The Lisbon Strategy: structural policy in Europe and Belgium
The Lisbon Strategy has been launched by the European Council to promote long-term economic growth under the conditions of sufficient social and environmental protection. It builds on three pillars: the macroeconomic, the microeconomic and the labour market pillar. In this planning paper the microeconomic pillar and its implementation in Belgium is reviewed. The paper consists of four chapters, each covering a specific theme that concerns the microeconomic pillar.
The first chapter presents the general framework and implementation in Belgium. The basic issue is the prevailing growth differential between the EU and the US, which has on average been 0.7%-point to the advantage of the US during the first half of the present decade and even 1.2%-points during the second half of the past decade. An essential factor behind the growth differential is the differential of productivity growth. By applying Solow and endogenous growth models, the chapter illustrates the importance of knowledge and capital accumulation as factors for productivity growth.
The Lisbon Strategy was introduced in 2000 to provide a solution to that issue. A brief history and an overview of the priorities are given. As of the 2005 renewal of the strategy, the Member States state clear priorities in triannual National Reform Programmes (NRP) and report annually on their implementation. The chapter summarises the implementation of the renewed strategy in Belgium, and the evaluation that the European Commission (EC) has made of the first Belgian NRP. The EC was positive about the priorities and coherence in the NRP, but noted that information on the budgetary impact was lacking. Furthermore, it demanded more coordination between the federal and regional levels and more parliamentary involvement.
The second chapter discusses knowledge, as embodied in innovation, as a factor for productivity growth. Modern innovation theory considers the innovation system as a complex framework of poles of competence that are built up of interacting actors who drive innovation. The functioning of that innovation system depends crucially on the quality of intellectual property rights protection, regulation, standardisation, competition and financing. Moreover, investment in innovation may not be at its most efficient level because of market failures, such as externalities, uncertainty and non-divisibility. These market failures justify government intervention.
European R&D expenditures, as a percentage of GDP, are indeed below the US and Japanese, while the Chinese are strongly catching up. In Belgium, R&D is at about the same level as the EU average. For most other indicators of innovation, Belgium underperforms the EU average. The chapter thus ends with a summary of the present intervention at both the EU and the Belgian levels. At the EU level, the recent evolution of innovation strategy is given. At the Belgian level, the roles of the federal and regional governments are explained and the innovation measures from the NRP are summed up.
The third chapter discusses capital accumulation, as embodied in investments, as a factor for productivity growth. The focus of the chapter is on entrepreneurship, and based on the ideas of Schumpeter. An important determinant of economic growth is the phenomenon of creative destruction whereby entrepreneurs replace old parts of the economic structure with new and innovative ones. Hence, there is an important role for entrepreneurs, and in particular SMEs. It has, for example, been shown that in both the US and the EU the smallest and youngest businesses are the driving force behind employment creation.
SMEs, however, may face hurdles that deter potential entrepreneurs from starting up a business. These hurdles lie in the fields of, for example, social and fiscal regulation, availability of qualified employees, and access to capital. There is a role for government in removing the hurdles. The chapter thus ends with an overview of the present policies for stimulating entrepreneurship, at both the EU and Belgian levels. At the EU level, the recent evolution of the strategy for entrepreneurship is given. At the Belgian level, the measures adopted in the NRP are summarised.
The fourth chapter deals with the specific case of network industry reform. Network industries are important for the Lisbon Strategy because they convey persons, goods and information, which is essential for a modern and competitive economy. However, their production may not be at its most efficient level because of market failures, such as externalities and natural monopolies. In the past, intervention consisted of the creation of reserved monopolies at the national level. This did, however, not guarantee efficiency too and was not consistent with the internal market. Therefore, Member States and the EU started to reform the network industries’ market structures.
Conditions for effective reform are: independence among the segments of the production chain; regulation of network entry; monitoring of dominant market positions; and safeguarding of public and universal services. Furthermore, privatisation and a stepwise reform may be useful to create a level playing field. Based on these conditions the chapter reviews the reform of the Belgian telecommunications, electricity, gas, postal and railway industries. It summarises the developments since 1990 and discusses to what extent the present state of reform fulfils the conditions for effective reform.