THE BLOG

Is Europe's Terminal Decline Inevitable?

23/12/2013 11:00 | Updated 19 February 2014

A recent trip to China confirmed the atmosphere of hope, growth and belief in a bright future that is prevalent among its people and its business leaders. That contrasts sharply with the current atmosphere in most European countries that, for the most part, seem concerned with an existential threat to their future. The questions on everybody's mind are: How can Europe possibly compete in the future? What is going to be the basis of sustainable European success in a rapidly changing globalised world?

Abandoning Competition

The first essential in building a European future is to abandon the notion of "being competitive." In its common interpretation, this mind set tends to lead to a race to the bottom that Europe can never hope to win. We can never compete with emerging markets on the cost of labour. We cannot compete with the US on industrial energy costs, at least not in the foreseeable future. Nor can we compete on the social flexibility, access to risk capital and tolerance for failure that makes the US able to convert technological innovation quickly into industrial success. I suggest we need a new framework. The appropriate question is "Based on their particular skills and capabilities, what contribution can European countries make to the rest of the world that allows them to build a differentiated and sustainable industrial and economic base?"

Size isn't everything

A further distraction has come from the obsession with size that is consequent on the European Union project. The prevalent idea has been that Europe must act as one in order to be big enough to compete with the likes of the US and China. This idea has some resonance when it comes to issues like global trade negotiations. However size alone is not a basis for success and it is dangerous to let this testosterone laden idea of a single Europe as one of the "Big Boys" undermine the quest for the micro level efforts that will be needed to move forward successfully.

Those who believe that putting so much focus on the European project has made Europe more "competitive" over the last 30 years should consider this statistic. In the past three decades, Europe has only produced three of the current global top 500 companies, compared to 26 in California alone.

European countries can still lead

Europe has a rich history, a strong cultural, humanistic and industrial heritage, a unique social model and a set of values, perspectives and embedded internationalism that have all influenced the world for centuries and have the potential to continue to do so for centuries to come. Can European countries leverage their unique pasts to create a future that is relevant to today's and tomorrow's world? Can they create an economic and industrial future that is based on that which is uniquely European rather than attempting to produce second-rate copies of concepts from elsewhere.

One European industry that has remained largely unchallenged worldwide is the luxury goods industry. The reason for its sustained success is that this is a quintessentially European industry. It is a modern industry that draws on the depth of European arts and crafts, European cultural heritage and past systems like royal patronage. It is European not only in its location but in its soul.

Luxury goods will not, of course, sustain the economy. But there are industries of tomorrow that Europe has the opportunity to exploit. In sustainability, finance, architecture, education, liveable cities, health care, design, connectivity, certain types of engineering, the cultural sector, and many, many more sectors, there are opportunities to create goods and services that are uniquely European and can form the basis of sustainable and thriving economies.

The Role of Government

How such economic success can be created is fundamentally different in, say, the UK, the Netherlands, France, Spain or Romania. These explorations must therefore be carried out at the level of the individual nation state or even at sub-national regional level. National governments have an important role to play. That role is not one of picking winners or in providing endless subsidies that create industries that are forever dependent. Rather, government has the opportunity to force the conversation. To create forums where the opportunities are explored in a thorough and disciplined fashion and where we get past superficialities like "a focus on innovation." Combined with creating the necessary structural and social conditions, governments can then allow this new economy to emerge organically based on business leaders' own enterprising initiatives.

European countries have been the cradle of much that has created the world as we know it today. Future success does not lie in competition or in becoming deluded that size will solve all our problems. Rather the buzzword must be differentiation - creating that which is distinctively European and difficult to imitate.