An investment plan for European reconstruction
by Daniele
Archibugi on 12th May 2020
Europe must
look beyond keeping companies on life support and staunching national debts to
a continent-wide reconstruction driven by public investment.
Daniele Archibugi
In the face of
the Covid-19 crisis, there is finally a consensus that, without courageous public intervention, the
European economy risks falling apart. That economy is more fragile than those
of the United States or China, having been struck by this pandemic unannounced
when it had not fully recuperated from the financial crisis—investment has
reached only 75 per cent of its pre-2008 level.
The European
debate is concentrated on how to increase liquidity and finance the
increasing public debt all countries will have to face. This is insufficient
however, not only to boost economic reconstruction but, even more so, to foster
the qualitatively different economic
development now required.
In Lewis
Carroll’s Alice in Wonderland, when Alice got lost she asked the
Cheshire Cat: ‘Would you tell me, please, which way I ought to go from here?’
With iron logic the cat responded: ‘That depends a good deal on where you want
to get to.’ So what path lies ahead for the eurozone? Another decade of stagnation
and austerity, in which we shall work harder just to repay the debts?
Missing Europeans
After the 2008
crisis, business in Europe failed to exploit innovative opportunities, despite
already abundant liquidity and exceptionally low interest rates. Large
companies such as Amazon, Google, Apple, Alibaba, Baidu and Huawei are shaping
the future across the globe. These companies have only two common
characteristics: they operate in sectors with high technological content—mainly
in the digital and communication economy—and they are American or Chinese.
Where are the
corresponding European companies which grew after 2008 in the emerging sectors?
They are missing.
Facing into a
new economic crisis, long-run prosperity depends on creating new firms and new
jobs, especially in these sectors. Yet if European industry was unable to do
this well before the coronavirus struck, then if it is not sufficiently
stimulated it risks failing again.
The spirit of
John Maynard Keynes has rightly been invoked. But Keynes diagnosed a deficit in
investment as the key corollary of mass unemployment and, as a passionate
observer of the New Deal of Franklin D Roosevelt,
advocated investment plans financed by deficit spending—not
mere subsidies. He would have much preferred to create new jobs than provide
unemployment benefits.
Public investment
In the short
term, the needs of the weakest part of the population should be addressed but
in the long term the genuine Keynesian solution is to improve public
infrastructures, cultivating the capabilities of the workforce and thereby
increasing output—in turn generating greater fiscal revenues which repay the
deficit spending. A major plan of public investment will require administrative
capacity, entrepreneurial spirit and political leadership.
Keynes also
needs to be reinvigorated by the insights of Joseph Schumpeter: not all
investments generate the same multipliers and Europe in particular needs to
enhance its competences and skills in the emerging sectors. It is unlikely that
we shall have European corporations able to compete on a par with the US and
Chinese titans if they are not strongly supported by public policies.
Successful
catch-up countries have nurtured their top corporations for decades. European
governments have stopped doing so, often because this was infringing the rules
of the single market against discriminatory state aids. Yet this failed to
appreciate that in the 21st century, especially in the new sectors, competitive
corporations could no longer be French or German: they would need to be
European.
It is
therefore public authorities which today must
promote investment in innovative sectors and lead reconstruction. In emerging
industries, Europe will need to use the instruments used by catch–up
countries—including Japan in the 1960s, South Korea in 1980s and China in the
1990s—to create their industrial capacity.
We need to
reinvent new forms of entrepreneurship, which should be led by the public
interest but also run efficiently as business corporations. The several
agencies created by Roosevelt in the New Deal are an important example; they
were able to boost entrepreneurial spirit and guaranteed full employment.
Driving reconstruction
There are three
areas where the European Union could drive reconstruction, combining political
leadership and entrepreneurial capability.
The first is
health. There is a consensus that we cannot leave health in the hands of
business. European states have overall an excellent health infrastructure, even
if underfunded in many cases. There are now the conditions to enrich existing
facilities by generating pioneering forms of diagnosis and cure, based on the
most recent advances in biological sciences, information and communication
technologies and artificial intelligence, as well as utilising original forms
of social organisation.
The second is
to make a reality of the European Green
Deal, where the combined stimulus provided by national governments, the
European Commission and the European Investment Bank could really open up major
innovations, in a decade making the continent the world leader in the arena of
ecological modernisation, again linked to social goals.
The third is
the digital economy, where the EU still needs to emancipate itself from
the disturbing power of Big Tech. So far,
European countries have not even managed to get from these companies a fair
amount in taxes. Perhaps our political power-holders should learn that we need
to create our own corporations, based on more inclusive, transparent and
accountable data management.
The challenge
will require major efforts and co-ordination among national authorities and
European institutions, across business players and public administration. Alice
responded to the Cheshire Cat: ‘So long as I get somewhere.’ And she was told:
‘Oh, you’re sure to do that, if only you walk long enough.’
If the way is
long and difficult, we should set off, and with the appropriate equipment, as
soon as possible.
Filed
Under: Columns & Interviews, EconomyTagged
With: coronavirus
About Daniele Archibugi
Daniele Archibugi is director of IRPPS-CNR in Rome and professor of
innovation, governance and public policy at Birkbeck College, University of
London.
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