Europe's Next Step

Organisational Innovation, Competition and Employment

Lars Andreasen, Benjamin Coriat, Frisio den Hertog, Raphael Kaplinsky

• Publisher: Routledge
• Year: 2013
• Print ISBN:
  9780714641515
• eBook ISBN:
  9781136302862
• Topic: Business
• Subtopic: Business General
• Index: Business

This book looks at the experience of 13 leading-edge European firms and institutions, drawn from the manufacturing services and health sectors. It shows how organisation has been the key to their productivity growth. It also shows that while Europe has much to learn from Japan and the USA, it has considerable expertise on which the production sector can grow.

PART I:

EUROPE’S PROBLEM WITH COMPETITIVENESS

1

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ORGANISATIONAL INNOVATIONS: THE MISSING LINK IN EUROPEAN COMPETITIVENESS

Benjamin Coriat

In order to establish the critical need for the European Union and its members countries to become deeply involved in the organisational revolution at present under way, this chapter opens with a preliminary assessment of European competitivity. This assessment is undertaken through the use of a series of simple yet essential indicators. As will be shown, there are many alarming signals, and the European economy is clearly going through a bad period (section I).

If we limit ourselves to the traditional indicators of economic performance, a more thorough examination shows nevertheless that in key domains which will be decisive for its future - such as Research and Development in information technology - Europe has made a considerable effort, and has to some extent caught up with the global leaders. It will therefore be shown that the real difficulties are to be found in the more qualitative dimension of competitivity: advancement in the field of innovative organisational systems, which are necessary to ensure that the efforts made thus far - as well as those in the future - produce the desired effects (section II). The last section will develop and illustrate this point, showing how organisational innovations are a crucial tool in support of competitivity and employment (section III).

I. THE EUROPEAN ECONOMY AND ITS COMPETITIVENESS: FIRST EVALUATIONS

Even if there exists no undisputed definition of the many-sided notion of competitivity, a consensus exists amongst economists working in this field that competitivity should be defined in terms of a series of questions concerning the health of a given economy, assessed in terms of its growth, employment and revenue on the one hand and, on the other, in terms of its ability to confront positively the global economy in which it finds itself. On the basis of such considerations different definitions of competitiveness have been put forward which are, in the final analysis, very similar, despite the fact that nuances - highlighting one or other aspect of competitivity - are given prominence according to the different definitions proposed.

For example, in one of its most recent issues, the journal European Economy proposes the following definition: ‘the competitivity of an economy determines its capacity to increase its market share or to sustain a higher growth rate without deteriorating its balance of payments (European Economy, 1994, p. 175). This first definition is reformulated more precisely, with a view to being more instrumental, by noting that: ‘the degree of competitiveness of a country is measured by its capacity to sustain a share of export markets or to sustain a higher growth rate without a deterioration of the current account’. Here, the emphasis is placed on an implicit trade-off between internal growth and external balance, an economy being judged competitive if it can grow without harming, or indeed by improving the rate of cover of its imports by its exports.

This definition is very close to that of the Competitiveness Policy Council of the United States. This draws attention to two supplementary elements which are essential in the context of this discussion. According to this definition, competitiveness is understood to be ‘the capacity to produce goods and services which respond to the demands of an international market, whilst at the same time allowing the citizens to enjoy a consistently rising standard of living in the long term’ [Competiteveness Productivity Council, 1992]. Even though the same ideas are present, this definition draws attention to two further points: it includes in the notion of competitiveness the idea of the necessity of having a ‘good’ specialisation (that is, to produce at a given moment the goods in demand on international markets), and it stresses that the purpose of competitiveness, over and above the sole aim of growth, should be to improve the ‘well-being’ of citizens.

In the light of the above precision, a tentative assessment of the factors influencing the competitiveness of the European economy may be made. As we shall see by examining some key economic indicators, the situation at the present time is rather worrying.

Growth

If we consider the very first of these indicators, that related to the evolution of the Community’s GDP, certain remarks are in order.

As Figure 1.1 shows, the Community’s economy has passed through two distinct phases in the last fifteen years¹. A first phase of uninterrupted growth between 1981 and 1988 saw the Community’s GDP growth rate rise steadily to more than four per cent in 1988. It is clear here that the opportunities created by the Single Act played the role of an effective stimulant. Since 1989 however (starting with the Gulf War), the Community’s economy has been in a strongly depressive cycle which, over the course of a long deceleration, has seen the GDP growth-rate fall from more than four per cent to less than one per cent. The gains acquired in the course of the earlier growth phase therefore seem to have been lost. Note also that although this deceleration of the rate of growth has also occurred in the global economy, it has been greater in the Community zone than in the other two regions in the Triad (Figure 1.2)

Figure 1.1.: Growth of GPP : The Dissipation of the Gains of the Eighties (European Community including once 1995 new länders)

Source: European Economy n° 54, [1993, p.4].

Thus, compared to the rest of the world, the Community’s growth followed a very characteristic path over this recent period of fifteen years. GDP growth has been less strongly cyclical than that of the rest of the world and the recovery phases have been less rapid and less vigorous. On the other hand, the recessions have been less pronounced. It would appear that the number of institutional regulations which characterise the European Union (in relation to the rest of the world) protected it against severe recessions but, conversely, to some extent restrained the recovery phases. Nevertheless in the long growth phase of the 1980s and the early 1990s, the Community suffered from a relatively significant growth differential with the rest of the world.

Figure 1.2.: Growth In the European Community and in the Rest of the World

Source: European Economy n° 54, [1993, p.12].

The role played by these institutional factors - both as a hindrance and a stabiliser of growth - is important, since it suggests that rather than suffering from an excessive number of ‘institutions’, what Europe requires is that these institutions be readjusted so as to conserve their role of cyclical dampness without however holding back the recovery cycles.

Investment and Profitability

These characteristics of the growth process are essentially the same as regards the trend in investment, although as is often the case, with a slight time lag. As Figure 1.3 clearly indicates, and following the trend in GDP, a long growth phase (1981-88) saw the negative level of investment at the beginning of the period increase steadily reaching approximately nine per cent of GDP in 1988. Since then, with the beginning of the recession phase, investment has fallen consistently, becoming negative again in 1993 and showing a slight recovery in 1994. Compared internationally (see Figure 1.4) and considered this time in relation to the share of investment in GDP, the European Community occupies a median position between the USA -which over the entire period made a smaller effort than the European Community - and Japan, which continues to perform remarkably (between 30 and 35 per cent of GDP over the period 1980-94, compared to 20 to 24 per cent for Europe).

Figure 1.3.: Investment in the European Community (real rate of growth, excluding the five new Länders)

Source: European Economy n° 54, [1993, p.7].

Figure 1.4.: Share of the Investment In GDP: a Comparison between the European Community, USA, Japan

Source: European Commission [1994, p.60].

It should however be noted that European firms have performed well in two respects. On the one hand they have on the whole maintained their profit margins - even if this is truer of firms less exposed to foreign competition than the others. On the other hand they have managed to control their indebtedness, and in this respect have performed better than their Japanese and American rivals (European Commission, 1994, p.62).

Employment

It is in this field that Europe’s performance has been disappointing and is a cause for considerable concern. Indeed, the situation in which Europe finds itself is characterised simultaneously by a strong, continuous rise in unemployment (excluding the period 1985-89 which saw a levelling-off of the rise) and by a very slow rate of employment creation which was insufficient to compensate for a rising labour force.

These European characteristics become clearer when the performances of member countries are compared to those of the USA and Japan. If we add other dimensions of European unemployment, more particularly the importance of long-term unemployment (which affects more than half of all the unemployed) and the relative numerical importance of unskilled workers, we can easily understand that the economies of the European Union are going through a particularly difficult phase. Obviously a vigorous and carefully designed action is needed if present trends are to be reversed.

Figure 1.5.: Unemployment In the European Community, the USA and Japan (% of active population)

Source: European Commission [1994, p.43].

Figure 1.6.: Job creation in the European Community, the USA and Japan

Source: European Commission [1994, p.43].

Figure 1.7.: Coverage of Imports by Exports

Source: Eurostat, reprinted in European Commission [1994, p.80].

Foreign Trade: The Maintenance of a Positive Balance but at a Much Reduced Level

If we consider the foreign trade of the Community, things are hardly more encouraging. Since 1981 the foreign trade balance of the Community has been witnessing a continuous worsening. This occurred in two stages. From 1981 to 1986, which corresponds to a phase of acceleration in growth (the rate of growth of GDP rose from less than one per cent to more than four per cent - Figure 1.1) the rate of coverage dropped slightly. This constituted a satisfactory performance to the extent that the increase in growth, which is usually accompanied by a growth in imports, had little adverse effect on foreign trade which remained largely in surplus. On the other hand, the performance in the second phase (1989-94) was distinctly worse and very worrying to the extent that an uninterrupted decline in growth has been accompanied by a strong fall in the balance of external trade.

A breakdown of these aggregates confirms this pessimistic conclusion. For we can observe that while Europe has maintained and indeed even improved its position in slow-growing markets (such as rail equipment, textile machinery, tanning, slaughtering and meat packaging) its position has worsened considerably in high growth and high value added sectors (such as office automation, optical instruments, medical and surgical equipment). In fact, Europe seems to be caught in a pincer movement: on the one hand, it is unable to compete against the newly industrialised countries whose essential comparative advantage lies in labour costs, and on the other hand its poor performance in products based upon the electronic revolution. This places Europe in a very weak position in relation to Japan, the Southeast Asian Newly Industrialising Countries and even the USA, where in the last few years firms have caught up remarkably (for example, firms in the semiconductor field such as Intel and Motorola). As we will indicate below when we turn attention to information technologies, Europe’s poor position is not a result of its performance in research or R&D. On this point, there is in fact a European paradox and it is this which the essay addresses.

If the above-mentioned results are related to the definition of competitiveness, the following conclusions may be drawn:

(1) In respect of the criteria which are widely accepted as useful indicators of competitiveness there is little doubt that Europe’s’ competitive position has worsened considerably over the past few years. Not only has Europe been unable to sustain growth at acceptable levels but the long phase of recession itself, which is not yet completely over, has been accompanied by a decline in the performance of its foreign trade. In addition, these negative trends have been accompanied by an increase in the rate of unemployment which has grown from one cycle to the next. If being competitive means ensuring internal gro...

Table of contents

• Front Cover
• Half Title
• Title Page
• Copyright
• CONTENTS
• The Contributors
• Introduction
• PART I: EUROPE’S PROBLEM WITH COMPETITIVENESS
• PART II: ORGANISATION AND INTEGRATION IN PRODUCTION
• PART III: ORGANISATION AND INNOVATION IN RESEARCH AND DEVELOPMENT
• PART IV: ORGANISATION AND INNOVATION IN HUMAN RESOURCE DEVELOPMENT
• PART V: CHALLENGES TO PUBLIC POLICY
• PART VI: PERSPECTIVES