Open Letter to the European Council

Posted by Ann Mettler on 23/10/13

Colleagues from the World Economic Forum’s Global Agenda Council on Europe (on which I have the pleasure of serving) have drafted this Open Letter to Presidents Barroso and Van Rompuy, published at the occasion of the European Council on 24-25 October devoted to innovation and the digital agenda.

 

Dear Presidents,

As members of the World Economic Forum’s Global Agenda Council for Europe, we want to express our high expectations for the upcoming European Council on 24-25 October.

We welcome that – at last – a summit of heads of government is devoted to innovation and digital advancement, both of which we consider absolutely essential to Europe’s economic development. Against this backdrop, we recommend that this become an annual occasion, to take stock and measure progress.

With innovation driving up to 85% of productivity growth in advanced economies – and the digital economy projected to grow seven times faster than other sectors – these are the pillars for future growth. But already today, some 1 million vacancies in ICT cannot be filled, despite the highest levels of unemployment across the EU in decades. Overcoming this skills mismatch – as well as raising digital literacy across the board – will be an indispensible precondition for getting Europe’s 26 million unemployed back to work.

The timing is good. Now that the immediate financial crisis appears to be abating, you have the opportunity to

1)   Complete the digital and telecommunications single market. It is paramount that key legislative milestones be taken forward before the current European Commission leaves office and the European Parliament dissolves

2)   Devise alongside EU member states an actionable investment plan for Europe’s digital infrastructure. It is the lifeblood of modern economies and current estimates put a price tag of € 200 billion to complete the Europe 2020 digital broadband targets

3)   Close the innovation performance gap. Europe has some of the most innovative countries in the world – but also some of the worst performers. This makes for an unsustainable alliance of excellence and mediocrity; an imbalance that must be addressed, using tools like the structural funds and the European Commission’s new powers on economic surveillance.

Dear Presidents, the importance of the upcoming European Council cannot be overstated. In the short-term, digital innovation will accelerate growth and job creation, thereby strengthening the recovery. In the medium- to long-term, it will build a bridge to the next generation of digital citizens, giving them a future where they can compete for modern, well-paying jobs, benefit from true cross-border connectivity and be served by responsive, modern governments. It is a positive message and win-win situation.

We wish you much success at tomorrow’s summit.

Best regards,

  • Javier Solana (vice-chair), president, ESADEgeo – Center for Global Economy and Geopolitics, Spain
  • Sir Andrew Cahn, vice-chairman, Nomura, United Kingdom
  • Ding Chun, dean, Centre for European Studies, Fudan University, China
  • M. Willem van Eeghen, lead economist, Office of the Chief Economist for the Europe and Central Asia Region, World Bank
  • Maria Fanjul, chief executive officer, entradas.com, Spain
  • Charles Grant, director, Centre for European Reform (CER), United Kingdom
  • Daniel Gros, director, Centre for European Policy Studies (CEPS)
  • Danuta Hübner, member, chair of the committee for regional development, European Parliament
  • Dominic Llewellyn, co-chief executive officer, Numbers4Good, United Kingdom
  • André Loesekrug-Pietri, chairman and managing partner, A CAPITAL Group, France
  • Ann Mettler, executive director, The Lisbon Council
  • Robin Niblett, director, Chatham House, United Kingdom
  • Mark Spelman, global managing director, Accenture
  • Paweł Świeboda, president, demosEUROPA – Centre for European Strategy, Poland
  • Sinan Ülgen, chairman, Centre for Economic and Foreign Policy Studies (EDAM), Turkey

Europe’s Moment of Truth

Posted by Ann Mettler on 13/03/13

“Nothing beats the truth.” These were the passionate words of Enda Kenny, prime minister of Ireland, when asked last week about the spring European Council on 14-15 March. He was talking about a moment of reckoning for the continent’s leaders, as they confront increasingly hostile electorates, most recently exhibited in Italy where voters sent a clear signal against “austerity.”

Now it’s payback time for the years – even decades – of denial, of make-believe that the prosperity that Europe enjoyed was somehow divorced from economic realities, be they ballooning debt, declining competitiveness or dysfunctional insider-outsider labour markets. In the name of “social justice” – and long before the real crisis hit in 2008 – opportunistic political leaders devised loyal corporatist systems in which a growing set of vested interests divided power and spoils among themselves. Rather than embracing meritocracy, social mobility, creative destruction and innovation, entire countries became slow-moving, inward-looking, defensive and elite-driven juggernauts. Against this backdrop, it is not entirely surprising that a growing number of Italians have said “basta” to the current system – but perhaps without really considering the way forward.

Neither Silvio Berlusconi with his pledge for tax cuts the country cannot afford, nor Beppe Grillo, the political novice who has promised to suspend the national debt, is a solution. The fact that over 50% of the country gave them their vote is a stark reminder of the challenge the country – and Europe – faces. And that is why it is time to speak the truth; to tell Italians – and Europeans – that there is no easy way out of the crisis; that it will take years – even decades – of hard work to repair public finances, to build a new foundation for prosperity, and to embrace the fact that today the countries with the highest levels of social cohesion are precisely the ones that implemented far-reaching reforms early on.

The worst response to the Italian elections would be not to speak the truth, to cave in to the idea that somehow “austerity” is to blame for the current woes, that once again breaking the rules of the Stability and Growth Pact – as was done with devastating consequences back in 2005 when France, Germany and Italy could not abide by the deficit limits they had set for themselves – would somehow improve the situation. For sure, budget consolidation on its own will not be sufficient in the absence of far-reaching structural reforms that have the potential to unleash growth, but it is a precondition to win back the political room to maneuver that has been lost because of the crushing weight of debt and the dependence on financial markets to finance it.

Voters are rightfully angry when they vote against “austerity” and for “growth,” as happened last year in France — and instead receive rising unemployment, economic contraction, a slew of factory closings and a widely publicized deterioration in international competitiveness. The fact that French “austerity” has in fact seen a rise in public spending between 2009-2013 of 0.2%, to a whopping 57% of GDP, demonstrates how confused and ill-informed the public discourse is.

While counting on politicians to speak the “truth” and exert “leadership” has largely proven a failed formula for Europe, the situation is not hopeless. Indeed, the oft-recited quip by Luxembourg Prime Minister Juncker that “we all know what to do, we just don’t know how to get re-elected after we’ve done it” is not entirely true. Wim Kok, Tony Blair, Poul-Nyrup Rasmussen – not to mention Margaret Thatcher – all managed to win re-election despite being committed reformers. And of course Enda Kenny himself is living proof that ambitious consolidation can occur without massive public opposition (Ireland has not had a single strike day since he took office).

But rather than relying excessively on political leaders becoming more enlightened and mustering courage they have hitherto lacked, it is now necessary to activate other levers that can at a minimum inform public opinion – and at a maximum shape it. This will translate into new kinds of collaborations, interest groups, public personalities; societal forces that will treat voters like mature adults who deserve to be told the truth, allowing them make sound and informed decisions about their future. It will mean that formations like the Organisation for Economic Co-Operation and Development (OECD) take centre stage because they provide the intellectual evidence of why reforms are necessary. It will mean that the perennial nay-sayers who try to uphold the status quo for their own interests, rather than the common good, will be deprived of the moral high ground they are so used to occupying.

Changing public course and popular opinion can be done without electoral majorities, provided a committed, articulate and determined coalition of the willing can be assembled. Europe’s green movement hardly ever polled more than 10-15% of the vote but turned our continent into a beacon of sustainability and an innovative force in renewable energy. The same can be done for a societal reformist movement; a force that would do away with the power of cartels that have for too long strangled our economies, stifled democracy and burdened future generations with unsustainable levels of public debt.

Indeed, nothing beats the truth — and denying the realities and origins of this crisis and promising easy answers is the political equivalent of defying gravity. Let us hope – and work towards – the citizens of Europe demanding better.

This article is a contribution to the World Economic Forum’s Global Agenda Council on Europe

Europe Needs a Real Growth Agenda

Posted by Ann Mettler on 10/05/12

As Europe embarks on a quest for a new “Growth Compact,” it is clear that the old ways of facilitating a painless recovery via Keynesian stimulus spending is not an option. After all, if government spending did lead to higher growth, Europe would have had a stellar economic performance in the past. France, for instance, has not run a balanced budget in over 30 years but has little to show for it in terms of superior growth performance. In other words, growth is an outcome, rather than a policy. If it were the latter, wouldn’t all countries make ample and easy use of it?

In addition – and despite what a rising chorus of voices would have you believe, public finances are simply too constrained, particularly in the hardest hit countries, to once again ‘tax and spend’ our way out of economic malaise. That’s the bad news. The good news is that thanks to powerful, new digital technologies, it’s no longer necessary to resort to old-style, expensive shovel-ready projects to kick-start the economy and job creation.

Without costly policy interventions in the form of subsidies or tax credits, digital technologies in general and the Internet in particular have become the economic backbone of modern societies, accounting for an estimated 21% of GDP growth in the world’s most advanced economies in the past five years. And despite the gloomy outlook, it is forecast to continue to grow exponentially. The Boston Consulting Group (BCG) estimates that the Internet economy will contribute a total of $4.2 trillion to the G-20’s total GDP by 2016, which means that if it were a national economy, the Internet would rank in the world’s top five, behind only the US, China, Japan and India – and ahead of Germany.

These figures underline the seismic shift in how growth is generated and economic value is created. Far from being a niche policy issue, as it is often treated in Europe, where the ‘Digital Agenda’ is essentially a side show unworthy of the attention of heads of government or finance ministers, it is in reality the 21st Century equivalent of what electricity was in the 19th Century or the steam engine in the 18th Century: a general-purpose technology that fundamentally transforms and modernizes the economy at large.

It is not without reason that in Europe’s most advanced – and successful – economies, the Internet accounts for a sizable chunk of GDP. In 2009, 6.6% of Swedish GDP was attributable to the Internet, 4.3% in the Netherlands and 3.4% in Germany (projected to grow to 4.4% by 2015), compared to a paltry 2.2% in Spain. In a recent blogpost, Professor David Cleevely, founding director of the Centre for Science and Policy at the University of Cambridge, convincingly demonstrates the correlation between e-intensity – a measure developed by BCG based on adoption, expenditure and use of the Internet and e-commerce – and 10-year government bond rates, making the case that greater e-intensity results in lower borrowing costs and thus a better ability of a country to weather the current economic crisis.

At the heart of this digital revolution are of course companies, particularly small- and medium-sized enterprises (SMEs), which in Europe account for over 99% of all businesses. In an economic environment in which large multinationals are more likely to create jobs in emerging economies, and where governments have essentially stopped hiring, these SMEs are the cornerstone of employment creation. A recent study by the European Commission concluded that 85% of new jobs in Europe are created by SMEs. What’s more, companies that make intensive use of digital technologies have been shown to grow twice as fast, export twice as much and create twice the number of jobs compared to companies that are technology laggards. But to be clear: this is not only — or even primarily — about high-tech start-ups, as the Digital Agenda is too often equated with. This is about using technology across all businesses and across all economic sectors. It is not without reason that according to the McKinsey Global Institute, 75% of the economic value created by the Internet arises from traditional companies that are using Web-based technologies to boost productivity, lower costs and reach new customers and markets.

While the economic benefits of the Internet and greater technology adoption are vast and convincing, Europe is struggling to unleash the potential of what is often referred to as the Digital Single Market.  Many of the solutions could come at minimal or even zero cost: streamlining fragmented VAT systems which make cross-border transactions cumbersome, establishing a Europe-wide sales contract law to give greater legal certainty to consumers and businesses alike, or developing a Europe-wide framework for cloud computing, which could replace the 27 piecemeal systems currently in place. Technology is also a potent driver of competition and flexibility, both of which are in urgent demand in Europe’s over-regulated, slow-moving markets. Retail sector protected and rent-seeking? E-commerce can offer consumers much-needed choice, drive down excessive prices and force companies to innovate in an effort to keep up with competitors that can be easily accessed online. Labour markets rigid and short on easily accessible skills? Online talent bourses where freelancers connect without bureaucratic hassles and across borders with companies in need is a new, innovative way to address Europe’s high unemployment and skills shortage. Record youth unemployment? How about using the skills of this digital generation to address the projected shortfall of 700,000 IT professionals by 2015?

As Europe rediscovers the need for growth, it will be imperative to take account of new economic realities, which clearly demonstrate that productivity, jobs and innovation come from greater adoption of digital technologies. This does not neccessaryly need massive government investment and it certainly doesn’t need old-style industrial policy and heavy-handed intervention, which would only further deteriorate public finances and undermine Europe’s credibility to get a grip on its problems. It does, however, need evidence-based policymaking; it does need political will and vision to advance the EU’s internal market and it does need a realization that the digital agenda is about mainstream economics which warrants the attention of top decision makers.

Albert Einstein once famously noted that we can’t solve problems by using the same kind of thinking we used when we created them. Unless Europe follows this advice, this new quest for “growth” may prove to be the ultimate kiss of death for the Eurozone and the European way of life.

Single Market Entrepreneurs

Posted by Ann Mettler on 24/01/12

In collaboration with our friends at Google, the Lisbon Council is launching a new Centre of Excellence, entitled Single Market Entrepreneurs Centre. In a nutshell, it consists of a dedicated research programme and high-level, policy-driven community of entrepreneurs, small businesses, policy makers and thought leaders. The overall aim is to enhance the visibility, recognise the importance and underline the transformational nature of entrepreneurs and medium-sized companies. Some of our work will, for instance, focus on helping SMEs reap the immense advantages of doing more business within Europe’s €12,3 trillion internal market – and create more growth, jobs and prosperity for all Europeans at a moment when we can surely use it.

As we all know, SMEs account for 99% of European companies, two-thirds of total employment and virtually all net job creation. In times of fiscal constraints and sluggish growth prospects for the coming years, small- and medium-sized companies are uniquely positioned to help drive forward innovation, accelerate adoption of new technologies and business platforms and tap into EU’s single market of 500 million consumers. Personally, I believe that there has never been a better time to be an entrepreneur and that ‘small’ is an asset in today’s economy, where speed, agility and user-centricity are key comparative advantages. Against this backdrop – and to celebrate the 20th anniversary of the Single Market – the SME Centre will highlight the tangible benefits of EU integration and celebrate the important role that entrepreneurs and innovators play in creating a more dynamic Europe. Activities will start later this spring, and will be featured on our dedicated website www.singlemarketentrepreneurs.eu.

The Single Market Entrepreneurs Centre will be officially announced on Tuesday, 24 January at an event that Google is hosting on Single Market Opportunity: Getting Europe’s SMEs Online.

 

A European in Silicon Valley

Beautiful view of San Francisco, a global hub for innovation

I love that feeling when you get to do and experience something that you have only ever heard about. The myth of “Silicon Valley”, its innovative prowess, its ingenuity, its ability to remake the world with its ideas, its entrepreneurship, its savvy technology and slick new products. It’s been clear to me for some time that this trip to Silicon Valley was for me a matter of professional survival. I just couldn’t bear the inward-looking, crisis-ridden, short-term debates in Europe any more, where the centre of policy focus seems to have become how to convince the markets in the coming week that Europe is not on the fiscal and economic abyss, only to see its efforts fail again, then try a new grand strategy, call for another summit, and so on. I think you get the point.

I was desperate to go somewhere where people think big because I so often appear to be surrounded by people who think small. So I set out to experience for a few days first-hand what all the buzz on Silicon Valley is about, including now, during a time when the United States is also undergoing profound economic challenges.

The first thing that struck me is how unfazed the Valley appears to be by the upheavals in the economy on both sides of the Atlantic. Despite the visibly crumbling infrastructure – signs of the almost bankrupt state of California – there was a vibrancy, a contest for new ideas, a competition for talent, a feeling of optimism and a ‘can-do’ attitude that I have not experienced for a long, long time. It was refreshing, in fact, to be surrounded by people who inspire, who have ambitious plans and who believe they can make a difference. No crisis feeling here, to be sure.

The second thing that was interesting is that while these people collectively reshape the world of politics and business with the technology and the products they produce (think of the importance of social networking on the Arab Spring for instance), they seem largely either uninterested or unaware of it. The thrill of creating new ventures and products which enjoy popularity and user pick-up seemed to be in the forefront, as well as the money that comes with it. This is of course not surprising and is in no way objectionable, as not everyone can be expected to be a policy geek, but I nonetheless was struck by it. For its global significance and universal admiration, the people we met appeared very focused on what it takes for them to be successful and profitable, without necessarily pondering the wider implications.

Here are a couple of the issues that I thought were particularly interesting:

-       The importance of a big, unified market to succeed globally. Of course we met with many European entrepreneurs and asked them why they chose to take their venture to the United States. Among the key issues raised is the United States’ big, unified market and the feeling that if you make it there, you can make it anywhere. Says Peter Arvai, the brilliant Swedish

Founder and CEO of prezi, the Swede Peter Arvai

founder and CEO of prezi, the hottest new presentation software on offer: “We originated in Budapest and for us, a market like for example the United Kingdom seemed huge. It would be a formidable effort to conquer it and even if we had succeeded, a US rival could have emerged and we would have been in what is a –comparatively – small market [the UK] now faced with a huge competitor. I knew that I did not want to make the same mistake I made in my first two ventures when I did not take my companies to the United States, so it was clear that we needed a base here.” And how right he was: from its office in San Francisco, prezi has seen incredible success. From an investment by TED conference (the first time TED invested in a venture) to the highest echelons of the US government (Vice President Biden) now using its products, it seems that the move across the Atlantic was a brilliant decision and we here in Europe can bask in the glory of knowing that this fabulous new software at least originated here, and continues to have a base in Budapest.

-       Show me the money: getting the investment that young companies need. There appears to be a very

storify co-founder and CTO, the Belgian Xavier Damman

well-functioning and effective link between investors who are searching – and are able to fund – the next big thing and young, entrepreneurial companies who produce genuinely promising business ideas and concepts. Xavier Damman, an exceptionally talented Belgian entrepreneur and great friend of the Lisbon Council (he serves on our advisory board) co-founded one of the hottest new start-ups in the Valley, storify. We had already heard a lot about it in the days leading up to our meeting and were excited and happy for Xavier, whom we have known for a long time, including when he was trying to get ventures off the ground in his native country. What a great moment when Xavier welcomed us in his slick new, loft-style office in the up-and-coming South of Market district (twitter will open up its new office across the street soon) and told us the exciting tale of storify. The venture received a $2 million investment from legendary investor Kinod Khosla of Khosla Ventures. When asked if he could have received this kind of money in Europe, Xavier said it would have been impossible because potential investors were hard to come by and would have asked for a business plan. When I asked Xavier if Kinod Khosla didn’t request the same, Xavier responded: “He (Kinod Khosla) said forget about a business plan, worry about adoption.” And in this area, storify cannot complain. Every day more and more people, news outlets and organisations are signing on, including on last count, The New York Times, the White House and the United Nations. While this may only be an anecdote, to me it holds certain lessons. This intricate interplay between money (investors) and ideas (entrepreneurs) is unique and is in my opinion nothing that can be replicated by policy makers in their signature top-down, bureaucratic ways. No matter how hard you try, you can neither artificially produce skilled investors nor savvy entrepreneurs.

-       The war for talent is alive and well. Maybe I have gotten so used to soft labour markets with high unemployment, particularly among the young, that I have forgotten what it’s like to be in a place where everyone is scouting talent, values ingenuity and takes the ideas of 23 year olds seriously. I know that we have pockets of labour shortages in Europe as well, particularly among engineers, but what I am talking about here is something different. It is the appreciation of all high-end professional skills, and an understanding that technology companies need different skill sets in order to be successful, that impressed me. I often speak about how innovation takes place at the intersection of different disciplines but here it was really on display as programmers teamed up with business majors and designers to create something new. Says Hal Varian, chief economist of Google: “Interdisciplinary teams of 5-10 people work best, particularly if everyone is a stakeholder in the company.” Or take our visit to the incredibly impressive IBM Almaden Research Lab, where we expected to meet mostly with IT

The first hard drive, on display at the IBM Almaden Research Lab

experts and instead had thoughtful discussions with an anthropologist and social scientist. Breaking out of the professional silos was on display everywhere we went and this enriching interplay between different disciplines is in my opinion a key to the success of Silicon Valley.  The flipside of all this is of course that talented professionals are in great demand, meaning that they are pursued by many players. This can, understandably, make it difficult for start-ups that must compete with big, established firms like Google and Apple. Says Soeren Stamer, a successful German entrepreneur and member of the Lisbon Council board, who is starting a new

Soeren Stamer (on right) in San Francisco co-working space

venture in San Francisco: “One of the things I appreciated about my German employees was their steadiness and their loyalty. It’s quite different over here.” One of the ways that small companies are trying to convince talent to come onboard is on the one hand the excitement of building up something new but also to offer equity in the venture, giving staff a sense of ownership, an incentive to make it a success and the prospect to become rich if you joined the right outfit.

-       An experimental touch, always trying to be ahead of the curve. While so much of our thinking in Europe is dominated by conformity and not wanting to fall out of line, it was amazing to witness how individuals and companies try, in an almost systematic manner, to think of what they can do to distinguish themselves. This genuine wish to be ahead of the curve, to not follow but pioneer, is contagious and is perhaps not sufficiently understood as an underlying driver of innovation. It makes a hell of a difference if you voice a new idea and everyone around you says “go for it” or if there is apathy, universal doubt, or a wait and see attitude, with the establishment generally only embracing an entrepreneur once he or she already has a proven track record of success. But to come back to experimental ideas, here are a few that I came across: Peter Arvai of prezi said of his business model that with information so easy and cheap to come by, people will in the future pay for privacy, i.e. for not making their information public. As a result, prezi has a more than unusual pricing structure. It is free as long as you make the presentation publicly available, but if you don’t want to see your prezi on the Internet, you have to pay for the software. It’s a brilliant insight which made me a paying customer. Or take Google, where a reflection on how to lower the

Not quite a driverless car but still pretty cool: the Google bike

number of accidents resulted in the conclusion that the weakest link by far in road safety is the driver. The result: the development of a driverless car.

-       Workplace innovation and collaborative spaces are key. I already knew that the visit to Google would be amazing before I ever set foot on their breathtaking campus. It’s well known that Google in many ways epitomizes workplace innovation, with its 20% rule (senior staff is allowed to spend 20% of their time on projects that are not necessarily part of their job description), the open collaborative spaces and the free food on offer. Suffice it to say that what I saw literally blew my mind. The tour of the campus, compliments of a brilliant Swede by the name of Nicklas Lundblad, who heads up Google’s global public affairs, was eye-opening. From the free “Google bikes” which anyone can use to ride from building to building and the parking

Delicious lunch at one of the many Google cafeterias

spaces with solar panels that allow staff to charge their hybrid cars while at work, to the popular beach volleyball court and the free, delicious and healthy food at every corner, one could literally feel that this was an environment that is supposed to electrify minds, generate new ideas and encourage people to work together to make them happen. It’s fun, for sure, but it’s also sound business because this type of workplace innovation is certainly part and parcel of Google’s success. Another display of workplace innovation was a co-working space that our Board Member Soeren Stamer uses. From the street, it looked like a cool café, with lots of benches where busy youngsters were typing away on their Macs, consuming delicious drinks they could purchase there. But in the back was a door which led to a private co-working space where aspiring entrepreneurs could rent tables. Up the stairs were closed off private offices where investors could meet and interview promising start-ups. People who occupy the co-working space are linked through Facebook or Google+,

Aspiring entrepreneurs at a co-working space in San Francisco

allowing the owner to make announcements or invite people to office parties. This aspect of how people work, how they organize themselves, how they use space to collaborate and synthesize is genuinely not understood in Europe and is thus undervalued in its importance. But anyone visiting the Google campus would immediately understand what a crucial aspect that is to the company’s success.

Joel Mahoney and Erik Michaels-Ober of Code for America

-       Philanthropy reflects the entrepreneurial vigor and tech-focus. We had two fabulous and most interesting encounters with local philanthropies. The first one was the Skoll Foundation, an organization founded by Jeff Skoll, one of the first employees of eBay. Dedicated to social entrepreneurship and environmental sustainability, the Skoll Foundation is very entrepreneurial in its ways of working and results-oriented almost in a way that a company would be. They want to have impact … and impact they have had. They single-handedly established what is without a doubt one of the most important meeting places where social entrepreneurs and potential investors can meet. Dubbed the Skoll World Forum and taking place every year at the Said Business School at Oxford University, this gathering has become a must-be place for the “who is who” of social entrepreneurship. Says Sally Osberg, the charismatic CEO: “The next step is to become more data-driven, making the business and economic case for social entrepreneurship and going from isolated best practices to systemic change.” Located in a buzzing street in Palo Alto, not far from Stanford University, it is the kind of organization that exudes professionalism, entrepreneurship, innovation with a refreshing dose of down-to-earth friendliness and kindness. It was for me an inspiring experience and an example of a clever, successful entrepreneur putting his money to good use. The second encounter with philanthropy came during a visit with Code for America, a young, tremendously successful operation that sends teams of programmers into cities to help them make local government more transparent, cost efficient and collaborative. We met with two of the fellows, programmers who essentially agreed to work for a modest fee in exchange for the potential to contribute and give back to society. Here again, I came across these inspiring, talented and committed youngsters (at least we seemed to be the oldest people there) who manage to get together to shake up the establishment, question the status quo and provide actionable and future-oriented solutions to public challenges. It was interesting beyond belief and once again I walked away full of awe for the energy, the enthusiasm and the determination to get things done.

I of course know that this is a microcosm of the United States which is not representative of the country at large. However, I was simply struck by how energized and inspired these meetings left me (which I cannot say for the vast majority of my meetings on this side of the Atlantic these days), how time and time again there was a feeling of meeting kindred spirits, and how fun it was to plot the future instead of bemoaning it.

The other take-away for me was that policy appeared to be very much an afterthought. I heard no one talk about the importance of R&D, researchers or patents, I heard no one who looked to Washington for the solutions to problems, and I heard no one who thought there could be some master plan or magic bullet for kick-starting more innovation. Instead, I saw a lot of people who felt that the power to innovative comes from within, comes from being driven, connected and committed. Furthermore, there is incredible faith in the power of transparency and openness – enabled by technology – as an agent of change. Some call it coding, others call it hacking, but the overriding belief is that more data and information should be publicly accessible, thereby helping to drive transformation, raising standards and giving greater knowledge to citizens across the world.

As Bill Lewis, the gifted founding director of the McKinsey Global Institute and member of the Lisbon Council advisory board, reminded me at our meeting in Carmel: the problem with innovation is not innovation per se, it’s the diffusion. We have the innovative solutions to many of the world’s challenges but we don’t apply them – be it for fear to upset the status quo, be it for fear that the costs would be too high, be it for fear of the unknown. It is always easier to talk about innovation than to do innovation. And at the end of the day, innovation is really a euphemism because as every innovator knows, bringing about change is hard, swimming against the tide is always more difficult than going with the flow.

Competitiveness Pact: Lisbon Agenda II?

Posted by Ann Mettler on 12/02/11
Tags: ,  

Franco-German plans for a Competitiveness pact, which were put forward at the last EU summit have been met with great skepticism but done right, they could help address key areas of structural weaknesses.

After all, European leaders have wasted almost a year in getting to the root causes of the current crisis. Instead of addressing the underlying disease – be it a dramatic loss of competitiveness in Greece or Portugal or unsustainable economic imbalances in Ireland and Spain – they have fought economic decline with procedures. By focusing on the minutiae of how to reconcile the Lisbon Treaty with a permanent bail-out mechanism, the merits of European bonds, or the right size of the European Financial Stability Facility, they have neglected the truly important questions: how to sustain innovation, generate future growth, and drive job creation.

True, some would argue that the austerity measures implemented in some of the hardest-hit countries demonstrate that urgent action was taken. But austerity in itself is hardly a viable medium- to long-term strategy. Fiscal consolidation may be a prerequisite to getting one’s economic house in order, but the pain will be for naught in the absence of deep structural reforms aimed at generating future growth.

This is, of course, not the first time that European leaders have devised a strategy to increase their countries’ competitiveness. Back in 2000, they vowed to use the so-called Lisbon Agenda to turn the European Union into “the most competitive and dynamic knowledge-based economy in the world.”

Before issuing yet another new plan, they should learn the lessons of past failure. Above all, the conditions for “competitiveness” cannot be dictated from above. In democracies, the effort requires strong commitment among the public; otherwise, organized interests are likely to topple reform efforts.

Indeed, organized opposition can come from corners where one least expects it: businesses that do not want to give up subsidies and preferential treatment; protected professions, like doctors, lawyers, and engineers, who do not want more competition or transparent pricing; educational institutions that do not want to be subject to measurement and comparison.

What has gone wrong in Europe in the past decade hardly reflects a lack of analysis of what needs to be done, or a dearth of pompous proclamations about the need to improve. Rather, it is a profound mishandling of the political economy of reform, an unruly and often vicious process that is essentially a power struggle against incumbent interests. That is why one of the litmus tests for European leaders will not be their proclamation of yet another so-called competitiveness pact, but their willingness to alter dramatically the EU budget, shifting subsidies from agriculture to areas that support innovation, growth, and job creation.

Another lesson of the Lisbon Agenda is that in the absence of binding commitments and enforcement of sanctions – conditions that apparently will hold true for the new pact – rigorous monitoring and naming and shaming are indispensible. Countries must feel the pressure and embarrassment of underperformance, much like the OECD’s PISA study on education compelled countries into reforming school systems.

In addition, rather than waiting for all countries to sign up to a given measure, there should be more instances of “enhanced cooperation,” a hitherto seldom-used procedure that allows a minimum of nine countries to cooperate without requiring the other members’ approval. This mechanism was used recently to conclude a three-decade battle to establish a community patent, overcoming objections to translation requirements voiced by Spain and Italy.

Some observers will worry that greater use of “enhanced cooperation” might lead to a two-speed Europe. But the alternative to a two-speed Europe is a low-speed Europe, where every decision is sure to be blocked by some country or incumbent interest that stands to lose from a given reform. It is preferable to have at least some countries subscribing to ambitious, far-reaching policy goals, rather than reprise the usual lowest-common-denominator consensus that has bred mediocrity and economic decline.

One of the lessons of history is that there has never been a successful monetary union without economic union. A solid competitiveness pact can therefore be a step in the right direction. But it can only be the beginning of a continuous process of striving for excellence, benchmarking with the best in the world, and turning pious ideas into concrete actions.

Informal Competitiveness Council: Innovation (Not) @ Work?

I had a rather unique experience a few days ago. I was invited to attend and speak at the Informal Competitiveness Council convened by Belgian Economy Minister Vincent Van Quickenborne. For those of you who don’t know Minister Van Quickenborne, he is not your usual politician. Technology-savvy, innovative and risk-taking, he truly stands out from your run-of-the-mill political leader. In fact, he’s a breath of fresh air in the stale and orchestrated European corridors of power. So it was not a surprise that the entire event was designed to be different and to shake things up. Taking place in a very cool venue, Area 42, and underpinned by a programme aimed to take ministers and their civil servants outside their usual comfort zone, it was one of the more daring attempts I have seen to do innovation, rather than only talk about. Alas, it was not an unmitigated success. Not because of the Minister but because of procedures and mentalities that are frankly irreconcilable with innovation and openness – what a sad statement on the very “Competitiveness Council” that is entrusted with driving forward innovation at the European level. While the morning plenary sessions did a good job of shedding light on some of the underlying issues, the breakout session I took part in on innovation was simply disappointing. Thinking that member states representatives would come with innovative proposals and new ideas, all I heard was the usual, prayer-like regurgitation of statements like “Europe does not spend enough on R&D”, “We need more clusters”, “We don’t produce as many patents as Japan or the United States.” Given the state of an economy crawling out of recession and in need for a major re-calibration towards new sources of growth, I was simply speechless by the unimaginative interventions.

Some of the points I raised but which seemed too ambitious, new or – perhaps – innovative for my audience:

- Disruptive innovations are highly unlikely to come out of well-established and entrenched companies because they benefit from the status quo, not to mention an underlying innovation system that channels most of the R&D money to large corporations. In my opinion, Skype could have never grown out of a telecoms incumbent. Same for cloud computing, which didn’t originate in any of the big IT companies.
- We have to stop equating R&D with innovation. I mentioned the case of a large European company that is one of the world’s top 10 R&D spenders but that for years has lost important market share in the most value-added segment of its industry to competitors who outperform it despite spending less on research. If you can get more innovation with less R&D spending, more power to you, I say. In addition, in the service sector, which after all accounts for more than 70% of GDP, R&D is not a major driver for innovation but other factors are, such as speed of getting the service to market, first-mover advantage, change in processes or business models.
- Competition is the key driver of innovation, not R&D. The reason why we have a world-class manufacturing sector that competes very well globally despite our high wages, is because of the intense competition in this area. It’s not a coincidence that the only part of the internal market that truly functions – and where competition is intense – is in products. We don’t have it in services, the digital economy or energy, explaining why we have slow innovation, high prices and little consumer choice. Nothing would stimulate innovation in Europe more than completing the internal market.
- Management is a major factor in driving forward innovation and productivity. And here, the sad fact is that the transaction cost of organisational change in Europe is still prohibitively high. This means that organisations are slow to respond to changes in markets, consumer demand, etc. In addition, many European companies dismiss the importance of the consumer and user as a driving force for innovation. A thriving company that meets consumer demands and therefore experiences growth is a much better gauge for innovation than a company that cashes in on government R&D subsidies.
- Most discussions on innovation purposefully exclude the 40-50%+ of the economy that is comprised of the public sector. Given that almost all of the future grand challenges – ageing, migration, mobility, climate change, education, skills, etc – fall squarely in the responsibility of the public sector, I would argue that we need to urgently think about how to re-invent the state to ensure that it’s fit to meet these future challenges.

What was striking to me is that none of the economies one would associate with innovation leadership, i.e. Denmark, Sweden, Netherlands, Germany, were present at this particular break-out session dedicated to innovation (ministers and delegations could choose from four breakout sessions). In my opinion, they are too advanced in their thinking to expect to learn anything new in these kinds of sessions. Good for them. The other thing I noticed was the heavy presence of representatives of the new member states. I honestly think it is irresponsible to make these countries believe that the holy grail to develop their economies and become more innovative is to follow the usual Brussels blueprint of more R&D spending, more researchers, more patents. I was almost sorry for a representative of Romania who insisted that the official notes include a reference to the fact that he disputed that Romania was the worst performer in patent registration, according to the World Economic Forum’s Global Competitiveness Index (which was presented earlier in the day). Romania may have many problems but I dare say that the low rate of patent registrations is not the most pressing one.

I thought it was very sad that a session on innovation did not dare to be more innovative in its assessment on what needs to be done to get Europe back on track. What I can say is that it wasn’t Minister Van Quickenborne’s fault, he really tried and deserves some credit for organising this unusual gathering. The other thing I realised is how important think tanks are: we are not beholden to a member state and we have a mandate to think out of the box and challenge common wisdom and the status quo. Given the orchestrated nature of these kinds of gatherings and the stilted “dialogue” consisting of pre-fabricated positions, I believe that’s a real benefit. After all, how to expect disruptive innovation to take place if one cannot even disrupt his or her own thoughts, assumptions and attitudes?

Good Governance for the Euro Area: Proposals for Economic Stability

Posted by Ann Mettler on 14/09/10
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Today, the Lisbon Council publishes a sharp and timely new e-brief, written by our excellent Economic Advisor Alessandro Leipold, a former acting director of the European Department at the IMF. It’s a good moment to weigh in, with the European Council taking stock of the Van Rompoy taskforce on economic governance later this week. Personally, I fear that the proposals for more resolute governance will be difficult to enforce in this body, where finance ministers will be loathe to enact reforms which may come to haunt them someday in case they ever violate the rules. Just think back to 2005, when Germany – once a staunch proponent of the Stability and Growth Pact – ‘reformed’ the Pact to escape punishment from Brussels. Will finance ministers and heads of government have the nerve this time around to enact new rules that they cannot escape from? I certainly hope so but I also have my severe doubts.

Not the kind of advice we need from the other side of the Atlantic

Posted by Ann Mettler on 14/09/10
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In this Wall Street Journal editorial, I weigh into the “austerity” versus “stimulus” debate and criticise US efforts to compel Europeans to pump more (borrowed) money into the economy. To me, this is a false debate because so much of what today is called “austerity” is the new “reality.” We have lived for many years beyond our means and now the time has come to embrace fiscal sustainability — something that is true not only for us in Europe but also the United States.

Greek default and the risk of contagion: Has the time finally come for Fiscal Sustainability?

What can I say? There isn’t a person I know who didn’t see the impending Greek default coming. It’s a country that has had no strategy for generating growth, unfunded pension liabilities en masse, a bloated, inefficient state sector, poor educational institutions, and an abysmal demographic outlook. For years, these developments could be softened by borrowing ever more and running up an unsustainable deficit, currently standing at 120% of GDP.

The only real surprise with what’s happening now is the speed with which events are unfolding and how visibly unprepared Europe is, despite the fact that experts have been warning that this would happen for years. It infuriates me that up until now fiscal sustainability has been the exclusive preoccupation of a handful of economists. I have argued for years that just as we taught citizens the need for environmental sustainability, the same can be done for fiscal sustainability. People deserve to know what happens when governments go on spending binges, driving up public debt and shouldering young people and future generations with the expense of today’s excesses. Just like no individual can permanently live beyond his or her means, no state can do so either. And you believe Argentina can’t happen in Europe? You better think again.

What is a mystery to me is why this looming and well-known threat was never communicated to a broader public; why this was never made an issue on par with environmental sustainability; why it had to remain the exclusive domain of academic economists, when the repercussions were so clearly to be felt by society-at-large.

Back in 2006, the Lisbon Council tried to kick off a fiscal sustainability initiative, attempting to broaden the widely accepted concept of sustainability to public finances. There was mild interest and encouragement from the European Commission’s DG Economic and Financial Affairs. We even got to host then-Economic Commissioner Almunia for a keynote speech but it was impossible to sustain any kind of momentum in the ensuing months in the absence of political leadership. None of the subsequent EU Presidencies or the European Commission highlighted the issue of unsustainable public finances in a concerted and ambitious manner. I guess after making the Stability and Growth Pact more “flexible” in 2005, ruining public finances was officially condoned and member states thought they could just go on with their reckless behaviour.

Reading some of my editorials from 2006, I feel angry and ashamed about the path of fiscal ruin that we in Europe subsequently embarked on, and which I back then warned of:

“The [Stability and Growth Pact] has utterly failed to explain to the average citizen the need for future-oriented budget priorities, fiscal discipline and long-term sustainability of public finances. The ultimate price for today’s lack of leadership will be borne by future generations, who – unless something is done now – will inherit a system so loaded with debt and so burdened by interest payments that political room to manoeuvre will be remembered as a luxury of the distant past.” (From ‘Europe must take an honest long-term fiscal view’, Financial Times, 6 November 2006)

“If Europe wants to be a responsible and respected global citizen again, as we were when we embraced and advanced the concept of environmental sustainability, we must urgently take action and kick off a second sustainability movement, one that will prepare our public finances and social security systems for the cataclysmic demographic changes on the horizon. How can we expect the world to listen to our calls for environmental sustainability while we squander the precious fiscal resources of our children and future generations? The time has come to abide by the values and principles we claim to possess.” (From ‘ Now What About Fiscal Sustainability?”, BusinessWeek, 22 November 2006)

Rather than feeling vindication because I knew this crisis would happen one day, I frankly feel anger and frustration at our policy makers and the economists who advise them. It is their closed-shop mentality – either trying to keep bad news from the public in the case of the former or simply believing that it’s not their job to communicate more broadly in the case of the latter – that is coming to haunt us now. Imagine if we had kept the threats of climate change to a closed, secluded group of decision makers and experts. What kind of public action and acceptance could we have expected? The people of Europe will now pay a heavy price for years of denial and acquiescence. And perhaps, just perhaps, we will see broader public movement towards fiscal sustainability after all. It is a pity that we were unable to do this in the mature, pro-active way that advanced democracies should be capable of, and that we are now faced instead with top-down, harsh austerity programmes that will impact our lives for years and decades to come.

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