Present geopolitical uncertainties and the post-pandemic consequences (coped with global challenges) greatly affected supply chains and made it more difficult for states to remain competitive. Besides the EU governance’s efforts in recovery and resilience, attention to new efforts in competitiveness has gained momentum: e.g. through the corporate entities’ facilitating diversification of supply chain and other reforms’ proposals.
Through the last decade, the approaches to competitiveness globally have not changed much: it is, generally, still aimed at assessing the states’ “traditional abilities” to provide people with high levels of prosperity and wellbeing. However, in the EU the approaches are being coped presently with security issues in energy and resources, in various forms of digitalisation and sustainability.
Naturally, the notion is a complicated phenomenon and –among other things – depends on such issues as productive use of all available national resources. Hence, the regularly produced global competitiveness indices (GCIs) measure both the political-economy factors and national governance (institutions and policies) in a progressive and sustainable socio-economic development. Globally, the GCIs variables are organized into 12 sections (nine in the EU) representing important determinants of competitiveness.
The GCIs general guideline is that along nation’s growth, “wages tend to increase, and that in order to sustain higher income, labor productivity must improve for a state to be competitive”; for example, productivity factors are different in Nordic states than in less developed countries. Therefore, the GCI separates countries’ growth patterns into three specifically “driving factors”: available resources, efficiency and innovation; each factor includes several levels of complexity in socio-economic development according to a chosen growth model.
According to the latest (i.e. pre-pandemic) accounts, the first ten states-ranking in GCIs look the following way: Singapore, the United States, Hong Kong, Netherlands, Switzerland, Japan, Germany, Sweden, United Kingdom and Denmark. Other ten states are: Finland, Taiwan, South Korea, Canada, France, Australia, Norway, Luxembourg, New Zealand and Israel; that means that about half of the twenty best are the European states, which shows the region’s progressive growth pattern.
Reference and citation: https://en.wikipedia.org/wiki/Global_Competitiveness_Report
Among the states in the Baltic Sea region the ranking is the following: Estonia -32, Poland -37, Lithuania -39 and Latvia -41; Ukraine used to be on the 85th place and Russia on 43rd.
Interesting enough, among 30 best competitive in the world are presently 15 European states, while a decade ago there were 13, i.e. remarkably constant level of competitiveness!
EU states’ competitiveness factors
The long-term analysis of competitiveness and the EU-27 development’s productivity is vital for the European business and national governance concerning political-economy’s priorities and investments. At the end of 2022, the European Council asked the Commission to present EU-wide strategy to boost competitiveness and productivity. The EU will work on more efficient corporate reporting requirements and –while focusing on digital, green and economic issues – it is going to reduce administrative burdens by 25% with more innovation-friendly approach to corporate regulatory models. Many EU policy goals, like those in the Fit-for-55 package, REPowerEU and the Digital Decade for the green and digital transitions, have been set for 2030.
The EU’s long-term competitiveness proceeds along nine mutually reinforcing drivers complemented by a set of 17 key performance indicators (KPIs):
1. Optimally functioning Single Market (with easing regulatory compliance and burden);
2. Access to private capital and investment (with net private investment as a share of GDP and venture capital investment);
3. Public investment and infrastructure (with public investment as share of GDP);
4. Research and innovation (with R&D intensity as over 3 percent of GDP beyond 2030 and number of patent applications);
5. Energy (as a share of energy from renewable sources by 45% in 2030 and reducing electricity prices for non-household consumers);
6. Circularity (with circular material use rate of 23.4% by 2030);
7. Digitalisation (with basic level of digital intensity 90% in SMEs by 2030);
8. Education and skills (with 60 % of adult participation in education and training every year by 2030, adult employment rate 78% and 20 million ICT specialists by 2030; and
9. Trade and open strategic autonomy (with the increasing share of trade in GDP with the rest of the world).
Source: EU long-term competitiveness report-2023, in: https://ec.europa.eu/commission/presscorner/detail/en/FS_23_1670, and https://ec.europa.eu/commission/presscorner/detail/en/QANDA_23_1669.
Some corporate factors in competitiveness shall be specifically mentioned. Main aspects in the European competitiveness lie in both a the states’ comprehensive response to “protective initiatives” in other parts of the world (e.g. the US Inflation Reduction Act, IRA) and in addressing long-term national problems like high taxes, underdeveloped capital markets and a lack of investment in research and development. As to corporate challenges, there is a growing need for urgent regulatory reforms to “ease the business” and support the transition to green and digital transition through more flexible and simpler state-aid framework. Although in the short-term the EU economy is growing and the “business sentiment” has improved in the member states during last months, the BusinessEurope noted that “operating environment continued to be difficult given the high energy markets, tight labour markets, remaining supply chain strains and the prospects of further interest rate rises impacting both business and consumers”.
Reference to: https://www.businesseurope.eu/publications/businesseurope-headlines-no-2023-09/#macroeconomic
Corporate proposals for efficient economic governance
In recently published position paper, the BusinessEurope supported European Commission reforms of the economic governance framework proposed at the end of November 2022, in particular efforts to simplify the fiscal rules and to encourage growth-enhancing public investment and structural reforms; it also noted that strong public finances were fundamental for business confidence and investment. However, the EU-wide corporate entity recognized that the new framework would require improved enforceability, as well as strict monitoring of the implementation of structural reforms. Thus, ahead of the EU’s multi-year budget agreement in 2024, agreement on new fiscal rules is urgently needed as governments’ high public debts greatly increased during past two years.
The BusinessEurope researchers suggested the following key messages that are aimed at both efficient economic governance and competitiveness:
= Agreement on new fiscal rules concerning high public debt and budget deficit levels will provide not only credible and respected financial framework in the member states, but is also essential to maintain public finance sustainability in the EU. It is important, noted BusinessEurope that the Commission’s reference values of 3% of GDP for government deficits and 60% for public debt shall be at the basis of the EU economic governance framework.
= The member states’ rules for net primary expenditure can be potentially simplified to assist the states in establishing medium-term adjustment paths that are less sensitive to cyclical conditions and thus being more credible; however, these rules must not provide excessive flexibility in their interpretation.
= While welcoming the states measures in undertaking growth enhancing reforms and public investment through longer fiscal adjustments, the BusinessEurope suggests a more careful monitoring to ensure proper implementation with flexibility only granted if the states adopt credible reform and investment programs that support sustainable growth patterns.
= Reforms in enhancing the fiscal rules’ enforcement shall be stronger and more credible, possibly linked to possible member states’ withdrawal from Commission’s funding.
= Finally, the process of deepening EU’s Economic and Monetary Union shall go hand in hand with the strengthening of economic governance in the states, including completing the banking and capital “unions” and reinforcing the European Semester’s role in increasing growth, competitiveness and convergence.