicator of international competitiveness at the

country level, was 33 per cent lower in the EU as a whole than in the USA and 13 per cent lower

than in Japan. The EUs poor record in creating employment was singled out for particular criticism.

As this appeared to apply across the board in most industrial sectors, it suggested that the EUs poor

performance related to the business environment in general and, in particular, to the inflexibility of

Europes labour markets for goods and services. A shortage of risk capital for advanced

technological development and high cost and inefficiency of Europes financial services were also

highlighted by the report. For one reason or another, European industries generally lag behind in

technology industries. If measured by the number of inventions patented in at least two countries, the

USA is well ahead of most European countries, as well as Japan. Despite these shortcomings, the

reports authors focus attention on flexible markets, market liberalisation, and the creation of a

competitive business environment rather than on targeted intervention by the EU or national

authorities.

Questions:

1. Is it fair to point the blame for the EUs poor international competitiveness at inflexible labour

markets, regulated goods and services markets, and a general lack of competition? What

alternative explanations might be suggested?