No such thing as a free lunch

In the following article LFMI’s Vice-president Guoda Steponaviciene argues that people need to work longer and more productively if the EU is to achieve its “Lisbon strategy” goal of becoming the World’s most competitive economy.

The recent report of the High Level Group on the Lisbon strategy has given new impulse to the debates on this broad and controversial issue. As the report says, the Lisbon strategy is about everything and about nothing.
But the group also stated, however, that the “Lisbon’s direction is right and imperative” and saw only one problem – that much more urgency was needed in its implementation.
The report, fraught with slogans and calls to act, resembles an advertising campaign rather than evaluation and prompts the following questions – what is the Lisbon strategy needed for and what should be done to attain its goals (if we agree that the goals are growth and employment).
Dovetailing the incompatible
So, why do we need the Lisbon agenda? The first answer is because we have to be the best in the world, or at least be better than the US. For Eastern European people, this recalls the famous Soviet slogan, “Catch up with and take over America.” No wonder for some people, it leaves a bad taste in the mouth.
But do people actually care about being number one in the world or do they care about better living? It seems more reasonable to be concerned about one’s own well-being rather than measuring yourself against others. I believe that Europeans are less interested in being better off than the American people and more concerned with simply living well. What living well means is another, not easy question.
Another reason for the Lisbon agenda, stated in the report is that we need it “in order to sustain Europe’s social model.” The essence of this model, we should remember, is not changing much or, more specifically, not taking away any of the existing social guarantees and benefits. Protests against attempts to reform labour markets and health care systems in Germany and other European countries demonstrate this very well.
How then can we expect the agenda for “growth and employment” to be implemented? This is the really tricky question: most people in the old European countries would like to preserve the current level of social welfare and even to increase it.
And the painful truth is that in order to enjoy real welfare, at least some part of the present benefits should be sacrificed. It is logical to say that to increase productivity, people have to work better and they should have the opportunities to do this.
Structural reforms, please
Education and social security are also key areas which Europe needs to consider carefully in its Lisbon strategy.
Sadly, not a single, specific measure has been proposed for structural changes in education systems. It would be naïve to believe there is no need for reform. Even if we are not making Europe a “copycat” of the US, we should bear in mind that most European countries have no private universities, while in the US even state-owned universities offer their services as market players.
The same is with health care and social security reforms. The report states, “Already from 2020, projected spending on pension (with current level of benefits) and health care will increase by some 2% of GDP in many member states and in 2030 the increase will amount to 4-5% GDP.”
These forecasts are serious and almost certain to come true as a natural result of the pay-as-you-go pension systems and government financed health care schemes.
However, again, not a single hint at how to crack this problem can be spotted in the report, except an invitation to multiply the number of immigrants who would kindly earn the tax money to cover the proliferating costs of the European way.
Knowledge economy overrated
The report contains a huge chapter on the knowledge economy. This is natural as this topic is wide and complicated.
But bearing in mind that other crucial issues of growth and productivity – CAP, a more open external trade or a replacement of regulations with market instruments – have not been mentioned at all, the significance given to the knowledge economy seems slightly overblown.
The key ideas of the knowledge economy, underlined in the report, are to make R&D a top priority and to develop the high-tech industry. We are far from sure such priorites are justified.
Most analysts agree that the bottleneck of productivity growth is not in knowledge creation (R&D), and, especially, not in the sums spent, but in the application of knowledge (innovation).
The fact that Europe produces nearly twice as many science and engineering graduates as the US is presented as an advantage in the report. However, the report doesn’t address a natural question why those scientists don’t produce as much as those fewer in the US.
And it seems somehow strange to focus on such things as R&D, high-tech, clusters and other sophisticated economic formations when people in Europe cannot easily hire a plumber to fix a tap or a baby-sitter for their child.
No such thing as a free lunch
The McKinsey Global Institute suggests that insufficient competitive pressure is one of the most important factors in explaining the relatively poor use of productivity-enhancing ICT in the EU compared with its major competitors. Having admitted this fact, we shouldn’t wonder why services do not enter new markets – they are already scarce on their home markets.
Strangely, the report does not question, why. This is not R&D and not high-tech innovation. We cannot blame the market for failing to invest into these undertakings. Nor can we regret over the brain-drain because more hands than brain are required for most of the services that European citizens need and are ready to pay for.
We can only conclude that there is something wrong with the motivation to work in Europe. Or has work ceased to be a value in Europe?
To conclude, let’s get back where we started. Why do we need Lisbon? We need it for better living – high-quality education, health care and other services available in the market as well as the climate suitable for work and preservation of natural motivation to work.
How to achieve this? First, we need to promote competitive pressure and admit an ancient truth that to earn more people need to labour more and better. Contrary to popular statements, human dignity is not enough for attaining material wealth.
Second, before harmonizing regulations in the EU, make them smaller and simplified – this would make life easier for those who live under these regulations and those who are struggling for harmonisation.