A European Growth Policy for Twenty-seven Countries - Prospects and Problems for a Diversified Union

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Published on October 8, 2007

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Towards Lisbon 2.1, Professor Hans Westlund, KTH (Royal Institute of Technology), Sweden

A European Growth Policy for Twenty-seven Countries? Prospects and Problems for a Diversified Union Hans Westlund Professor in Regional Planning Royal Institute of Technology, Stockholm, Sweden Professor in Entrepreneurship Jönköping International Business School, Jönköping, Sweden

A changing Europe… Democracy in almost all countries No iron curtain – but fear for Islamic terror Twenty-seven EU member states Falling growth rates each decade since the 1970s… “ Eurosclerosis” (but not in all countries)

Democracy in almost all countries

No iron curtain – but fear for Islamic terror

Twenty-seven EU member states

Falling growth rates each decade since the 1970s…

“ Eurosclerosis” (but not in all countries)

The Lisbon Strategy Making Europe by 2010 “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion” This aim will not be fulfilled

Making Europe by 2010 “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”

This aim will not be fulfilled

Why? “ We all know what we need to do, but we don’t know how to win elections after we have done it ” Jean-Claude Juncker Prime Minister of Luxemburg But this is only partly true…

Do we know everything we need ? We know how to make cut-downs in social security expenditure But do we really know how to promote entrepreneurship, innovations and growth? Are we really aware of the challenges of the knowledge economy?

We know how to make cut-downs in social security expenditure

But do we really know how to promote entrepreneurship, innovations and growth?

Are we really aware of the challenges of the knowledge economy?

The knowledge economy “ … the generation and the exploitation of knowledge has come to play the predominant part in the creation of wealth … more effective use and exploitation of all types of knowledge in all manner of economic activity ” UK’s Department of Trade and Industry

“ … the generation and the exploitation of knowledge has come to play the predominant part in the creation of wealth … more effective use and exploitation of all types of knowledge in all manner of economic activity ”

UK’s Department of Trade and Industry

The knowledge society As different from the industrial society as the industrial society was from the pre-industrial society… Large consequences for all parts of society

As different from the industrial society as the industrial society was from the pre-industrial society…

Large consequences for all parts of society

Some key attributes of the knowledge and industrial societies and of the mercantilist era of the pre-industrial society Dirigist From hands-off to firm subsidies R&D, innovation & cluster policies Industrial and regional policies Agricultural region, market town Industrial town Metropolitan region Central spatial units Waterways and ports Land transportation systems Digital nets, social infrastructure, airports, roads, rail Infrastructure Patriarchal Emerging emancipation Growing equality Gender relations Vertical Vertical Horizontal, cooperative Management principles Landowners Capitalists The individuals Owners of decisive production factor Increase muscle power through population growth, organize trade Use of non-muscle power, division of labor Application of knowledge Central principle(s) Autocracy /oligarchy Nation-state democracy “ Supra-state” organizations increase in importance Polity Mainly local Mainly national Global Extent of markets Land and trading assets Physical capital, transportation Labor with knowledge and information, intellectual property Key assets / production factors Mercantilist era Industrial society Knowledge society Attribute

Globalization – a feature of the knowledge economy National markets are not protected anymore National policies are not sufficient anymore Is a European growth policy possible?

National markets are not protected anymore

National policies are not sufficient anymore

Is a European growth policy possible?

EU’s policies of today The resource distribution CAP, 44% of EU’s budget… Apart from CAP, EU’s policies contain “something for everybody”, but how is the distribution? Is e.g. 5% to R&D enough?

The resource distribution

CAP, 44% of EU’s budget…

Apart from CAP, EU’s policies contain “something for everybody”, but how is the distribution?

Is e.g. 5% to R&D enough?

EU’s policies of today Growth policies dominated by the models of industrial society: Grants and subsidies to location of companies and to investment in real capital

Growth policies dominated by the models of industrial society:

Grants and subsidies to location of companies and to investment in real capital

Growth policies for the knowledge economy? Yes, such policies exist too.. Policies for higher education (human capital) Cluster policies – collaboration among firms Policies for public-private partnerships Policies for innovation systems – firms, government and universities in collaboration (triple helix) Growth policies = collaboration policies? Policies for social capital?

Yes, such policies exist too..

Policies for higher education (human capital)

Cluster policies – collaboration among firms

Policies for public-private partnerships

Policies for innovation systems – firms, government and universities in collaboration (triple helix)

Growth policies = collaboration policies?

Policies for social capital?

The traditional activity of the three organization types, O, and the activities expected by modern growth policies (o) ” What can I get from the others? What can I offer them?” O (o) (o) Product development and production for profit (o) O (o) Public infrastructure and service (o) (o) O Education & Research Firm Government University Activity Type of organization

Are collaboration policies free of problems ? No, the three types of organization (firms, government, academy) have different social capitals , i.e. their norms and values are different and their established networks do not coincide

No, the three types of organization (firms, government, academy) have different social capitals , i.e. their norms and values are different and their established networks do not coincide

Social Capital Putnam made social capital of civil society a well-known concept But social capital can be found in all parts of society - in firms, in government, in the academy – in all types of organizations Social capital is social networks and the norms, values and attitudes being distributed in them Social capital is both including and excluding – this makes it both an asset and a problem

Putnam made social capital of civil society a well-known concept

But social capital can be found in all parts of society - in firms, in government, in the academy – in all types of organizations

Social capital is social networks and the norms, values and attitudes being distributed in them

Social capital is both including and excluding – this makes it both an asset and a problem

Organizations’ social capital Fundamentally different principles of exchange in different organization types: Firms – market principle, profit Government – redistribution of resources Academy – reciprocity among peers Result: Social capitals with very different networks and norms/values/attitudes – the actors don’t understand each other

Fundamentally different principles of exchange in different organization types:

Firms – market principle, profit

Government – redistribution of resources

Academy – reciprocity among peers

Result: Social capitals with very different networks and norms/values/attitudes – the actors don’t understand each other

A growing need to collaborate… Government begin to understand its role as resource provider Universities feel the pressure to find new resources As the knowledge economy expands, companies experience stronger incentives to collaborate with universities

Government begin to understand its role as resource provider

Universities feel the pressure to find new resources

As the knowledge economy expands, companies experience stronger incentives to collaborate with universities

Why is social capital so important in the knowledge economy? Because understanding and trust (i.e. expressions of positive social capital)… Lower transaction costs Shorten time for information pick-up and exchange Promote creativity and thereby innovativeness and competitiveness

Because understanding and trust (i.e. expressions of positive social capital)…

Lower transaction costs

Shorten time for information pick-up and exchange

Promote creativity and thereby innovativeness and competitiveness

But severe obstacles still exist The existing social capitals of each type of organization, are formed in accordance with their traditional activity and not changed from one year to another Thus, the established social capitals of the organizations constitute intangible obstacles to the implementation of modern growth policies

The existing social capitals of each type of organization, are formed in accordance with their traditional activity and not changed from one year to another

Thus, the established social capitals of the organizations constitute intangible obstacles to the implementation of modern growth policies

What can policies do ? Modern growth policies must handle these obstacles in order to be successful BUT HOW? What can be achieved on various levels ?

Modern growth policies must handle these obstacles in order to be successful

BUT HOW?

What can be achieved on various levels ?

The Union level Set up an expert group for evaluating EU and national growth policies and identifying problems (e.g. in resource allocation, methods, obstacles, incentives…) Some possible measures for improving the ”innovation climate”: A strategy for creating European ”Stanfords” and ”MITs”? A Guest Professor Program for countries where academic level should be raised? Stronger incentives for university-industry collaboration

Set up an expert group for evaluating EU and national growth policies and identifying problems (e.g. in resource allocation, methods, obstacles, incentives…)

Some possible measures for improving the ”innovation climate”:

A strategy for creating European ”Stanfords” and ”MITs”?

A Guest Professor Program for countries where academic level should be raised?

Stronger incentives for university-industry collaboration

The National level Form agencies for supporting innovation systems like those in Finland and Sweden Create focused programs for university-industry collaboration Abolish legal obstacles for university-industry collaboration Focus on the regions !

Form agencies for supporting innovation systems like those in Finland and Sweden

Create focused programs for university-industry collaboration

Abolish legal obstacles for university-industry collaboration

Focus on the regions !

The role of universities in regional development has just recently become a subject of European growth policies In the U.S. “…the idea that universities should have a regional function took firm root from the beginning” (Nevins 1962 p. 23) “ Colleges and universities have historically been sources of community boosterism and regional pride” (Feller 1999 p. 79)

The Regional level Proximity matters! The regional level is best suited for active triple-helix policies, i.e. for supporting clusters and regional (sectoral) innovation systems Conditions for forming a “Regional social capital” through regional governance are often good But - regional government needs research and development resources!

Proximity matters! The regional level is best suited for active triple-helix policies, i.e. for supporting clusters and regional (sectoral) innovation systems

Conditions for forming a “Regional social capital” through regional governance are often good

But - regional government needs research and development resources!

But don’t forget the problems ! Path dependencies and vested interests Innovation also means that someone loses, i.e. ”creative destruction” occurs The leaders of today are not necessarily the growth-makers of tomorrow’s economy The social capitals of the actors in the innovation systems might obstruct collaboration Regional innovation systems needs global connections!

Path dependencies and vested interests

Innovation also means that someone loses, i.e. ”creative destruction” occurs

The leaders of today are not necessarily the growth-makers of tomorrow’s economy

The social capitals of the actors in the innovation systems might obstruct collaboration

Regional innovation systems needs global connections!

Conclusions I The Lisbon Agenda cannot primarily focus on social security cut-downs The real challenge is to adapt to and promote the knowledge economy This needs modern growth policies These policies are very unevenly developed within the EU – still much talk and little action

The Lisbon Agenda cannot primarily focus on social security cut-downs

The real challenge is to adapt to and promote the knowledge economy

This needs modern growth policies

These policies are very unevenly developed within the EU – still much talk and little action

Conclusions II The problems of modern growth policies must be recognized, discussed and handled, e.g. the issue of different social capitals must be handled A coordination of EU, national and regional measures is needed. Each level must find its role in the creation of a dynamic European growth policy. Only in this way a Common European Growth Policy can be realized

The problems of modern growth policies must be recognized, discussed and handled, e.g. the issue of different social capitals must be handled

A coordination of EU, national and regional measures is needed. Each level must find its role in the creation of a dynamic European growth policy. Only in this way a Common European Growth Policy can be realized

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