1. 0 26.08.2015 European Competitiveness Research Programme and ECR 2010 Michael Peneder (WIFO) Budapest, Institute for World Economics, 25.01.2011 European Commission Enterprise and Industry

2. 1 26.08.2015  European Competitiveness Research  History & consortium  Competitiveness  A “dangerous obsession”?  Firms, industries and the macro-level  The ECR 2010  Guiding questions  Selected findings Outline

3. 2 26.08.2015 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 Commission Enterprise and Industry

4. 3 26.08.2015 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)

5. 4 26.08.2015  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)

6. 5 26.08.2015 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)

7. 6 26.08.2015 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!

8. 7 26.08.2015 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!

9. 8 26.08.2015 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

10. 9 26.08.2015 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”

11. 10 26.08.2015 Competitiveness firms - Labour & skills - Capital - Intermediates - Raw materials (incl. energy) Inputs ProcessesOutcomes - Entrepreneurship - Management - Organisation - Technology - Productivity - Survival - Profits - Growth - Market shares

12. 11 26.08.2015 Competitiveness industries Inputs ProcessesOutcomes 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

13. 12 26.08.2015 Competitiveness countries & regions InputsProcessesOutcomes 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

14. 13 26.08.2015 Competitiveness an integrated puzzle Firms Firm-level inputs InputsProcessesOutcomes Firm-level drivers Firm performance Industrial Location Industrial Organisation Industrial performance Locational advantages Regulation & institutions Macro- performance Industries Countries/ Regions

15. 14 26.08.2015 How did imbalances accumulate, and did they affect the external competitiveness of EU industries ? European Commission Enterprise and Industry

16. 15 26.08.2015  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 2010 Growing imbalances

17. 16 26.08.2015 What share of value added does the EU capture when the production of a single phone is scattered all over the world? European Commission Enterprise and Industry

18. 17 26.08.2015  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 2010 Trade in intermediate goods

19. 18 26.08.2015 What if corporate R&D and innovation activities are increasingly off-shored? European Commission Enterprise and Industry

20. 19 26.08.2015  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 2010 Foreign R&D and innovation

21. 20 26.08.2015 Do you know which technologies can radically change the future of EU manufacturing? European Commission Enterprise and Industry

22. 21 26.08.2015  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 2010 Key enabling technologies

23. 22 26.08.2015 Why do activities such as media, design, software, video games and advertising matter so much for economic growth? European Commission Enterprise and Industry

24. 23 26.08.2015 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 2010 Creative industries

25. 24 26.08.2015 Thank you for your attention!

26. 25 26.08.2015 Annex: Old and new topics inputs 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)

27. 26 26.08.2015 Old and new topics processes 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)

28. 27 26.08.2015 Old and new topics processes 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)

29. 28 26.08.2015 Old and new topics processes 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)

30. 29 26.08.2015 Old and new topics outcomes 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)

31. 30 26.08.2015 Old and new topics outcomes 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)

32. 31 26.08.2015 Old and new topics other 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)

33. 32 26.08.2015 Old and new topics other 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)