New Europe?

26 September, 2007

It has been an axiom of recent political times that the United Kingdom has a more successful economy than that of continental Europe and is probably the central argument against British membership of the Euro. In particular our flexible labour market is held up as an example to the rest of Europe despite its greater inequality. With the ability of employers to hire and fire at will, it is argued creates a more dynamic economy and increases employment overall.Chatham house international economics programme has brought out an interesting report called Unlocking the Eurozone’s Potential which paints a different and more well informed picture of economic conditions across Europe.The real negative economic effects of unemployment can be felt across the wider economy as it hits the confidence of consumers who then restrict the amount of spending they are prepared to undertake. This could be why consumer spending is only two thirds of the rate of the US and why the savings rate is much higher in Europe.Europe also has a problem with its lower level of productivity as the report notes “Encouraging a trend towards more job switching to higher value added sectors and companies could boost productivity by perhaps 10–20% over the next decade, with growth at higher rates of around 2% or more over the medium to long run.”

Part of the problem is with how employees view rising productivity, namely that it is more work for the same pay. This is a perfectly fair criticism in many cases but on a wider level in the economy the effect of slave driving bosses is much less significant than the structural elements that make up an industry’s productivity. As the report says: “Productivity growth at the macro level is driven by improvements in the structure of the economy as well as by individuals working harder. A better quality environment and more prosperous companies will help boost the quality of the workforce and the chances of the Eurozone sustaining productivity and GDP growth over the longer run.”

So the message is. If we want to have a successful economy we need to go higher up the added value chain. More skills, more research and development, more investment in technology. So the government is right to have the 50% target for 18-30’s going through higher education but universities have a duty to provide courses that will seriously add value to the employability of their students.