It is time the EU named and shamed backsliding members

by Giles Merritt*

The occasion was the first EU Industry Day in Brussels, an event designed to “help shape the industrial agenda of tomorrow”. What this carefully avoided doing was to identify the backsliding EU countries that have ignored almost two decades of commitments on R&D spending and have sunk to the lowest rungs of global league tables.

Poor productivity is Europe’s greatest weakness, and it is going to be exacerbated by ageing and by youth unemployment. It should be the European Commission’s most powerful rallying call for concerted national policies to boost productivity.

There are bewilderingly different ways to calculate productivity. The essential point is that in the closing two decades of the last century Europe’s productivity growth at around 2% a year was twice that of the United States. Now, at 0.5% it’s less than half. America has its own problems, of course, but major corporations there are on average twice as profitable as in Europe. They have more money to invest, and have entered a virtuous circle.

One might think recovering lost productivity in services as well as manufacturing is a crusade tailor-made for the European Union to lead. Indeed, it once was; In March 2000, EU governments signed up to its Lisbon Agenda for streamlining their economies, notably by digital means, “to make Europe the most competitive and dynamic knowledge-based economy in the world.”

Ten years later that boast was being widely ridiculed. A plethora of studies showed that, far from making progress, EU countries were slipping behind newcomers in the globalising world economy. Already by November 2004, former Dutch prime minister Wim Kok had presented a high-level experts’ report saying the Lisbon strategy wasn’t working because of national governments’ inertia and lack of investment. He recommended that the Commission should name and shame the culprits.

Needless to say, successive commissions have never done so. Their reluctance reflects a fear of political repercussions and a deeply-held belief by EU officialdom that the European project would be seriously damaged by public criticism of a member state. Other than on €-zone disciplines, it remains unthinkable that EU governments should be publicly called to account.

That’s not entirely so. In early 2015, former Finnish premier Jyrki Katainen, remarked as the Commission’s vice-president for jobs, growth and investment that “naming and shaming is a good tool, and we shouldn’t be too modest to use it.” Encouragingly, he returned to the question very recently on the embryonic EU plans to stimulate increased defence spending and cross-border research cooperation, endorsing the value of naming ‘free riding’ governments that did not deliver on their commitments.

So what’s the solution to Europe’s sagging productivity, and why should Brussels point its finger at national capitals? There are several answers, and they all add up to the need for a tough and uncompromising new approach by the EU commission.

World Bank researchers say that improving productivity isn’t so much about introducing “industrial strategies” as it is about removing barriers. They pinpoint rules governing business practices, insurance, hiring and firing, and intricate social security regulations as among the difficulties handicapping companies, especially the 95% of them that are SMEs.

EU officials have long championed ambitious innovation policies and cross-border scientific research, yet European productivity keeps on sliding. That’s why it’s time for Brussels to unsheathe its most potent weapon of all – embarrassment. Publicise league tables of national failures and achievements on reversing the productivity slide and public opinion will do the rest.