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The Rt. Hon. Patricia Hewitt"Economic Reform in Europe : more important than ever." |
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It is a pleasure for me to be in Madrid today. Today I want to talk a little about the economic situation that we all face in Europe at the moment. And about the consequences both for business, and for the reactions of national European governments. You don't need me to tell you that the European economy looks remarkably different now from how it did a mere six to nine months ago. That isn't to say that we should be too gloomy: our economies are still growing, albeit more slowly than we thought, and there are millions of successful firms out there. But the atmosphere has changed. Some industries and regions are facing particularly challenging times. In Britain, those sectors that were facing lean times anyway have seen their difficulties magnified by the immediate economic fall-out from the terrible events of September 11th. The high-tech and communications sector, already tightening belts after the burst of the dot.com bubble, has found trading conditions even harder. The situation faced by many of our exporting manufacturing industries has got worse. Tourism - already suffering - has had no comfort from the understandable fear of travel . And of course every airline has had to fundamentally rethink its business plan in recent weeks. The same pattern is repeated across the whole of Europe. And this places similar pressures on our policymakers. When times are tough, the instinct could be to batten down the hatches, retrench, retreat, protect and wait for the good times to return. - Demands on government to bail out loss-making companies become louder. - The possibility of using legislative power to prevent companies from laying off workers could acquire a new attraction. And these pressures are only reinforced by the stark fact that the regions most vulnerable to job cuts are often the areas that already contain high unemployment. But these pressures must be resisted. The need to pursue the agenda of European economic reform has acquired a greater, not lesser, urgency in the light of recent events. The Lisbon agenda is not just for the good times, it's for the bad times as well. In fact, Lisbon is our response to the downturn. We must remember that when every country of the European Union agreed in Lisbon to create "the most competitive and dynamic knowledge-based economy in the world" by 2010, we did so because we understood that that was the route to solving Europe's problem of high unemployment. In fact it was explicit: we set ourselves an aim of 20 million new jobs by 2010, using the economic reform agenda to create them. So when workers across Europe ask the question "how will you protect me from unemployment"? our answer is the Lisbon agenda. Economic reform was the way to job creation then, and it remains the way now. We are not trying to prevent change - but making change work for us As our two prime ministers, Tony Blair and Jose Maria Aznar, said in a joint statement a year ago almost to the day: "the EU needs to redouble its economic reform effort inorder to achieve across all of Europe a favourable conjunction of high employment and high productivity comparable with the best in the world." So we reject the tempation to introduce legal hurdles to redundancy because it could simply slow the necessary restructuring creation of new businesses and new jobs. And recent events must not be used as a smokescreen to prop up airlines that were in trouble anyway. Faster consolidation in aviation will benefit the European consumers and the European economy. Instead we support the aims of the Spanish government to push forward the reform process when they hold the European presidency next year. When European leaders come together in Barcelona, two years after Lisbon, the world will look very different, but our aims will remain the same. We want to create new and better jobs by injecting greater dynamism into our economies. We must start by doing this at home. Reform at home In Britain our starting point is good due to our solid foundations of macroeconomic stability. But as a government we need to raise our game in working with business to drive up productivity. In this regard Britain has much to learn from our European partners. As our starting point, we must push up standards in schools. But in addition we must ensure that at every stage of life, access to education and re-training is maximised. That way, people can move jobs more easily when circumstances change and increase their pay at the same time. Government also has an important role to play in encouraging all firms to learn from the examples of the best. Productivity rises faster when government supports best practice and provides top-quality advice to businesses facing difficulties. For this reason, in Britain we are creating manufacturing centres of excellence in every region, providing targeted consultancy advice to firms that want to improve their productivity and become more effective innovators. And since local knowledge is crucial to devising the right policies, we are empowering our regional development agencies to better deliver targeted solutions to the geographic areas they serve. Healthy, competitive markets are an important pre-cursor to increased productivity. That's why we are introducing new legislation in this parliamentary session to strengthen competition policy and reform our outdated bankruptcy laws to ensure that those honest business people who fail have a second chance. We are boosting our capacity for innovation by providing financial incentives for smaller companies to undertake research and development. We are increasing our investment in basic science. And we're providing universities with new incentives to work with business to get their ideas out of the laboratories and into factories. Reform in Europe So there is much we can do in our own country. But when progress requires us to work together, then we will use the structures of the European Union to push ahead. The innovation record of Europe as a whole lags the world leaders. That's why it is so important to use Framework 6 to focus our efforts on the priority areas for scientific investment. Barriers to the movement of researchers must be reduced through the creation of a single research area in Europe. ECOFIN has commissioned a study to examine the European Union's comparatively weak performance in R&D and innovation. I would like to see their conclusions reflected in the agenda at Barcelona next year. A single European patent will make the EU a more attractive place to exploit new technologies successfully, bringing greater investment to our shores. But innovative ideas require easier access to finance. That is why it is critical to make progress on creating a single market in financial services. The Spanish economy in recent years has seen the gains that have come from liberalisation and competition in the banking sector. Allowing financial services companies, including SMEs, to compete freely across borders is the next step. The jobs and new businesses will follow. Bringing down barriers to trade has the potential to create greater prosperity in Europe - be it through a new WTO round, the enlargement of the EU or the introduction of a single European currency. That's one of the reasons why in principle the British government is in favour of the euro; but we will need to ensure that our economic tests are met and we will conduct our own economic assessment within the next two years. Labour market reforms will bring more people into the workplace, creating the prosperity we need to support an ageing population. This should not be done by legislation but by peer review, just as the Cardiff process introduced by the British presidency in 1998 encouraged countries to submit annual reports on their progress towards liberalising markets. And we must continue to make the case for liberalisation of energy markets. Countries that have led the way have seen productivity improvements come hand in hand with lower prices. Spain has much to be proud of in the way it has brought forward competition in the electricity and gas markets. Yet at Stockholm earlier this year, European leaders failed to agree on energy liberalisation. That sent a damaging message to investors around the world and to businesses and consumers here in Europe. If the benefits are in any doubt, we only need to look at the telecoms sector. Liberalisation throughout Europe in 1998 resulted in a surge of competition, driving prices down and standards up. Innovation has been given an outlet. Already, since the Lisbon summit, internet penetration in Europe has caught up dramatically with that of the US: it used to be half their rate, now it is 85 per cent. I'd like to see Britain and Spain as partners in entrenching the information economy. In fact, Britain and Spain are holding their first round table on e-commerce next month. We are bringing together UK and Spanish businesses and ministers to pool their experience, work more closely together and identify priorities for the e-agenda and the roll-out of broadband technologies in Europe. If we want to attract the best businesses to Europe, if we want to grow more dynamic businesses of our own, we must open up markets. That is why we support the aim of the Spanish presidency to push ahead with the Lisbon agenda. It is in the interest of every European citizen to move forward because it is our best defence against a down-turn. So, I want the European Commission monitoring our progress towards the Lisbon aspirations more publicly and systematically, putting pressure on those who drag their feet. That will focus our minds. Stronger than before And now, more than ever, we need to make progress. Flexible dynamic economies are better placed to withstand difficulties. They have shallower recessions and they recover from them faster. Just as a fitter individual is better placed to recover from illness, so a fitter economy is better placed to withstand a downturn. So we must come out of the present slowdown in a stronger position than we were before. Our competitors aren't sitting around waiting for the good times, they are cutting their costs and raising productivity to be ready for the pick-up in demand. And when that comes we need to be ready. Now is the time to plan, to re-train, to innovate, and seek new markets. And the role of government policy should be to enable that to happen as smoothly as possible. Financial support from government must never replace the market but it can on occasion play a useful role in helping the market to work better. State aid should not prop up industries that are uncompetitive. But it can help companies move up the value-added chain to become better placed to thrive in the markets that exist. That is why we want to shift the focus towards support that encourages extre investment in R&D, or makes it easier for smaller companies to get access to risk capital, and move away from blanket support of particular industries or sectors. European rules on state aid need to reflect that imperative. We want to explore how to enable the Commission to approve aid quickly where it will speed the process of economic reform without distorting competition. Then they should be able to free their resources to focus on distortive aid that acts against the single market. Better Deal at work whether at a domestic or a European level, the policies we introduce to meet our aim of job creation must also create better jobs, The goal of higher productivity does not require working long hours for poverty pay. Neither does it require greater unemployment. Productivity is about doing things better, adding greater value. higher productivity should also mean better wages, greater prosperity for all and the ability to invest in better public services. So our approach is not about working people into the ground, but helping companies get the best out of their staff. That means managers and employees, business and unions, working together. A partnership for productivity. We need social and economic partners - business and unions - to talk to each other and find solutions that meet both their needs. That's what we did in Britain when we introduced a minimum wage -orginally opposed by business, and now supported. The same approach is needed at an EU level. There must be a genuine partnership which respects national traditions of dialogue. That means, for example that the Information and Consultation Directive must retain the flexibilities agreed by European governments together, allowing managers and workers to agree arrangements for information and consultation that will suit their particular business. That will be good for partnership - and good for productivity. Conclusion Events of the last month have shown how quickly the world can change. Economies, and Governments need to be fleet footed and flexible to adapt to a world of change. Through economic reform we can put our people, our businesses, our economies in a better position to deal with change. To weather the bad times and reap the rewards when conditions improve. That way we can ensure that prosperity and social justice in Europe go hand in hand. |
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Other speeches by The Rt. Hon. Patricia Hewitt
(the following are available from the archive) |
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