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Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Economic Crisis
& Competitiveness
- A European Perspective Ralf Boscheck
Lundin Family Professor of
Economics & Business Policy
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle
Competitive or Robust?
Europe’s Key Challenges
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle:
Crises offer opportunities for renewal – yet, most search for a quick fix.
S Political events, economic shocks,
Dow Jones Average
14000
speculation, technological advance,
coordination and policy failures, …
13000
12000
11000
10000
9000
8000
C
7000
6000
GDP
5000
B
4000
3000
2000
%
1000
1857
t
1997
2001
1873
1929
2008
Duration
Growth Process
Indicators
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle:
Economics rationalizes cycles – there is little advise to management.
Average Growth of
World GDP/Capita:
2000-2006:
1950-1973:
1870-1913:
3.2%
2.9%
1.3%
IMF:
2007:
2008:
2008:*
2009:
2010:
2010:
4.9%
4.9%
3.9%
3.0%
2.5%
3.1%
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
Reinhard & Rogoff (2009)
Blanchard (2009)
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle:
Most recent scenario suggests a return to “normality.” But step back!
15
2007
2008
10
2009
2010
5
Br
as
il
In
di
a
Ch
in
a
U
K
n
Ja
pa
ai
n
Sp
It a
ly
nc
e
Fr
a
y
er
m
an
G
ro
Zo
ne
Eu
U
S
0
-5
Source: IMF October 2009
-10
“New Normal”
Subdued Growth
Stimulus Packages
Public & Private Finance
High Sustained Unemployment
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle:
‘Mercantilism & Iron Law of Wages’ vs. ‘Soft Landing & Protectionism’
S wi/pi
wUS, M.Income, 2001/6 :- 4%/+ Prod.
wUSgrade, 2001/6 :- 6%
p/GDP US 2000/6 :7%  13%
Offshoring: Actual & Potential
Capital / Labour Ratio
S Pi
PUS cons.dur. 95/05: - 25%
i
• Savings Glut &
Excess Liquidity
• Central Banks
Deflation & Forex
• Impact
SPiQi= S wi + ri + pi+ ii
Sensitivities:
Sensitivities:
Labor Market & Social
Adjustments
Return to Conventional
Capital Flows
No: Income Composition
Social Net
But: Non-diversified, Asset
Bubble, Fiscal Responsibility,
Regulatory Competition
No: Asian Mercantilism
Bretton Woods II
But: Capital Boost
ExpPro to ImpSubs
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
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EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle
Competitive or Robust?
Europe’s Key Challenges
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
Free trade is global Cooperation in a +Sgame. Why ‘competitiveness’?
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.
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
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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.
EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
Rankings sell but are of little prognostic or therapeutic value.
1.
2.
3.
No model of competitiveness not even a consistent conceptualization
There is often no defined goal parameter
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(!?)
There is no weighting logic across interdependent and often redundant variables;
the same is true for sub-indexes
The value of the qualitative data is questionable
5.
6.
“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))
Ralf Boscheck
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See 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.
EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
Still, source data may provide clues for digging deeper.
Ranks
2005
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
United Kingdom
Ranks
2006
17
22
7
6
28
21
41
12
44
10
13
36
32
14
20
2005
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
2007
13
26
5
10
30
25
36
11
48
9
15
37
31
14
20
2006
2008
11
25
5
17
28
16
36
14
42
4
8
39
30
9
20
2007
2009
14
24
6
15
25
16
42
12
46
5
10
37
33
9
21
2008
49
42
18
38
47
47
44
23
34
45
51
49
26
38
47
51
53
55
16
22
5
9
28
13
52
19
50
12
10
34
39
6
21
Rank
22
55
40
25
51
46
37
57
2007
2008
2009
8
6
6
2007
2008
2009
23
26
27
2007
2008
2009
28
25
28
19
2006
2007
2008
2009
9
7
6
9
20
Government Efficiency
2005
2006
Rank
30
28
Business Efficiency
2005
2006
Rank
32
Infrastructure
2005
2009
52
43
26
41
50
35
55
Economic Performance
2005
2006
Rank
10
© IMD WORLD COMPETITIVENESS YEARBOOK 1995-2009
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
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
Moving from business to economic strategy is more than aggregation.
Market
Requirements
& Potential
Assets &
Capabilities
"Logical
incrementalism"
"Rational
comprehensive
planning"
Business
Policy
Internal
Stakeholders
External
Stakeholders
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
Economic principles: Clear centrally established rules, decentrally applied.
Regional
Governance
Politics
Regulation
Coordination
Central
Operations
Decentral
low
Efficiencies
high
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
It focuses the mind on a few policy levers
i
Deal with Labor Market
Adjustment &
Income Re-distribution
Manage Demand,
Confidence & the Cost
of Money
S(PiQi)
w
Employment
Drive
Productivity
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
It focuses the mind on a few policy levers and the broader context.
Managing cycles requires an abilitiy to adjust and/or to shift adjustment costs
Trade
- tariffs & non-tariff barriers
- preferential customs areas
i
Exchange Rates
- devaluation
- currency area rules
S(PiQi)
w
Employment
Public Finance
- deficit spending
- ….
Regulatory Competition
- labour rules & social standards
- taxes & subsidies
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Competitive or Robust?
A robust model? Based on performance or shelter? How sustainable is it?
Vom Schlusslicht
zur Lokomotive!?
Export
Fetishism !?
Fixed Exchange
Rate Shelter !?
• 2002 Brown Test
• GDP99-07:3.9%
• Export-led: 2007
$263bn CA surplus
• Recession impact:
GDP, Production
• Bail-outs, budget
deficit & adjustment
• Cost management,
consumption &
investments
De el más listo de clase
al vagón de cola!?
• Employment, output
prices, CA deficit
i
S(PiQi)
w
Employment
Reform Agenda:
• Labour Markets, Energy
• Labor market &
productivity
• Labor market (in-)
flexibilities
• Taxes & subsidies
• Education, Science &
Technology
• Finance
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
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EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle
Competitive or Robust?
Europe’s Key Challenges
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
Customs & Monetary Union: numerous, diverse & institutionally trapped

• Socio-economic base
• Institutional infrastructures
• Mindsets
Accession
Rules
• Complementary
specialization
• Purgatory
- for all!
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
With fertility rates below 2.1, EU’s Median Age in 2050 will be 48 ...
Ireland
Remains Young
2007
2050
Germany
Grows Older
2007
• Implications for Social Security Models
• Labour market contracts
Bulgaria
Geriatric Society
2050
2007
2050
• Social policies
• Immigration & Integration policies
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
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
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
Today, drastic adjustment are vital just to maintain the status quo, …
Demographic Challenge:
• Required Actions?
• EU average fertility rate (2003):
1.48
• 2005/2030: - 20.6m working
population
• Potential EU GNP growth to fall
EU GDP & Productivity,
from 2-2.25% to 1.25 in 2040
USA = 100
• 2030 +65 group: 52,3% (40m)
100
• Life expectancy rises
• Increase Qw (immigration, family
policies), employment rate, hours
worked, retirement age
• Increase productivity (education,
R&D, technology & physical
infrastructure)
• Cut claims
80
1970
1980
1990
2000
60
40
20
0
Hourly Hours worked
GDP
per capita productivity per capita
Source: Eurostat
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
yet, the EU’s key strategy is a mere ritual blocking change.
Lisbon Strategy:
EU Policy
(March 2000)
• Objectives & Evolution:
• 70% employm. rate
• 3% GDP for R&D
• Global leader
• Process & Monitoring
• “Soft law &
“process fatigue”
• Kok Report 2004
• no governance
• March 2005: Re-launch
• Lack of clarity, buy-in,
incentives, sanctions,
stakeholder control
• From “key strategy” to
sidelined ritual
National Authority
Information society
Innovation & R&D
Liberalisation
Network industries
Financial services
Business environment
Employment/social inclusion
Sustainable development
Source: World Economic Forum
EU-US
-1.25
-1.67
-0.42
-0.04
-0.3
-0.97
-0.23
0.2
Local Responsibility
• “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
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
Ireland supports the EU’s Constitutional Reform – It’s a Failure!
• The EU faces two fundamental alliance problems:
- Deference
- Procedural and substantive consensus
• Disintegration occurs once:
• too large numbers,
• core does not further
• growing cultural differences, economic benefits,
• closure of political elite,
• prolonged economic decline
• parts cannot adapt jointly
• excessive delay of reform.
• EP election 2004/Eurobarometer
- Voter turnout & approval ratings at all time low
• Legitimacy, democracy &
accountability, …
Brussels
Central
Madrid
Coordination
Barcelona
Decentral
low
high
Efficiencies
• Rejected, overruled &
enshrined?
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
EU Key Challenges:
A Real Overhaul is Needed: A Common Market!
• 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
Central
Brussels
Coordination
• 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
Madrid
Barcelona
Decentral
low
Efficiencies
high
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Crisis Chronicle
Competitive or Robust?
Europe’s Key Challenges
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt
Latin American Perspective
The old truth is dead 1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Fiscal discipline
Reorientation of public expenditure
Tax reform
Financial liberalization
Unified and competitive exchange rate
Trade liberalization
Openness to FDI
Privatization
Deregulation
Secure Property Rights
Source: Williamson, J. (ed.) (1990) Latin American Adjustment:
How Much Has it Happened? Washington, D.C.: Institute for International
Economics.
Ralf Boscheck
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“(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,”
The World Bank’s Economic Growth in the 1990s:
Learning from a Decade of Reform (2005)
emphasizes “humility, policy diversity, selective
and modest reforms.”
“(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
EconCrisisCompetitivenessEuroPersp.ppt
Latin American Perspective
Two clusters of countries? Long live the old truth? Be Robust!
i
Starting Point:
Aver. 5.5%  GDP 2003-8
Poverty level: 44%(02) to 33 (08)
IMF 09:-1.5%; 10: +1.6
Popul. : 1.3% p.a.
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?
S(PiQi)
w
Employment
Robustness
• Tight financ. mkt. regulation
• Flexible exchange rates
• Inflation targeting
• Responsible fiscal policy
• Maintaining (X-M)
• Accumulated reserves
to pay off debt
• Demand stimulation
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
Argentina, Ecuador, Venezuela…
• Fixed / committed currencies
• Pension plan last resort
• Linking up with China (3x IMF rate)
• Trying to stop capital flight
• reducing reserve requirements?
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
What is the Scope of Business Responsibility?
Between M.Friedman and CSR?
Stakeholders:
Firm:
Unaware?
Aware: Accept as License to
Operate & Outperform
Aware: Change: Exit, Haggle,
Play Market s.t. …
Market!
Unaware?
Aware: Maintain
Aware: Change - Fairness
Aware: Change - Sustainability
Collective Action
Problem!?
+
Stakeholders:
Society
-
Firm
Firm:
Ralf Boscheck
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+
Unaware?
Aware – Accept
Aware – Change: Fairness
Aware – Change: Inefficiency
Remedies: Markets, Fiscal Means,
Regulation, Ownership Control
Unaware?
Aware: Protect, Disguise, Justify, Play Market;
Aware: Change – Not fair
Aware: Change – Sustainability, Self-regulation,
Strategic Use
EconCrisisCompetitivenessEuroPersp.ppt
What is the Scope of Business Responsibility?
Negotiating Win-Wins?!
Sanctions
Avoidance (Pareto Optimal)
“Win-Win”
s.t.
Corporate Governance
Timing
Market Power
Collective Action
+
Society
-
Firm
+
Ralf Boscheck
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EconCrisisCompetitivenessEuroPersp.ppt
Economic Crisis & Competitiveness
- A European Perspective Ralf Boscheck
Lundin Family Professor of
Economics & Business Policy
Ralf Boscheck
Copyright © IMD International, Lausanne, Switzerland
Not to be or reproduced without permission
EconCrisisCompetitivenessEuroPersp.ppt