The EU in a “flat The EU in a “flat world”world”Philip WhytePhilip Whyte

Centre for European ReformCentre for European Reform

Paris, 23 November 2007Paris, 23 November 2007

Manufacturing and Manufacturing and servicesservices

Why the decline in manufacturing jobs?Why the decline in manufacturing jobs? A popular explanationA popular explanation

Weak competitiveness in global marketsWeak competitiveness in global markets The principal reasonsThe principal reasons

Stronger productivity growth than in servicesStronger productivity growth than in services Rising share of household income spent on Rising share of household income spent on

servicesservices Main problem is weak productivity in Main problem is weak productivity in

servicesservices Widening gap with the USWidening gap with the US Services account for 70% of EU GDPServices account for 70% of EU GDP

Why is service sector Why is service sector productivity low?productivity low?

Technological change has weaker Technological change has weaker impactimpact Many services less capital-intensiveMany services less capital-intensive

But what explains growing gap with the But what explains growing gap with the US?US? Planning regulationsPlanning regulations

Inhibit “big box retailing formatsInhibit “big box retailing formats Lower ICT diffusionLower ICT diffusion

Impact of EPLImpact of EPL Weaker competitionWeaker competition

Single EU market does not existSingle EU market does not exist

Europe of services is not Europe of services is not flatflat

National barriers remain importantNational barriers remain important Progress on single market has slowedProgress on single market has slowed Euro has had little integrative effectEuro has had little integrative effect

Symptoms:Symptoms: Low share of intra-EU tradeLow share of intra-EU trade Dominance of national firmsDominance of national firms

Energy islandsEnergy islands Retail bankingRetail banking

Price dispersion has fallen, but still > Price dispersion has fallen, but still > USUS

Why is single market in Why is single market in services so hard to achieve?services so hard to achieve? National barriers explained by:National barriers explained by:

Different regulatory regimesDifferent regulatory regimes Strong political resistance to changeStrong political resistance to change

Perceived threat to national modelsPerceived threat to national models Impact of EU enlargementImpact of EU enlargement

Suspicion of mutual recognitionSuspicion of mutual recognition Rejection of Bolkestein directiveRejection of Bolkestein directive Watered-down directive with many Watered-down directive with many

exemptionsexemptions

Increasing competition in Increasing competition in servicesservices

Legislation reaching diminishing returnsLegislation reaching diminishing returns Avoid gap fillingAvoid gap filling

Prioritise key sectorsPrioritise key sectors Network industries, financial services (retail)Network industries, financial services (retail)

Pro-active enforcement of EU policyPro-active enforcement of EU policy Ensure directives are fully implementedEnsure directives are fully implemented Vigorous competition policyVigorous competition policy

Use of sector inquiriesUse of sector inquiries Greater role for private actionsGreater role for private actions

Fight barriers to foreign takeoversFight barriers to foreign takeovers