UNECE Spring Seminar focuses on competitiveness
and
economic growth in the UNECE Region
Geneva, 23 February 2004
Geneva, 24 February 2004 - Why some economies grow faster than others
and how is this related to their international competitiveness? What are the
main factors that shape the competitiveness of the ECE economies and what
are the determinants of competitiveness in the knowledge-driven economy? Why
are there so big within-country economic disparities between regions and localities,
even in the industrialized ECE economies? What can governments do to foster
the competitiveness of their economies? These were some of the questions and
issues addressed at the seventh UNECE Spring Seminar "Competitiveness and
Economic Growth in the UNECE Region" held in Geneva on 23 February 2004.
In the first session dedicated to the general aspects of
competitiveness and growth, the keynote speaker Karl Aiginger from the Austrian
Institute of Economic Research discussed the key factors (including policy
strategies) behind the divergent performance of the ECE economies in the 1990s.
In general, between 1993 and 2002, the US economy outperformed the EU as a
whole. The gap in labour productivity (measured both as GDP per worker and
as GDP per working hour) between EU and the US increased while the EU experienced
a lower employment rate and a higher rate of unemployment. However, within
the EU, there was a large variation in performance. In particular, three small
Nordic countries (Finland, Sweden and Denmark) as well as Ireland outperformed
the biggest three EU economies (Germany, France and Italy) during the same
period and, by some measures, the US as well. Aiginger suggested that the
main reason for the better performance was higher investment in the drivers
of economic growth. He identified a three-tiered strategy for success, which
was pursued by the better performers: (1) cutting costs, i.e. bringing government
expenditures in line with taxes, (2) reforming institutions, i.e. realigning
incentives and labour and product market reforms and, most importantly, (3)
investing into the future (boosting growth, increasing productivity).
While the discussants agreed that investing into the future
was important to ensure long-term economic growth, they suggested a number
of additional factors that held back the big EU economies, among others, German
reunification, less consensus between government and trade unions in France
and the burden of unresolved regional discrepancies in Italy. In summary,
while the Nordic countries may provide some lessons on suitable policies to
enhance economic performance, there are limitations to their universal application.
Session II was devoted to a discussion of the determinants
of competitiveness in the knowledge-driven economy. According to the paper
presented by Jan Fagerberg from the University of Oslo, competitiveness has
four main aspects which can be broadly defined as: technology, capacity, cost
and demand. The analytical framework of his approach is based on a Schumpeterian
model (the technology gap approach to economic development) and is applied
to a sample of 49 countries between 1993-2001. The empirical results highlight
the importance of both technology and capacity competitiveness in explaining
differentiated economic performance of nations. For example, the former is
the main explanation behind the good growth performance of the "Asian Tigers"
relative to other major country groups. Deteriorating capacity competitiveness,
on the other hand, is one of the main factors hampering low-income countries
in Europe and Asia in exploiting the potential for catch-up in technology
and income.
While technological competitiveness displays strong signs
of divergence, there is some convergence going on in the capacity to exploit
technological opportunity which in turn suggests the importance of human capital
development and hence the required changes in education systems, ICT infrastructure,
diffusion (investment and technology licences) and social and institutional
systems (e.g. corruption).
One of the criticisms to the proposed model raised during
the discussions was that the variables used did not always measure properly
the actual determinants of differentiated country performances in terms of
competitiveness.
Session III addressed some issues related to the competitiveness
of regions and localities within the UNECE economies. In his presentation,
the keynote speaker Dr. Gyula Horvath from the Hungarian Academy of Sciences
focused on the competitiveness of regions and localities in central and eastern
Europe. He observed that during the period of transition from plan to market
within-country regional disparities in central and eastern Europe had actually
increased considerably. At present the disparities between the richest and
the poorest regions in central and eastern Europe in terms of per capita GDP
is 7:1 which is higher than the disparity in the EU-15 which is 5:1.
Regional disparities reflect the outcome of divergent growth
performance of regions and localities which, in turn, is a reflection of differences
in regional competitiveness. In assessing the causes of such divergent performance
the speaker pointed out the importance of factors such as: population distribution;
size structure of enterprises; regional concentration of FDI inflows; capacity
for R&D; accessibility/infrastructure; quality of human capital. Among
the specific regional features of the central and east European economies
(and an important difference from the EU-15) is the dominant position of the
capital cities in these countries as well as the relatively low number of
large cities.
The existing inter-regional disparities pose major policy
challenges for the central and east European countries. According to the speaker,
a decentralized model of policy making, delegating more powers to autonomous
regions would contribute to the reduction of these disparities. This view,
however, was challenged by the discussants who noted that wide-ranging decentralization
does not necessarily improve overall economic efficiency and may in fact have
adverse consequences. Instead they advanced the view that a model of shared
responsibility between the centre and the regions could be a more appropriate
decision-making framework.
The fourth session of the Seminar dealt with the role of
governments in fostering competitiveness and growth in their countries. This
was illustrated on the basis of the experiences in the United Kingdom over
the past two decades, which were presented by Ken Warwick, Deputy Chief Economist,
UK Department of Trade and Industry.
The promotion of competitiveness and productivity growth
serves the overall aim to raise living standards of the population, taking
into account also factors such as the quality of the environment and distributional
issues (income, gender, regions). Warwick noted that the role of government
is limited but crucial in creating a conducive environment for economic activity.
He identified three main areas: setting the framework for economic activity
(ensuring macroeconomic stability and creating an enabling legal framework);
investing in assets that are underprovided by markets, i.e. public goods (such
as basic science) and public infrastructure; correcting market failures (e.g.
barriers to market entry). The speaker emphasized the need for a coherent
framework for the monitoring and evaluation of government intervention to
ensure the most effective allocation of public resources. The new business
support system for the United Kingdom will have a clear market failure rationale
and put stronger focus on investments to promote productivity growth. A major
emphasis of current government policies is on asset building, i.e. enhancing
the science basis, improving the public transport infrastructure and education
system and fostering institutional reform.
To narrow the longstanding productivity gap with the United
States, France and Germany, the government focuses on five main drivers of
productivity, namely the innovation system (notably weak business R&D
spending); entrepreneurship; labour and management skills; business fixed
investment and the creation of competitive market conditions (e.g. by means
of product market deregulation). While the UK framework conditions have been
supportive for economic activity, more needs to be done to raise factor accumulation
(notably public infrastructure) and improve total factor productivity in the
total economy, i.e. the efficiency with which the main production factors
(capital and labour) are combined.
The discussant, Pavel Mertlik, Raiffeisenbank, Prague, and
former Minister of Finance of the Czech Republic, emphasized that in view
of the current dominating focus on the creation of an effective institutional
framework and measures to improve the supply side of the economy, governments
should not neglect the demand side. Robust, sustained growth was important
for business investment. He also noted that the issues of social cohesion,
income distribution, care for the environment and the economic implications
of ageing societies are an integral part of government policies to promote
growth and competitiveness. Another issue, raised in the general discussion,
was to what extent lessons from past experiences with government support policies
could be a useful guide for the future, given that government policies themselves
had to be innovative to address the challenges ahead.
In her closing statement, Brigita Schmögnerová,
Executive Secretary of UNECE, summarized some of the main conclusions of the
Seminar. She stressed the importance of finding the right policy mix fostering
competitiveness and growth, pointing out that there is no "one size fits all"
policy which could be applied in all countries. She also noted that "investing
in the future" will be crucial for the competitiveness of the UNECE nations
in the 21st century, and thus the creation of a conducive environment for
such investment is one of the most important tasks for policy makers. Mrs.
Schmögnerová also emphasized the importance of public policy in
correcting market failures, including market failures that lead to social
exclusion; sustaining and increasing social cohesion is a key determinant
of the competitiveness of nations.
For further information please contact:
UNECE Economic Analysis Division
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Phone: +41(0)22 917 20 84
Fax: +41(0)22 917 03 09
E-mail: [email protected]
Web site: http://www.unece.org/ead/2004seminar.htm
Ref: ECE/GEN/04/P09