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Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Economic Crisis & Competitiveness
- A European Perspective - Ralf Boscheck
Lundin Family Professor of Economics & Business Policy
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Europe’s Key Challenges
Competitive or Robust?
Crisis Chronicle
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
1857
18731929
1997
20012008
Political events, economic shocks, speculation, technological advance, coordination and policy failures, …
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
14000
Dow Jones Average
Crisis Chronicle:
BC
GDP
%
t
BC
GDP
%
tDurationGrowth ProcessIndicators
Crises offer opportunities for renewal – yet, most search for a quick fix.
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Average Growth of World GDP/Capita:
2000-2006: 3.2%1950-1973: 2.9%
1870-1913: 1.3%
IMF: 2007: 4.9%2008: 4.9%2008:* 3.9%2009: 3.0% 2010: 2.5%2010: 3.1%
Reinhard & Rogoff (2009)Blanchard (2009)
Managing Cycles!?
• Service/Cyclicality• WC management/Forecasting • Diversification/Unison• Public sector/Crowding out• Stabilizers/Accelerators• Fiscal discretion/Expectations• Monetary policy/Blunt measures• Financial market/Control
Crisis Chronicle:Economics rationalizes cycles – there is little advise to management.
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle:
“New Normal”Subdued GrowthStimulus Packages Public & Private FinanceHigh Sustained Unemployment
-10
-5
0
5
10
15
US
EuroZ
one
German
y
Franc
eIta
lySpa
inJa
pan
UKChin
aIn
diaBras
il
2007
2008
2009
2010
-10
-5
0
5
10
15
US
EuroZ
one
German
y
Franc
eIta
lySpa
inJa
pan
UKChin
aIn
diaBras
il
2007
2008
2009
2010
2007
2008
2009
2010
Source: IMF October 2009
Most recent scenario suggests a return to “normality.” But step back!
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle:
PiQi= wi + ri + i+ ii
wi/i Pi iwUS, M.Income, 2001/6 :- 4%/+
Prod.
wUSgrade, 2001/6:- 6%
GDPUS 2000/6 :7% 13%
Offshoring: Actual & PotentialCapital / Labour Ratio
PUS cons.dur. 95/05: - 25% • Savings Glut & Excess Liquidity• Central Banks Deflation & Forex• Impact
Sensitivities:Sensitivities:Return to Conventional Capital Flows
Labor Market & Social Adjustments
No: Asian Mercantilism Bretton Woods II
No: Income Composition Social Net
But: Non-diversified, Asset Bubble, Fiscal Responsibility, Regulatory Competition
But: Capital BoostExpPro to ImpSubs
‘Mercantilism & Iron Law of Wages’ vs. ‘Soft Landing & Protectionism’
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Europe’s Key Challenges
Competitive or Robust?
Crisis Chronicle
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
Thomas L. Friedman’s The World is Flat has
been a long-time # 1 in the New York Times
best-seller list. On February 21, 2006 it ranked
# 1 on Amazon.
At the same day, Jeffrey Sachs’ The End of
Poverty: Economic Possibilities for Our Time
ranked # 515, Bhagwati’s In Defense of
Globalization ranked 20,602, and Joseph
Stiglitz’s Globalization and Its Discontents
ranked 52,196.
For a critique see Leamer, E.E. (2007) A Flat World, a Level Playing Field, …., A Review of Thomas L. Friedman’s The World is Flat, Journal of Economic Literature, Vol. XLV (March 2007), pp. 83-126.
Free trade is global Cooperation in a +game. Why ‘competitiveness’?
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.pptSee Heilemann, U., Lehmann, H., Ragnitz, J. (2007) Länder-Rankings – Komplexitätsreduktion oder Zahlenalchemie? Wirtschaftsdienst, Vol.7, pp. 480-488. Gundel, S., van Suntum, U. (2007) Ist die Kritik an internationalen Standortrankings berechtigt? Wirtschaftsdienst, Vol.7, pp. 473-479.
“Rankings – in the eye of the media consuming public - have an objective – ‘almost devine status that they would never attain if data would be reviewed in a more sober manner.”
“Measurement without theory or pure data mining.” (Heilemann et. al (2007))
1. No model of competitiveness not even a consistent conceptualization
2. There is often no defined goal parameter
3. Rankings often violate fundamentals of indexing
4. Lacking theory, the assumed link between competitiveness and variables is typically
monoton-linear making a 100% savings ratio or a 0 tax level desirable(!?)
5. There is no weighting logic across interdependent and often redundant variables;
the same is true for sub-indexes
6. The value of the qualitative data is questionable
Competitive or Robust?but are of little prognostic or therapeutic value.Rankings sell
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Ranks 2005 2006 2007 2008 2009
Austria 17 13 11 14 16
Belgium 22 26 25 24 22
Denmark 7 5 5 6 5
Finland 6 10 17 15 9
France 28 30 28 25 28
Germany 21 25 16 16 13
Greece 41 36 36 42 52
Ireland 12 11 14 12 19
Italy 44 48 42 46 50
Luxembourg 10 9 4 5 12
Netherlands 13 15 8 10 10
Portugal 36 37 39 37 34
Spain 32 31 30 33 39
Sweden 14 14 9 9 6
United Kingdom 20 20 20 21 21
Ranks 2005 2006 2007 2008 2009
Argentina 49 47 51 52 55
Brazil 42 44 49 43 40
Chile 18 23 26 26 25
Colombia 38 34 38 41 51
Mexico 47 45 47 50 46
Peru 35 37
Venezuela 51 53 55 55 57
Total number of countries: 46 in 1997/1998, 47 in 1999/2000, 49 in 2001/2002, 51 in 2003/2004/2005, 53 in 2006, 55 in 2007/2008, 57 in 2009
Economic Performance
2005 2006 2007 2008 2009
Government Efficiency2005 2006 2007 2008 2009
Business Efficiency
2005 2006 2007 2008 2009
Infrastructure2005 2006 2007 2008 2009
Rank 20 8 6 622
26 27
28 19
Rank 30 28 23
Rank 32 28 25
6 9Rank 10 9 7
© IMD WORLD COMPETITIVENESS YEARBOOK 1995-2009
Competitive or Robust?Still, source data may provide clues for digging deeper.
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
"Logical incrementalism"
"Rational comprehensive
planning"
Business Policy
Assets & Capabilities
Market Requirements& Potential
External Stakeholders
Internal Stakeholders
Competitive or Robust?Moving from business to economic strategy is more than aggregation.
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Coo
rdin
atio
n
Efficiencieslow high
Decentral
Central
Operations
Competitive or Robust?Economic principles: Clear centrally established rules, decentrally applied.
Regulation
Politics
Regional Governance
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
(PiQi)
Employment
i
w
Deal with Labor Market
Adjustment &
Income Re-distribution
Manage Demand,
Confidence & the Cost
of Money
Drive Productivity
Competitive or Robust?It focuses the mind on a few policy levers
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
(PiQi)
Employment
i
w
Regulatory Competition- labour rules & social standards- taxes & subsidies
Trade - tariffs & non-tariff barriers- preferential customs areas
Exchange Rates - devaluation - currency area rules
Public Finance- deficit spending - ….
Managing cycles requires an abilitiy to adjust and/or to shift adjustment costs
Competitive or Robust?It focuses the mind on a few policy levers and the broader context.
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
(PiQi)
Employment
i
w (PiQi)
Employment
i
w (PiQi)
Employment
i
w
Vom Schlusslicht zur Lokomotive!?
De el más listo de claseal vagón de cola!?
• Export-led: 2007 $263bn CA surplus
• 2002 Brown Test
• Recession impact: GDP, Production
• Bail-outs, budget deficit & adjustment
• Cost management, consumption & investments
• GDP99-07:3.9%
Export Fetishism !?
• Employment, output prices, CA deficit
• Labor market & productivity
• Labor market (in-) flexibilities
• Taxes & subsidies Reform Agenda:• Labour Markets, Energy• Education, Science & Technology• Finance
Fixed Exchange Rate Shelter !?
A robust model? Based on performance or shelter? How sustainable is it?
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Europe’s Key Challenges
Competitive or Robust?
Crisis Chronicle
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:Customs & Monetary Union: numerous, diverse & institutionally trapped
• Socio-economic base• Institutional infrastructures
• Mindsets
• Complementary specialization
- for all!
AccessionRules
• Purgatory
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
IrelandRemains Young
2007 2050 2007 2050
Germany Grows Older
2007 2050
BulgariaGeriatric Society
• Implications for Social Security Models• Labour market contracts
• Social policies• Immigration & Integration policies
With fertility rates below 2.1, EU’s Median Age in 2050 will be 48 ...
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
and the EU’s centers of economic gravity will have shifted.
• The return of the urban centers & the rise of knowledge clusters: The case of London
• Creative Economies replace Roger Brunet’s “banana”.
• In the LaSalle-Index, London, Munich & Paris are top followed by “emerging” centers in the South and East: Warsaw outperforms Vienna, Valencia beats Brussels, Bilbao outclasses Düsseldorf
• Eastern Europe offers a second line of manufacturing centers
• European regions change their social, economic and carbon footprints
EU Key Challenges:
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Demographic Challenge: • Required Actions?
• Increase Qw (immigration, family
policies), employment rate, hours
worked, retirement age
• EU average fertility rate (2003): 1.48• 2005/2030: - 20.6m working population• Potential EU GNP growth to fall from 2-2.25% to 1.25 in 2040• +65 group: 52,3% (40m) • Life expectancy rises
Source: Eurostat
EU GDP & Productivity, USA = 100
GDP per capita
Hourlyproductivity
Hours workedper capita
1970
1980
1990
2000
0
20
40
60
80
100
• Increase productivity (education,
R&D, technology & physical
infrastructure)
• Cut claims
Today, drastic adjustment are vital just to maintain the status quo, …
EU Key Challenges:
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Lisbon Strategy:(March 2000)
• Objectives & Evolution: • 70% employm. rate • 3% GDP for R&D• Global leader
• Process & Monitoring• “Soft law & “process fatigue”
• March 2005: Re-launch• Lack of clarity, buy-in, incentives, sanctions, stakeholder control• From “key strategy” to sidelined ritual
• Kok Report 2004• no governance
yet, the EU’s key strategy is a mere ritual blocking change.
EU Policy
National Authority
Local Responsibility
National Authority
• “Europe 1992” – for real!• Labour Market Efficiency:
• Transferability of social security benefits
• Technology Policy?• Capital market efficiency
• Competition in Education:• Accreditation of degrees• Opening up provider markets
EU Key Challenges:
EU-USInformation society -1.25Innovation & R&D -1.67Liberalisation -0.42Network industries -0.04Financial services -0.3Business environment -0.97Employment/social inclusion -0.23Sustainable development 0.2
Source: World Economic Forum
EU-USInformation society -1.25Innovation & R&D -1.67Liberalisation -0.42Network industries -0.04Financial services -0.3Business environment -0.97Employment/social inclusion -0.23Sustainable development 0.2
Source: World Economic Forum
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
• EP election 2004/Eurobarometer - Voter turnout & approval ratings at all time low
• The EU faces two fundamental alliance problems:
- Deference
- Procedural and substantive consensus
• too large numbers,• growing cultural differences,• closure of political elite, • parts cannot adapt jointly
• core does not further economic benefits,• prolonged economic decline• excessive delay of reform.
• Disintegration occurs once:
Ireland supports the EU’s Constitutional Reform – It’s a Failure!EU Key Challenges:
• Legitimacy, democracy & accountability, …
Coordination
Efficiencieslow high
Decentral
Central Brussels
Madrid
Barcelona
• Rejected, overruled & enshrined?
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
• European coordination is needed but needs to be limited to areas where
• global markets are distorted• economies are beyond national scale• limited ability to upload local/national regulation as global standards
• Decentralized coordination is best as it improves • the quality of policy • economic efficiency• civic virtues
• Actions:• Review of economics of governmental activities• Design of a true constitution & small scale apparatus for appellation & adjudication• Strive for mobility to enforce regulatory competition & choice
Coo
rdin
atio
n
Efficiencieslow high
Decentral
CentralBrussels
Madrid
Barcelona
EU Key Challenges:A Real Overhaul is Needed: A Common Market!
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Europe’s Key Challenges
Competitive or Robust?
Crisis Chronicle
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
1. Fiscal discipline
2. Reorientation of public expenditure
3. Tax reform
4. Financial liberalization
5. Unified and competitive exchange rate
6. Trade liberalization
7. Openness to FDI
8. Privatization
9. Deregulation
10. Secure Property Rights
Source: Williamson, J. (ed.) (1990) Latin American Adjustment:How Much Has it Happened? Washington, D.C.: Institute for International Economics.
The World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform (2005) emphasizes “humility, policy diversity, selectiveand modest reforms.”
“(S)tabilize, privatize, and liberalize” became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counselled,”
“(T)here is no unique universal set of rules . . . [W]e need to get away from formulae and the search for elusive ‘best practices’. . .” (p. xiii)
Rodrik, D. (2006) Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform, Journal of Economic Literature, Vol. XLIV (December 2006), pp. 973–987
Latin American PerspectiveThe old truth is dead -
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
(PiQi)
Employment
i
w (PiQi)
Employment
i
w (PiQi)
Employment
i
w
Latin American PerspectiveTwo clusters of countries?
Starting Point:Aver. 5.5% GDP 2003-8Poverty level: 44%(02) to 33 (08)IMF 09:-1.5%; 10: +1.6Popul. p.a.
Impact of Recession:• LA top 5 Exports 2008 (Aug-Dec): Volume / Value: cut by 1/3•Capital flow 2007 $184bn; 2008 $85bn 2009: E($43bn; cost of capital• Tax revuenues?• Link to US economy: Mexico vs. Brazil• Classical LA challenges: financial system, currencies, finance • IMF, World Bank, Inter American Development Bank
Robustness• Tight financ. mkt. regulation• Flexible exchange rates• Inflation targeting • Responsible fiscal policy • Maintaining (X-M) • Accumulated reserves to pay off debt• Demand stimulation
Brazil, Mexico, Chile, Peru, Colombia …• 30% devalutation of currency – X boost• 1% GDP stimulation (Chile/Peru: 10%)• Interest rate cuts • CBs provide $ to pay-back • Funds – (Chile: 12% of GDP): prime the pump vs repay debt?
• reducing reserve requirements?
Argentina, Ecuador, Venezuela…• Fixed / committed currencies • Pension plan last resort• Linking up with China (3x IMF rate)• Trying to stop capital flight
Long live the old truth? Be Robust!
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
What is the Scope of Business Responsibility?Between M.Friedman and CSR?
Society
Firm
+
-- +
Society
Firm
+
-- +
Stakeholders:Unaware?Aware: Maintain Aware: Change - FairnessAware: Change - Sustainability
Firm:Unaware?Aware: Accept as License to Operate & Outperform Aware: Change: Exit, Haggle, Play Market s.t. …
Firm:Unaware?Aware: Protect, Disguise, Justify, Play Market;Aware: Change – Not fair Aware: Change – Sustainability, Self-regulation, Strategic Use
Stakeholders:Unaware?Aware – Accept Aware – Change: FairnessAware – Change: InefficiencyRemedies: Markets, Fiscal Means, Regulation, Ownership Control
Collective Action Problem!?
Market!
Ralf BoscheckCopyright © IMD International, Lausanne, SwitzerlandNot to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
What is the Scope of Business Responsibility?Negotiating Win-Wins?!
Society
Firm
+
-- +
Society
Firm
+
-- +
Sanctions
Avoidance (Pareto Optimal)
“Win-Win”
s.t. Corporate GovernanceTimingMarket PowerCollective Action
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