The Rt. Hon. Patricia Hewitt, Secretary of State for Trade and Industry, Cabinet Minister for Women

Cranfield School of Management

And it’s because of you Michael, your colleagues at Cranfield, and colleagues at our other great Business Schools, that Britain enjoys such global recognition in this area.

We have more business schools accredited by EQUIS than any other European nation – and Cranfield is one of just 18 schools worldwide to hold accreditation from all three MBA accrediting bodies .

Any person studying today at Cranfield will recognise the importance of a strong European economy for British business success.

My argument tonight is simple. We in Britain need Europe to do well. Both Britain and Europe would be weaker if we were to stand on the margins or outside. Europe needs to change to meet the challenges of globalisation. But that change, with Britain in the forefront, is already underway.

Britain is indeed doing well. Once derided as ‘the sick man of Europe,’ we are now enjoying stronger and more sustained growth than any other leading industrial nation. We have the lowest interest rates for 40 years, the lowest inflation for 30 years and the highest employment levels in our history.

So it is hardly surprising that we take such pride in the fact that, thanks to our sustained economic growth, the UK has overtaken France to become the fourth largest economy in the world. We have closed our productivity gap with Germany, we remain the largest destination for foreign direct investment into Europe and, judged by a recent survey of European business leaders, we are ranked number one for competitiveness in Europe. I take pride in all that.

But sometimes from what you read in our Eurosceptic press, you would think that if Europe does badly, then Britain must benefit. But we should take no pride whatsoever in the under-performance of the Eurozone economies. Lower growth, slower growth, in the rest of Europe costs jobs and investment in Britain.

The reality is that Britain’s economic position is greatly strengthened by our membership of the EU.

With a market of 455 million people, the EU now accounts for 60% of our trade, over 3 million jobs are tied to our exports to other Member States, and over 700,000 British companies engage in European business.

In addition, our membership of the Union has helped deliver lower prices for consumers, a cleaner environment for our citizens and a more coordinated and effective approach to dealing with organized crime and terrorism.

And when the rest of Europe grows strongly, British exports and the British economy grow even more strongly too.

You would also think, to read some of our press, that it’s all bad economic news in the rest of Europe.

It is quite true that we have not made as much progress as we should have done on the Lisbon Agenda – designed by Europe’s leaders to make Europe `the most competitive and dynamic knowledge-based economy in the world by 2010’.

But there has been real progress since we signed up to that goal.
· More than 6 million jobs created since 1999.
· The employment rate up by 2% in the last 4 years
· Long-term unemployment down by 4%.
· The successful adoption of the European Single Currency in 12 Member States.
· Competition policy reformed and modernized.
· Key markets completely or partially liberalized (telecommunications, rail freight, postal services, and by 2007 electricity and gas).

When it comes to employment, Denmark, Sweden and the Netherlands are doing as well or better than Britain.

On innovation, Finland leads the world – and Germany remains well ahead of us on R&D investment.

On basic and technical skills, Germany, France and indeed the Czech Republic are ahead.

On productivity, we’ve closed the gap with Germany but not yet with France.

And on public transport... let’s just say we still have some way to go.

But whatever each country’s performance on different indicators, all of us can agree that we are not satisfied with the overall performance of the European Union.

For the last decade, the United States has grown at an average of more than 3% a year: Europe has grown by 3% or more in just one of the last ten years. And we continue to lag behind the US in productivity growth (1.43% compared to 2.21% pa). At this rate, by 2045, the average US citizen will be three times wealthier than the average European.

And on top of that, we face the challenges of a global economy.

For most of the post-war period, Europe could pursue its own economic and social policies, without really worrying about its international position. Its achievements were remarkable: peace and prosperity in a continent that had been nearly destroyed by war.

But today, Europe can no longer afford to look inwards. The volume of world trade has grown twenty fold since 1950. The world’s stock of FDI has grown thirteen fold since 1980. And emerging and developing countries have increased their share of world trade by a third since 1990.

We need the European Union to evolve from an organisation designed to tackle Europe’s internal problems to one that helps Member States confront the challenges and opportunities of globalisation. We need a Europe that is far more outward-looking than traditionally it has been.

It is no longer enough to ask how we can remain competitive in high-wage Germany, France or Britain faced with challenges from Poland or the Czech Republic – when we all face the new challenges of China and India.

It is no longer enough to debate how we protect rich Europe’s social and environmental standards against so-called `social dumping’ from poorer, newer member states – when boardrooms, making investment decisions, look at the whole world for its possibilities.

It is no longer enough to benchmark Britain’s performance against France, Germany and even the United States – when, increasingly, we will have to benchmark ourselves against the science investment, the higher education performance and the R&D achievements of emerging economies.

China and India’s growth rate is three times higher than Europe’s. Their population and potential consumer market five times bigger. Their wages about a tenth of ours. Between them, they are producing 125,000 computer science graduates every year – more than twice the whole of the EU.

In 2001, Britain exported more than China. Now it is the other way round. Only 1% of our exports go to China – but 3% of our imports come from there. Brazil, Indonesia, South Africa and many other emerging economies are also contesting developed country markets.

So globalisation presents Europe with big challenges. As poorer countries develop, the challenge to our producers will intensify – and as we know from the experience of much of our manufacturing industry, that competition is painful and sometimes disastrous for the people and communities facing job losses. Governments in Europe will have to respond even more effectively and rapidly to these changes.

But there are also enormous opportunities for our businesses and citizens alike.

As developing countries grow, they will lift millions more people out of poverty - and we should all rejoice at that.

As they produce better and cheaper goods, our consumers will benefit – indeed, falling prices for electronics, to name just one sector, have helped deliver low inflation.

And as they grow, they will become our customers. The middle-class markets in China and India are already enormous. The sooner others become our customers, the better for them and for us.

As the largest single market in the world, the European Union has a major role to play in this process of integrating developing countries into the world economy. We played a crucial role in the launch of the Doha Development Round of the World Trade Organisation. And I am delighted that Peter Mandelson, as Britain’s new European Commissioner, now has a particular responsibility for bringing the Doha Round to a successful conclusion.

The potential benefits are very large. If we can just halve the barriers to world trade through the Doha Round, the world economy would benefit by between $250 billion and $600 billion, with the largest share going to the developing countries - dwarfing what they receive in aid. Indeed, the World Bank estimates that a pro-poor Doha Round could reduce the number of people living on less than $2 per day by 144 million.

But to secure that successful Round, Europe itself will have to make big changes.

Big changes in the Common Agricultural Policy, for example. Last year, Margaret Beckett led the successful argument in the Agriculture Council for a radical reform of the CAP, enabling the European Union to commit itself in the Doha talks to negotiating an end date for the agricultural export subsidies that do so much damage to developing country farmers. But, of course, more is needed – particularly to reform the sugar regime.

Big reforms, too, in the system of tariff escalation that allows Europe to buy raw coffee and cocoa beans at virtually zero tariffs, but then imposes punitive tariffs on imports of instant coffee or luxury chocolates – locking developing countries out of the value-added production they so badly need.

Britain has not been alone in making the argument for economic reform in Europe, but we have been at the forefront.

Take the argument about the proposed with-holding tax on savings, a classic example of Europe looking inwards and ignoring the rest of the world. Gordon Brown argued that such a tax would not raise tax revenues, it would simply drive European savings abroad – to Switzerland and New York. We won the argument and in the course of doing so we protected Europe’s financial services and the position of the City of London as Europe’s financial capital.

Or consider the example of the Chemicals Directive. Everyone in the industry agrees that we need a new legislative framework. But the Commission, in its enthusiasm to raise standards of health and environmental protection, gave no thought to what the competitive impact of its proposals would be. They said the German chemicals industry would never leave Germany – a complete misreading of the decisions boardrooms make in the global economy. We made common cause with France and Germany, we argued for a different approach and we are winning the argument.

Those are just two examples of what we need a different approach to regulation in Europe.

None of this is to say that Europe should abandon its social model. Instead, we need to find ways of achieving our social and environmental goals that help rather than hinder economic progress.

We need a new social model. Not one based on jobs for life, but on employability for life. Not one based on trying to protect every job that already exists, but one based on promoting the creation of new jobs and new businesses.

We need an understanding – not yet achieved amongst all our colleagues - that it is wrong in principle and will not work in practice for the EU to try to micro-manage the labour markets of 25 very different member states.

But I do see a start in Europe of a new approach.

The new European Commission, under the Presidency of Jose Manuel Barroso, has made it clear that they will promote economic reform, job creation and competitiveness.

The new Vice-President for competitiveness, Gunter Verheugen, has said that better regulation will be a touchstone of his commissioner-ship, as he brings together a competitiveness group of commissioners.

Already, the new Commission is scrapping 100 proposals left over from the old Commission and has agreed to a proposal from the Council of Ministers for simplifying 15 major directives.

And today, the Six Presidency initiative involving the Irish, Dutch, British, Luxembourg, Austrian and Finnish Governments outlined new measures to advance regulatory reform in Europe.

So far from being a lone voice within the EU on this issue, we are working with other Member States, winning the argument and advancing reform.
Let me finish with the wider picture.

The great historic achievement of the European Union has been to make war unthinkable in a continent that has been devastated by war for centuries.

Ninety years after the start of the First World War, nearly 60 years after the end of the Second World War, it is very easy for people, our children’s generation in particular, to take that achievement for granted.

But over the last twenty years, we have seen how the European Union – and the prospect of EU membership – acted as a magnet for countries freed from communism.

In the last few days, we have seen people in Ukraine – inspired by earlier European struggles for democracy – protesting, demanding and winning fresh elections.

And today, Europe remains a magnet – a powerful touchstone of reform and modernization – for Rumania, Bulgaria and, crucially, Turkey. We in the British Government strongly support Turkey's EU membership prospects. We want to see a positive decision on opening accession negotiations with Turkey, just as we led the way in opening EU membership to ten new member states.

When so many are queuing up to join, why would Britain want to leave?

I readily accept that there is not much idealism left in the debate within Britain about our future relationship with Europe.

But alongside the idealism that some still hold, there is also self-interest.

I am sure many of the people in this room are contemplating careers in which they will live and work in a great many of the EU Member States. Millions of our citizens enjoy the freedom to travel, without visas, all over Europe – at air fares that have been slashed by EU intervention - or to buy a second home or retire in another European country. If we were outside we would lose out directly for all those reasons I gave earlier. And the voices of reform in Europe would also be weakened.

We are not the only people arguing for a new approach in Europe – and we are winning that argument. But with Britain absent, or sidelined, regulatory reform would be weakened, bad regulation more likely. If we were outside, and still wanted to trade with the EU, we would have to abide by those rules, with no say in making them. And the whole of Europe would lose out, because growth would be slower as a result.

That is a risk that we should never be prepared to take.

Thank You.