Findings of Survey to be discussed in Brussels conference at Egmont Palace on May 31 2012 - Conference live from Brussels at www.stateoftheeu.eu or on Twitter @stateoftheeu.
INSEAD, the leading international business school, Booz & Co and the European Executive Council (EEC) have completed a worldwide survey, consisting of 2,000 responses from senior and up-and-coming executives both in and outside Europe assessing the corporate view on the European response to the long-standing debt crisis. The study will be released at the second annual “The State of the European Union” conference, an initiative of the EEC, at the Egmont Palace in Brussels on May 31.
The report found that business leaders believe Europe lags in competitiveness, and that this issue should be seriously addressed, with a much stronger emphasis on innovation and technology. Respondents expressed confidence that the EU will remain an essential player on the international stage, but thought the alliance should be among stronger countries, indicating this is a time for needed transformation of the EU project, with some countries perhaps leaving the Eurozone.
“The financial crisis presents a rare opportunity for long-overdue structural reforms, and even for questioning existing political and economic agendas,” said Dipak C. Jain, Dean of INSEAD. “We approached this study from the premise that the voice of the corporate world should be stronger in this ongoing critical debate and the importance of harnessing the business community’s views on the future competitive advantages necessary for Europe to attract new investments, talent, and resources, and to generate new prospects for business and economic growth”, Jain said.
Business leaders also wish to see greater authority exercised in Brussels, particularly on the economic (monetary, fiscal and industrial) front. Regarding social policy, however, business leaders do not believe in one European social model, and prefer to leave social and cultural diversity to the nations and regions, explicitly asking the central authorities in Brussels to abstain from regulatory intervention in this area, except perhaps for harmonising minimal conditions.
The report’s findings are organised into six areas: The Corporate View on the EU, Austerity and Responsibility, Europe’s Social Structure, Technology and Innovation in Europe, Younger Voices and the BRICS Perspective, and Questions for Debate. The report explores issues that underpin any corporate agenda for change in the EU, specifically economic and social issues, technology and innovation, and offers points of view from the younger generation and the BRICS countries (Brazil, Russia, India, China and South Africa).
Austerity and Responsibility
Regarding the economic challenge of austerity and fiscal responsibility, the survey suggests that Europe’s greatest challenge may be its lack of competitiveness and low level of growth, both of which are perceived as structural. Respondents agree that spending should be limited and fiscal austerity should be enforced. Not surprisingly, support for this approach is stronger in countries with lower deficits. 96% of German respondents are in favour of these measures while in Southern Europe the approval rating for this point is 70%.
These responses make it clear that executives have taken sides on the debate. “Executives in Europe simply do not think that spending Europe’s economy back to growth is the answer to overcome the current recession. Structural adjustments and continued budgetary austerity also will be required,” noted Per-Ola Karlsson, Senior Vice President, Managing Director, Europe, Booz & Company.
There is strong support for shrinking the Eurozone, so as to strengthen the benefits of a solid core of countries, such as Germany, the Benelux, Northern countries, and also Poland and Slovenia. Such sentiment is strongest among nations with high rates of GDP growth. Thus, respondents appear to embrace the notion of a two-speed Europe, in which a stronger, if smaller, core can move ahead more freely, while the other countries catch up in due time, or not.
Respondents are fully behind the completion of the single EU market, which they see as the best guarantee for greater economic discipline and performance. They believe that the EU’s role in renewing growth is to focus on monetary, budgetary and fiscal policy and that Brussels’ authority should not be expanded too quickly into other areas. They believe that the EU should not interfere through “hard-touch” regulation, but should guide and encourage the transformation towards a union of more uniformly competitive states. They support making benchmarking and transferring “better practices” - the focus, rather than preserving or enforcing behaviours which protects relatively weaker actors.
Many respondents believe that the EU is too rigidly set in its ways. They cite unwillingness to change and a tendency to cling to entitlements, which could become the biggest challenge to growth. Ludo Van der Heyden, The Mubadala Chaired Professor in Corporate Governance and Strategy and INSEAD Professor of Technology and Operations Management, commented, “Europeans should not underestimate themselves: The region’s companies fare well in the global economy, aided in great part by their managers’ comfort with other cultures, openness to ideas, and excellent training. If, given greater competitiveness within the EU, that same openness and creativity can be applied to Europe’s home markets and to its overall system, the continent will flourish again.”
Europe’s Social Structure
Although European business leaders take pride in the social structures of their nations, they want less of the regulatory burden that often accompanies such structures, and do not see how one single social model can operate in such a diverse area as the EU.
The prevailing view is that “Many of the regulations and social compacts of the past are inhibiting the EU’s competitiveness in today’s more global and challenging economy. This being the case, a greater degree of social flexibility is an absolute must if the EU is to become the agile competitor it needs to be,” said Robert Gogel, Co-Founder of the European Executive Council and CEO, Integreon.
Technology and Innovation in Europe
Respondents think that the EU has played a critical role in the domains of information, transportation, and energy and want now to focus now on “humanware” and “software”. They think that the EU, notwithstanding Lisbon commitments and announcements, still lacks a culture of innovation and the ambition to be a leader in the field of technology. However, they believe that if the Union can harness its human capital along with its excellent infrastructure, Europe can aim for leadership in this field.
“As more voices start to be heard to combine growth-supporting measures with the pursuance of Europe’s efforts to balance its accounts, it is key to identify how available resources should be invested”, stresses Bruno Lanvin, Executive Director of INSEAD eLab and an author of the report. “Innovation and information technologies are key areas in which Europe can not only leverage its comparative advantages, but also conquer new markets and build a job-rich recovery.”
Younger Voices and the BRICS Perspective
The participation of two subgroups in the survey, young respondents and those from outside the BRICS (Brazil, Russia, India, China and South Africa) are remarkable for both their lack of influence in EU affairs and their supportive views of its future.
Young executives in Europe see the EU as a powerful global force and say they want it to play an even more important role in more areas than does the average respondent. But, as they are experiencing high unemployment, these progressive younger executives are particularly supportive of giving Brussels more authority in the realm of economic policy. They strongly support prioritising R&D, innovation, technology, and especially education over government spending and public debt, even at the expense of free trade.
Executives from the BRICS nations expressed nearly identical views as their younger European counterparts, which is not surprising since many were educated in Europe and imbued with the norms of international corporate culture. Whereas they are even more concerned than Europeans regarding the state of the EU and more pessimistic regarding its competitiveness gap, they express no distrust of the EU itself. Rather, they are strongly positive about Europe’s technology and innovation and - like young Europeans - are even more pro-Brussels than their European counterparts.
Questions for Debate
While the survey revealed much of what business leaders think about the current state of the EU and its potential, it also gave rise to many questions which will be discussed at “The State of the European Union” conference on May 31 2012 at Egmont Palace in Brussels. Those questions include:
Economic Issues
- Does support for shrinking the Eurozone mean that one should support withdrawing one’s own country from the common currency or only the weaker players?
- In the same vein, is the call for budgetary discipline mainly a call for some EU member nations to discipline others? Or do business leaders really support letting their own governments be scrutinised by Brussels?
- How can popular support be harnessed for increasing budgetary power in Brussels when doing so would inherently make the EU less popular? How can the democratic nature of economic politics be safeguarded if national governments have to obey Brussels?
Social Issues
- The call for increased social flexibility is not surprising, but can concrete actions really be taken to achieve it? What form might such actions take? Will the EU be able to balance the need for harmony in the system, while also leaving discretion to the countries?
- How can European labour markets converge towards a true single market?
- How can the EU play a larger role in harmonising social regulations without increasing the number of directives and regulations?
Innovation & Youth
- What is the best way to grow and attract the talent needed to produce more European innovation, better technology, and more active entrepreneurs? Who will pick up the bill for making this happen?
- How can the EU create a better education system in the midst of calls for lower public spending and taxation?
- How can Europe offer a more supportive environment for start-ups and small and medium-sized businesses, and enhance their ability to innovate and successfully take their innovations to market?
The report was written by Per-Ola Karlsson, Senior Vice President, Managing Director, Europe, Booz & Company; Bruno Lanvin, Director of e-LAB, INSEAD; Ludo Van der Heyden, The Mubadala Chaired Professor in Corporate Governance and Strategy, INSEAD; and Robert Gogel, Cofounder of the European Executive Council (EEC) and CEO of Integreon.
For more information about the organisations mentioned here, please visit the following websites:
INSEAD: http://www.insead.edu/
Booz & Company: http://strategyand.pwc.com
The European Executive Council: http://www.dza.fr/2.aspx?sr=1
The State of the European Union Conference: http://www.stateoftheeu.eu/
