The Lost European Dream

The Lisbon Strategy have failed but the intentions must remain.

In 2004 Jeremy Rifkin optimistically described the emergence and evolution of the European Union and presented it as an alternative to the philosophical, social, economic and political system of the US. He contrasted the “harder” American Dream of individual accumulation of wealth with the “softer” connectivity and respect for human rights that he argued defined the European alternative. Rifkin argued that the European soft power should be able to win greater influence in the long-term at considerably less expense. Europe, once more he said, would have critical importance to the global future but this time as a positive force for humanity.

This optimistic thesis The European Dream reflected real progress among the member countries at that time.  With new members lined up and plans drawn up for further monetary, political and social integration it is easy to understand the hope the EU inspired throughout the world. In fact, in many parliaments and boardrooms at that time decision makers throughout the world expected Europe to invent a new industrial model that would result in a better world than the one known from the industrial revolution and manifested by the hard capitalism of the US.  Rifkin summarized his hope: Europe has become a giant laboratory for rethinking humanity’s future and the world is watching. The contrast with the sad European realities of today is striking.

The good intentions of the Lisbon Strategy

Let’s go back a decade when the renowned Lisbon Strategy (or Agenda) from 2000 boosted the EU self-confidence. At that time European leaders realized that innovation is the engine of economic change, that knowledge-based economic development is a must and that sustainability ought to become a basic parameter of economic development.The EU leaders boldly stated that:

  1. The European Union is confronted with a quantum shift resulting from globalisation and the challenges of a new knowledge-driven economy. These changes are affecting every aspect of people’s lives and require a radical transformation of the European economy. The Union must shape these changes in a manner consistent with its values and concepts of society and also with a view to the forthcoming enlargement.
  2. The rapid and accelerating pace of change means it is urgent for the Union to act now to harness the full benefits of the opportunities presented. Hence the need for the Union to set a clear strategic goal and agree a challenging programme for building knowledge infrastructures, enhancing innovation and economic reform, and modernising social welfare and education systems.

The aim of the Lisbon agreement  was to make the EU “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion” by 2010. Yesterday  I quoted this sentence to a visitor from Asia and we both agreed it felt a bit odd to even say it in view of the current Euro mess.  Never-the-less, at that time this strategy intended to strengthen the EU economy, create employment and promote social policies in line with Rifkin’s softer approach, which would drive economic growth even more. All in all, the Lisbon Agenda resulted in many new policy initiatives to be taken by all EU member states and has been the foundation for the development of the EU over the last decade. And it did strengthen Europe but in an uneven way.

The end of the party

In 2007, the EU was still celebrating a welcome economic upswing after five years of positive growth and optimism. In a region long blighted by joblessness, the rate of unemployment had fallen to its lowest level since the early 1980s. But then the international crisis hit. So profound was the crisis that many of the Lisbon Agenda’s key targets and principles have been loosened or suspended. The consequence is that less than only seven years after Rifkin’s book was published our decision makers have been unable to realize the many good intentions from Lisbon. The European Dream has become a reality only for a few, an illusion for some and nightmare for many. As I write this article the COP 17 meeting in Durban is heading for another mega-disappointment and the EU leaders are alone in their want to do more than the Kyoto Protocol calls for.

Already in the 2008 Simon Tilford and Philip Whyte published the report Lisbon scorecard: How to emerge from the wreckage in which they provided a harsh analysis of the performance of the Lisbon strategy. “Picking through the wreckage of the past year, it is legitimate to ask what remains of the EU’s Lisbon agenda”  they bluntly said in their introduction. The implicit assumption of the Lisbon strategy was that Europe’s main challenges are on the supply side, but that doesn’t make sense. Leaning on Nobel Laureate Paul Krugman they argue that while supply side factors are the key determinants of a country’s prosperity, measures to improve the supply side will “…do little to lift the EU (or the rest of the world) out of its current hole.”  Why? Because the short-term challenge is the demand side and the Lisbon Agenda doesn’t provides any tools for influencing  business cycles, demand and the global dynamics driving it. Today, three years after this report, virtually all EU governments continue to struggle with this demand side.

How do the EU countries score a decade after Lisbon? With some Scandinavian exceptions, the 2008 performance was less than encouraging. In the words of the authors: “No honest assessment of the Lisbon agenda can ignore two inconvenient facts. The first is that the EU as a whole will not meet any of the targets it set itself in 2000. The second is that the gap between the best and worst performing EU countries is arguably larger now than it was when the Lisbon agenda was launched. There is no evidence that the situation have improved after 2008, on the contrary.

The implication of their finding is that countries that fail to make progress on their Lisbon targets are likely to suffer from weak levels of productivity and employment: “…countries which fail to reform will condemn themselves to lower living standards”.  Adding pain to injury, the public finances of such countries will make them more exposed to rising income inequalities flowing from increasing globalization and technological change. Not surprisingly, the “villain” (versus “heroes”) group of countries in their analysis of Lisbon performance is remarkably similar to the EU group of nations sarcastically named “PIGS,” which are now in desperate need of financial assistance to avoid bankruptcy.

The education agenda

It is difficult to argue against the good intention of the Lisbon strategy. Innovation, deregulation and life-long learning are key to nations’ competitiveness, economic growth and social cohesion in any part of the world. Much empirical research has  shown that education raises labor productivity, but the link between higher education and innovation is a weak one (as illustrated by Sweden and Denmark). Far from all research generates viable innovations and far from all people with higher education innovate, but more many other reasons  investment in education are always valuable for nations.

In view of global competition many European countries need to continually upgrade the level and quality of education of its citizens.  Globalization, technological development and the inclusion of a large portion of the world into the world economy simply calls for it and an increased education level is also essential to maintain social cohesion in our societies. Unfortunate, the Lisbon Scoreboard shows that many  EU countries – particularly in Southern and Central Europe – are not doing well on this dimension.  Tough but necessary austerity measures are not the best driver of this strategic agenda, however.

The OECD program for international student assessment (PISA) shed light on how well students in the OECD countries are prepared for future challenges in terms of their abilities to analyze, reason and communicate effectively. The key question is to what extent they have the capacity to continue learning throughout life, very much in line with the Lisbon strategy. The findings, however, are as sobering as the Lisbon Scorecard because they show how European countries, with the exception of Finland, are lagging behind. It is not surprising that governments even in high-performing countries like Denmark and Sweden are driving significant reforms through parliament to improve their educational systems.

A new dream?

Despite the sad picture from the Lisbon Scoreboard its policies remain necessary to increase EU’s long-term competitiveness in view of the global competitive onslaught from BRIC and other countries. Together China and India represent 1/3 of the population (read: potential brain power, consumers, entrepreneurs, innovations, etc.) on this planet and their priority is not always the softer values of the Europeans. In Europe we have no choice but regard the current difficulties with the Euro zone as a self-inflicted hick-up in the bigger picture, get our act together and increase the speed of reforms needed to boost the quality of education, research and innovation.

The last time I was in India and China their Dreams were clear and present. When the current nightmare is over it is high time for a new European Dream.

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