Another interesting case-study in perception-versus-reality in the EU.

I recently picked up a copy of the papers from an international conference which took place in Spain earlier this year. The purpose of the conference was to discuss the Lisbon Strategy, a plan agreed by all EU countries which aims to make the Union the most dynamic, competitive, sustainable, knowledge-based economy in the world.

The Lisbon Strategy was agreed in the year 2000, so this year, halfway through, is a good opportunity to ask how we're doing. That was the aim of the conference.

The conclusions drawn by the conference were what interested me most. Gerhard Stahl, secretary general of the Committee of the Regions, pointed out that the perception of the EU’s competitiveness is far more negative than the facts. In fact, economically speaking, the EU compares positively with the USA. But people don’t see it like that.

Mr Stahl described the perception as “bloated bureaucracy, collapsing welfare systems and an economy which is neither competitive nor innovative”, but then went on to point out that the reality is quite different. Of the hundred biggest companies in the world, more have their headquarters in the EU than in the USA. And countries with the most developed welfare systems are also among the most competitive ones. By any measure of competitiveness, the EU’s Scandinavian countries score as high or more highly than the US. In the US, by contrast, there are 40 million people excluded from the health insurance system.

But, of course, what matters when it comes to attracting investment is not necessarily the reality but the way potential investors perceive it: “the USA is in a healthy state because people believe in the future of the USA”. While it would no doubt be true that an impartial observer would choose to invest in the EU rather than the US, as pointed out by The Economist earlier this year, it’s not impartial observers we have to convince—it’s European and American companies.

The US economist Jeremy Rifkin has an interesting diagnosis of this problem:

“To begin with, Europe, with its 455 million consumers, is now the largest internal market in the world. It’s also the largest exporting power. And the Euro is now stronger than the dollar—a reality few American economists would have thought conceivable just four years ago. We Americans, and many Europeans, still compare individual European nations to the United States when it comes to relative economic power. But in the commercial arena, such comparisons make less and less sense.

“Most companies I am personally familiar with in Europe increasingly think of themselves as European—if not global—companies, just as in the United States, companies long ago stopped thinking of themselves as New York companies or California companies, but rather as American and global companies.

“What this all means is that we have to begin to reframe our very concept of European states and begin thinking of them as part of the European Union, just as we think of the fifty American states as part of the United States. This fundamentally changes the way we make comparisons. For example, rather than thinking of Germany in comparison to the U.S., we should think of it in comparison to California—Germany being the largest state in the European economy and California the largest state in the U.S. economy. When we begin to shift the way we make comparisons, everything suddenly changes and we start to grasp the enormity of what’s unfolding and the potential consequences for America. Germany’s economy is significantly larger than California’s. The U.K.’s economy is nearly twice as large as our second largest state, New York. France is nearly 50 percent larger than our third most powerful state economy, Texas. Italy is more than twice as big as our fourth most powerful state economy, Florida. Spain edges out our fifth biggest state, Illinois. The Netherlands boasts an economy larger than New Jersey’s. Sweden’s economy is bigger than that of Washington State. Belgium’s economy eclipses Indiana’s. Austria’s GDP exceeds Minnesota’s. Poland’s economy is larger than that of Colorado. Denmark’s is bigger than Connecticut’s. Finland’s GDP exceeds Oregon’s. Greece’s GDP is dead even with South Carolina’s.

“While it may be painful for Germany, the UK, France, Italy, and Spain to have their economies compared to California, New York, Texas, Florida, and Illinois, this is the reality that’s emerging as European nations metamorphose into a larger transnational political space with a single economy. The EU is, indeed, a new superpower that rivals the economic power of the United States on the world stage."

If we took Mr Rifkin’s advice, we’d realise that the European chemical industry is in a strong position, the European car industry is by far the most competitive in the world, the European aviation industry is competing well with American companies, and Europe is at the top in the market for business software.

Making a success of the Lisbon Strategy depends not only on building on our strengths and addressing our problems, but also doing our best to make sure that the rest of the world recognise that we’re doing so.