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					Bulletin
of the European Communities

Supplement 6/93




Growth , competitiveness,
employment
The challenges                and ways    forward
into the 21st century


White Paper


COM(93) 700
5 December 1993
Parts A and B


Blank pages not reproduced: 4 , 6 , 8 , 36 , 38 , 54 , 56 , 116 , and 144




 COMMISSION OF THE EUROPEAN COMMUNITIES
Cataloguing data can be found at the end of this publication

Luxembourg: Office for Official Publications of the European Communities , 1993

ISBN 92-826-7000-7 (Parts A + B)

ISBN 92-826-7071-6   (Part C)


ISBN 92-826-7065- 1 (Both volumes)


(9 ECSC-EEC- EAEC , Brussels. Luxembourg,     1993

Reproduction is authorized, except for commercial purposes , provided the source is
acknowledged

Printed in Germany
                                      PREAMBLE

This White Paper sets out to foster debate and to assist decision-making at decentralized
national or Community level - so as to lay the foundations for sustainable development of
the European economies, thereby enabling them to withstand international competition while
creating the millions of jobs that are needed.


We are convinced that the European economies have a future. Looking at the traditional
bases of prosperity and competitiveness , Europe has preserved its chances. It possesses assets
which it has only to exploit ~ assets such as its abundant non-physical capital (education
skills , capacity for innovation , traditions), the availability of fmancial capital and highly ef-
ficient banking institutions , the soundness of its social model, and the virtues of cooperation
between the two sides of industry.


Given the scale of the needs that have to be met , both in the European Union and elsewhere
in the world , recovery must be achieved by developing work and employment and not by
endorsing basically Malthusian solutions. Yes, we can create jobs , and we must do . so if we
want to safeguard the future - the future of our children, who must be able to fmd hope and
motivation in the prospect of participating in economic and social activity and of being
involved in the society in which they live , and the future of our social protection systems
which are threatened in the short term by inadequate growth and in the long term by the dete-
rioration in the ratio of the people in jobs to those not in employment.

In other words , we are faced with the immense responsibility, while remaining faithful to the
ideals which have come to characterize and represent Europe, of eroding a new synthesis of
the aims pursued by society (work as a factor of social integration , equality of opportunity)
and the requirements of the economy (competitiveness and job creation).


This major challenge confronts us all. That is why we are arguing, first and foremost, the need
to press on with building a unified Europe which will increase our strength through cooper-
ation and through the benefits of a large area without frontiers of any kind. That is why we
are calling on everyone - and not only political decision-makers and business leaders - to
contribute to the combined effort by seeking to understand the new world and by partici.
pating in the joint endeavour.


Nothing would be more dangerous than for Europe to maintain structures and customs which
foster resignation , refusal of commitment and passivity. Revival requires a society driven by
citizens who are aware of their own responsibilites and imbued with a spirit of solidarity
towards those with whom they form local and national communities ~ communities that are
so rich in history and in their common feeling of belonging.


The contribution which the European Union can make is therefore to assist this movement
~hich reconc~les our historical loyalties with our wish to take our place in this new world that
IS now emergmg.
                                              SUMMARY

PART A            White Paper: The challenges and ways forward into the 2lst
                  century
PART B            The conditions            of growth         competitiveness and more jobs
                  (preparatory work)


    Growth

Chapter I         The macroeconomic framework



n - Competitiveness

Chapter 2         The conditions for growth and greater competitiveness
                  A - Towards         global competitiveness
                  B - Making the          most of the internal market

Chapter 3         Trans- European networks
Chapter 4          Research and technological development
Chapter 5         The changing society, the new technologies ........"................................

                   A - The information society.................................................................

                   B ~ Biotechnology and its diffusion                                                            IOO

                   C - The audiovisual sector                                                                     103

Chapter 6          The Community, an open and reliable partner                                                    106



m - Employment
Chapter 7          Adaptation of education and vocational training systems                                        117

Chapter 8          Turning growth into jobs                                                                       123

Chapter 9          Statutory charges on labour                                                                    136


IV -   Towards a new   development model

Chapter IO         Thoughts on a new development model for the Community .......".....                            145

PART C             The contributions of the Member States (separate volume)
            PART A
         White Paper
The challenges and ways forward
     into the 21st century
                                                                        , .




 Why this White Paper?                              damage wreaked            by   inflation and
                                                    external imbalances. The worst damage
                                                    would be higher unemployment;
The one and only reason is unemployment.         . nor a generalized reduction in working
We are aware of its scale , and of its conse-       hours and job-sharing at national level:
quences too. The difficult thing, as experi-        this would result in a slowing- down         of
ence has taught us , is knowing how to              production due to         the difficulty of
tackle it.                                          striking the right balances between the
                                                    demand for skilled workers the
The Copenhagen European Council in                  optimum utilization of plant and the
June invited the European Commission to             supply of labour;
present a White Paper on a medium-term
strategy for growth , competitiveness and        . nOr a drastic cut in   wages to align our
employment. That     decision followed an           costs on those of our competitors in the
in- depth discussion between the Heads of           developing countries: socially unaccept-
State or Government based on an analysis            able and politically untenable, such an
by the President of the Commission of the           approach would only worsen the crisis
weaknesses of the European economies.               by depressing domestic demand, which
The White Paper draws in large part on the          also contributes to growth and the main-
contributions from the Member States. It            tenance of employment.
has also been guided by the discussions
often beset by conflict - under way in our       How has it come to this?
countries between governments and social
partners (employers '     and trade union        We will not dwell here on the analysis pre-
organizations).                                  sented in Copenhagen. This has been con-
                                                 firmed and fleshed out by the national con-
The European Commission is aware of the          tributions and the Commission s research:
difficulty of the task. For if the   solutions   competitiveness , growth and employment
already existed,   our countries would surely    are closely interrelated and have been for
have applied them; if there were a miracle       some time.
cure , it would not have gone unnoticed.
With national situations being so different,
any proposal has to be presented with sensi-
tivity and caution. That being so , the Com-      Over the last 20 years
mission does share the view , expressed by
many Member States , that joint responses         . the European economy           s potential
would strengthen the hand of each player             rate of growth has shrunk (from
and therefore of the European Union.                 around 4% to around 2.5% a year);
                                                  . unemployment has been steadily
There is no miracle cure                             rising from cycle to cycle;
   Neither protectiomsm , which would be          . the investment ratio has fallen by
   suicidal for the European Union , the             five percentage points;
   world' largest trading power , and
   would run counter to its proclaimed            . our   competitive position in relation
   objectives , in particular that of encoura-
                                                     to the USA and Japan has worsened
   ging the economies of the poorestcoun-            as regards:
   tries to take off;                                employment
. nor  a dash for economic freedom: turning          our shares of export markets
   on the tap of government spending and             R&D and innovation and its incor-
   creating money can , like a narcotic, pro-        poration into goods brought to the
   duce a short-lived illusion of well-being.        market
  But the return to reality would be all the         the development of new products.
  more painful when we had to repair the

S. 6/93
And yet the Community over the past few           which have been shaping the global
years enjoyed what all observers agree was        economy and their acceleration since the
    period of growth and restructuring            end of the 1970s.
prompted by the 1992 objective. That objec-
tive was not an illusion: it swiftly received
broad support from all sections    of society,
and the structural changes it generated             Changes in the decor
account for many of the nine million jobs           In geopolitical terms
created between 1986 and 1990.                      . new competitors have emerged and
                                                       have shown their ability to incor.
                                                       porate the latest technical progress;
  The 1992 objective: A tangible                    . the end of  communism has opened
  reality                                              up new      potential for economic
                                                       growth: 120 million people in neigh-
  . 70  million customs documents done                 bouring countries with a standard of
    away with;                                         living well below our own. But we
  . A 3% saving on the costs of interna-               have not been able to harness this
    tional transport;                                  for a new dynamism;
  . Three times more company mergers                In demographic terms
    and acquisitions in the Community               . the ageing of the population    and the
    over the period in question;                       transformation of family structures;
  . Twice the number of European
    companies involved in mergers and               In technological terms
    acquisitions in the rest of the world;          . the new industrial revolution is well
  . A doubling of trade in the Com-                    under way and is causing rapid and
    munity in sectors previously                       far-reaching changes in technologies
    regarded as sheltered from competi-               jobs and skills;
    tion;                                           . the economy        is becoming increas-
     Investment up by one third between                ingly knowledge-based , manufac-
     1985 and 1990;                                    turing activities are being farmed
                                                       out, services are taking the lion
  . Nine million jobs created between
                                                       share, and the possession and trans-
     1986 and 1990;
                                                       mission of information is becoming
  . One half of a percentage point extra               crucial to success;
     growth each year.
                                                    In financial terms
                                                    . the interdependence of markets
This integration process is not yet complete           resulting from the freedom of capital
since certain sectors are being only grad-             movements together with new tech-
ually opened up to competition;       it does          nology is an inescapable fact of life
however, amply demonstrate that Europe                 for all economic and financial oper-
has been capable of anticipating develop-              ators
ments , creating a stimulus and responding
to it.

How, then , can we explain the fact that all
these achievements have not          made it      The heart of the problem: The
possible at least to cushion the effects of the   three types of unemployment
world recession? Was the single market
process merely a flash in the pan?   The truth    Since the beginning of the I 970s ,   unem-
is that although we have changed, the rest of     ployment in the Community has risen
the world has changed even faster.                steadily except during the second half of the
                                                  1980s. Today 17 million people are out of
The present crisis can be understood only         work. Over the last 20 years ,     80% more
in the light of the universality of the trends    wealth has been created but total employ-

                                                                                        S. 6/93
ment has risen by only 9%. To explain this       a change of scale. This is not to say that
a distinction must be drawn between the          technological progress in enterprises is
three different forms of unemployment:           doing away with more jobs than it is crea-
                                                 ting: for example, the employment situation
Cyclical unemployment                            is on average more favourable in those
                                                 firms that have introduced microelectronics
In a context in which labour resources are       than in those that have not done so.
increasing by some 0.50% a year, any slack-
ening in growth       immediately triggers a     It is nevertheless the case that we are once
sharp rise in unemployment. This is particu-     again passing through a period in which a
larly so at present when, for the first time     gap is opening up between the speed of
since 1975 , Europe has experienced a slow.      technical progress , which is concerned pri-
down in economic activity.                       marily with how to produce (manufacturing
                                                 processes and work organization) and
Structural unemployment                          which therefore often destroys       jobs , and
At the end of the    1980s , when the economy    our capacity to think up new individual or
was going strong, unemployment still stood       collective needs which would provide new
at 12 million.                                   job opportunities.

The explanations for this rigidity of unem-      And yet technical    progress is presenting
ployment are now clear:                          opportunities for growth and employment
. The       role we have come to play in the     on condition that we alter our development
   new international division of labour has      model , meet the needs stemming from the
   not been an optimum one because we            upheavals in social life and urban civiliza-
   have neglected future growth sectors in       tion , preserve our rural areas , and improve
   concentrating too much on the rents and       the . environment and the quality of our
   positions established in traditional indus.   natural assets. In so doing, we will pave the
   tries.                                        ways for our entry into the 2lst century.
. The relatively high cost of unskilled
  labour is speeding up the rationalization      Ways forward into the
   of investment and holding back job cre-       21 st century
   ation in services. This has resulted in the
   loss of millions of jobs.                     In order to reverse the disastrous course
. Our employment systems have aged: by           which our societies , bedevilled by unem-
  this term we mean the whole complex of         ployment, are taking, the European Union
  issues made up nowadays by the labour          should set itself the target of creating     15
   market and employment          policy, the    million jobs by the end of the century.
   possibilities of flexibility within or out-
   side enterprises , the opportunities pro-     It is the economy which can provide the
   vided or not provided by the education        necessary pointers to . a   reappraisal of prin-
   and training systems , and social protec-     ciples inherited from an age in which man-
   tion.                                         power resources were scarce, technological
                                                 innovation was made possible through imi-
   Finally and more especially, the coun-        tation , and natural resources could be
   tries of the south are stirring and com-      exploited at will. We are thus setting out a
   peting with us - even on our own mar-         number of broad guidelines which have a
   kets at cost levels which we simply           predominantly economic basis, although it
   cannot match.                                 will be seen that they cannot be dissociated
                                                 from the major trends which are affecting
Technological unemployment                       society itself: an economy that is healthy,
 This problem is as old as industrial society    open , decentralized , competitive and based
 itself, which has continually changed ~         on solidarity. However, these .efforts would
 albeit not always smoothly - by incorpor-       be in vain if we did not once again make
 ating technical progress. Nevertheless , the    employment policy the centre-piece of our
 phenomenon now seems to be undergoing            overall strategy.



 S. 6/93
          healthy economy                             be necessary to guarantee an adequate rate
                                                      of return to permit an increase in the invest-
  The people of Europe need stability. The            ment ratio and hence in growth.
  false prophets of inflation and of a return to
  exchange-rate variability represent special
  interests. Their bad money still threatens to
  oust the good.                                              Growth Path compared
                                                                       (average % change per year)
 The White Paper is , accordingly, consistent               Percent
 with the guidelines submitted to the Euro-
 pean Council , in accordance with the new
 Treaty (Article 103), to mark the beginning
 of the second stage of European economic
 union, which must be successful if a single
 currency is to be achieved. We must there-
 fore place our thinking within      amacroecon-
 omic reference         framework for both econ-
 omic and monetary convergence which will                    1961 1973 1974-1980 1991-1995 1996-1989                1995-2000
                                                                                                               Growth Path
                                                                 _GDP DLabour productivity E!!iEmployment
 increase the opportunities available to our
 economies.
 This strategy could be applied            in two
 phases , the first consisting of pulling out of
 the current recession as quickly as possible         An open economy
 and the second from the roid- 1990s con-             Each of the major bursts of growth in the
 sisting of returning to a path of strong and         European economies started with a qualita-
 healthy growth. The macroeconomic                    tive leap in international trade.                        The most
 policies to be implemented for these two             spectacular contribution probably came
 phases are set on similar courses but have           from the establishment of the multilateral
 different points of emphasis.                        trading system resulting from the Bretton
 The gradual         reduction in public   deficits   Woods agreements after the Second World
 dominates the initial phase,        subsequently
                                                      War.
 giving way to their stabilization around the         Today we are perhaps seeing the                         beginnings
 common objective. This will call              for    of an equally important leap                          forward with
 increased efforts to restructure spending            the very rapid integration into world trade
 and in particular to curb operating expendi-         of developing countries and former com-
 ture         in favour of public resources   allo-   munist countries.
 cated to investment.
 Stable      monetary policies consistent with the
 aim of low inflation will be a constant
  benchmark throughout the period. They
, would lead to further interest-rate cuts that
 would make more attractive the        investment             Where is the Growth?
 essential to the modernization and competi-                           (Percentage of world output)
 tiveness of our economies. Investment in
 infrastructures, housing and environmental
                                                                  1988-   1990 1989-2000
 improvement projects would thus be given
 a particular boost.

 Finally, the trends of all categories of income
 should be made consistent with the objec-
                                                      75,
 tives of monetary stability and cost moder-
 ation. During the flfSt phase, the task would
 be to avert an acceleration which would
 frustrate the reduction of interest rates in
 the long term; during the second , it would                   (_GECD DDeveloping countries_Others)


                                                                                                                  S. 6/93
The Community must be open and prepare             Decentralized economy
itself for this prospect. This is why the con.
elusion of the Uruguay Round negotiations          The market economy has a decentralizing
is of such importance for it too. For the first    effect. This was the reasoning behind the
time, these negotiations will produce a            single market' project (Objective 92). Its
                                                   aim was not only to achieve economies of
global agreement between industrialized            scale but also to set free the dynamism and
and developing countries containing bal-
anced concessions aimed at fair access to          the creativity inherent in competition.
all markets.                                       Decentralization now also reflects a radical
Among the issues in these negotiations , the       change in the organization of our societies
transformation of       GAIT into a fully          which are all confronted with the growing
fledged international institution designated a     complexity of economic and social phe-
 multilateral trade organization' would guar-      nomena and the legislative or regulatory
antee a sustainable and harmonious develop-
                                                   framework.
ment of international trade. The Community         Hence the growing importance of the local
is attached to this idea: it regards it as the     level at which all the ingredients of political
means of ensuring that GATI has the auth-          action blend together most successfully.
ority to stand up to hegemony, to face up
more effectively to the imbalances resulting
from world monetary instability, and to
address other issues where the existence of          The information          society
multilateral rules would be invaluable.              . The dawning of         a multimedia world
There is indeed a need to ensure better con-             (sound        text     image) represents
sistency between the various bodies respon-              a radical change comparable with
sible for fostering healthy competition , to             the first industrial revolution;
deal with the inequality of the conditions
for direct investment, and to guarantee a fair       . Tomorrow s world is already with
sharing-out of burdens in         the area of            us: by the end of the century there
environmental protection.                                will be 10 times as many TV chan-
                                                         nels and three times the number of
The    strengthening of the multilateral
                                                         subscribers to cable networks. In the
trading system ,   its effective application and
                                                         USA it is estimated that six million
the transparency of its rules      are , for the
                                                         people are already involved in te1e-
Community, the best guarantee of success                 working;
with its own effort to adjust. This is part
and parcel of the goal of achieving coherent         . The    USA has already taken the lead:
world management of the problems posed                   200 of its biggest companies already
by development    inequalities and the con-              use information highways;
centration of poverty in certain regions.
                                                     . At the heart of the development
The European Union must first demon-                     model for the 2lst century, this issue
s~ate this openness of mind and recogni-                 is a crucial aspect in the survival or
tIon of the unavoidable globalization of the             deeline of Europe;
economy to its eastern and southern neigh-
bourn. Enormous potential exists , but it                 It can provide an answer to the new
requires us to invest massively, to transfer a
                                                         needs of European societies: com-
                                                         munication networks within com-
considerable volume of know-how and to
open up our markets more widely. If all of               p~nies; widespread teleworking;
these countries manage to pursue reason-                 wIdespread access to scientific and
able policies of adjustment and moderniza-               leisure databases; development of
tion, they will fully benefit from our action            preventive health care and home
                                                          medicine for the elderly.
and return those benefits to us in the form
of new markets and, consequently, new
jobs. Only properly managed interdepend-
ence can guarantee a positive outcome for          Hence also the decentralization movement
everybody.                                         affecting the business world. SMEs are

S. 6/93
often cited as models because they embody        The second condition revolves                 around
operational flexibility and a capacity for       small and medium-sized     enterprises. While
integration which the units which make up        they are a model of flexibility for big com-
the big companies are now trying to imitate.     panies, they are also increasingly a factor of
Hierarchical and linear empires are grad-        competitiveness as a result of ' farming-out'
ually giving way to interactive      organiz-    and subcontracting. Hence the measures
ations.                                          taken on the initiative of big companies to
                                                 galvanize their suppliers and clients. How-
This movement towards decentralization           ever, the ' demography' of SMEs , i.e. their
supported by the      new technologies ,    is   birth, growth and regeneration , is also a
taking us towards a veritable information        matter of national policy. In some countries
society. The corollary to decentralization is    it will be necessary to adapt their tax sys-
information sharing and communication.           tems , rights of succession and access to
                                                 equity and to simplify intercompany credit
The European dimension would give the            regulations and practices. While most of the
information society the best possible            work has to be done at national level , the
chances of taking off. The Commission is         Community, for its part, must help to fit
therefore proposing, in the context of a
partnership between the public sector and
                                                 SMEs into the dynamics of the single
                                                 market. The immediate task, therefore, is to
the private sector , to accelerate the estab-
                                                 work towards simplification and informa-
lishment of ' information highways ' (broad-     tion. A Community initiative will shortly be
band networks) and develop the corre-            proposed in this connection.
sponding services and applications      (see
Development theme I).                            The third condition concerns the accel-
                                                 erated establishment of trans-European
A more competitive economy                       infrastructure networks (see Development
                                                 Theme II).
Drawing maximum benefit from the
single market
                                                  The     trans- European infrastructure
While industrial policy continues to be con-
troversial no one is in any doubt as to the       Why?
responsibility of governments and of the           . Faster,     safer travel at lower cost;
Community to create as favourable an
environment as possible for company com-                Effective planning in Europe;
petitiveness. The single market is now a           . Bridge-     building towards Eastern
living reality. However, where companies                Europe.
are concerned , progress is needed in three
areas.                                            How?
The first concerns the body of rules (laws         . Remove regulatory and financial
regulations , standards certification pro-           obstacles,
cesses) which assure the smooth functioning
of the market. The rules    have to be sup-        . Get private investors involved in
plemented in line with the initial target            projects of European interest
(whether they concern pharmaceuticals                   (applying the provisions of the
intellectual property or company law , for              Treaty, ' declaration
                                                                            of European
example). But , above all , how it then                 interest');
develops has to be guaranteed against the               Identify projects on the basis of the
risk of inconsistency between national and              master plans adopted (transport) or
Community laws. This means fresh cooper-                in preparation (energy).
ation between governments at the legislative
drafting stage. Likewise, care should be
taken to ensure that the Community legisla-      In order to      establish these networks , pro-
tion affecting companies is consistent           mote the information society, and develop
especially the environmental legislation.        new environmental improvement projects

                                                                                           S. 6/93
the Commission proposes to accelerate the         the long term , the speed of the changes it
administrative procedures, act as a catalyst      creates affects the different social categories
and use the existing cooperation instru-          unequally, and it spontaneously promotes
ments. This represents an investment pro-         concentration , thereby creating inequality
gramme of ECU 20 billion per annum from           between the regions and the towns. A ware-
1994 to 1999 (see Annex).                         ness of these     insufficiencies has led our
                                                  countries to develop collective solidarity
                                                                Community level the Single
                                                  mechaJrlsms. At
Stepping up the research effort and
                                                  European Act has helped to restore the bal-
cooperation                                       ance in the development of the single
Without eschewing competition , the ability       market by way of joint flanking policies as
to cooperate and share risks is increasingly      part of economic and social cohesion.
becoming a sign of creativity. Our laws , our     However, the social welfare system is now
tax systems and our programmes have to be         being re-examined in many Member States
adapted as a result, both at national and at      to reduce costs through greater responsi-
European level. Community competition             bility. The new model of European society
policy has thus made broad allowance for
                                                  calls for less passive and more active soli-
these new forms of intercornpany       cooper-
                                                  darity.
ation.
                                                  Solidarity, first of all , between those who
Encouraging intercompany cooperation              have jobs and those who do not. This key
will gradually become a basic principle and       concept has not figured at all in the collec-
not just one ' aspect' of Community research
                                                  tive discussions and negotiations of the last
and development policy. This principle will       10 years. That is why we are proposing a
help to identify major priorities and to pro-     sort of European social pact, the principle
mote meetings between the operators               of which is quite simple but whose detailed
involved. The Commission will propose             arrangements would be adapted to thespe-
that Member States implement this new             cific circumstances of each country and
form of ' vertical cooperation '   on the basis
                                                  each business; in the spirit of a decen-
of a restricted number of large joint projects    tralized economy and of subsidiarity, new
geared to the following:                          gains in productivity would essentially be
. New information technologies,     the           applied to forward-looking investments and
   importance of which has already been           to the creation of jobs.
   emphasized.
                                                  Solidarity also between generations , with an
   Biotechnology, where the early    use of       eye to the repercussions of a demographic
   research resources will make for greater       trend which will see falling numbers of per-
   synergy between chemical companies             sons of adult working age. It is absolutely
   and the big potential users in the health      essential that all decisions taken today take
   and agrl- foodstuffs sectors.                  account of this demographic dimension.
                                                  That is why we must not only tackle unem.
   EcotechnoIogies, meaning radical      inno-
                                                  ployment, which is jeopardizing all our
   vations targeting the causes of pollution      social security systems , but also expand
   and aiming at environmental efficiency         and not reduce ,the volume of work which
   throughout the production cycle. Eco-          generates wealth and so finances solidarity.
   technologies will soon provide a major
   competitive advantage.                         Solidarity, once again, between the more
                                                  prosperous regions and the poor
An economy characterized by                       struggling regions. Hence the conformation
                                                  of economic and social cohesion as .an
solidarity                                        essential pillar of European construction.
These options show how the dynamism of            Solidarity, lastly and most importantly, in
the market can help boost growth.                 the fight against social exclusion. If only
Experience has also shown , however, that         one proof were needed that our economies
the market is not without its failings. it        have not   yet   reached maturity and that
tends to underestimate what is at stake in        there are still needs to be met it would be

S. 6/93
the existence in Europe of some 40 roillion          ment systems' and combine to give each of
people below the poverty line. This is a             them a distinctive appearance. In each case
matter for the Member States , but it is also        the entire system must be mobilized to
the business of each citizen         to practice     improve the functioning of the labour
neighbourly solidarity' .. We need a compre-         market. This goes to show, once again , that
hensive policy, preventive as well as reme.          there is no miracle solution; nothing short
dial, to combat the poverty which so                 of coordinated action by the various players
degrades men and women and splits society            responsible for the components of these sys-
in two. The areas of action are familiar:            tems can effect the necessary transforma-
renovation of     stricken urban areas ,     con-    tion.
struction of subsidized housing, adaptation
of education systems with extra resources            Moreover, in each country the methods of
for children from disadvantaged            back-     social dialogue will reflect national tradi-
grounds , and an active employment policy            tions.
which attaches high priority to the search
for an activity     or training accessible to
                                                       Priorities for action on jobs
everyone rather than the registration of and
payment to the unemployed , even though                   lifelong education and training;
in the last resort , this is still essential where
all other means of social reinsertion seem             . greater  flexibility in businesses , both
for the moment, to be exhausted.                          internally and externally;
                                                          greater expectations fromdecentral-
Action on jobs                                            ization and initiative;
As we have seen, the Community has failed              . reduction    in the relative cost of low-
to match the substantial increase in gener-               qualified work;
ated wealth with parallel improvements in              . thorough overhaul of employment
job opportunities. Looked at more closely,                policies;
however,    the performances of individual
States differ quite     considerably. For                 efforts to meet new needs.
instance, Germany and Spain have enjoyed
a comparable rate of growth over the last 15
years of around 2.3%, yet their average
            unemployment are 6 and 16%
                                                     Investment in education and training:
levels of
respectively. Over the same period , mean-           Knowledge and know-how
while, the United Kingdom , France, Bel-             throughout life
gium and Italy have all had an unemploy-
ment rate of around 9% of the active popu-           Our countries ' education systems are faced
lation , but with growth rates ranging from          with major difficulties , and not only of a
1.8 to 2.5% on average. These disparities tell       budgetary nature. These problems are
us a lot.                                            rooted in social ills: the breakdown of the
                                                     family and the demotivation bred by unem-
In a general manner, they show that growth           ployment. They also reflect a change in the
is not in itself the solution to unemploy-           very nature of what is being taught. Prepa.
ment , that vigorous action is needed to             ration for life in tomorrow s world cannot
create jobs. However, such action must take          be satisfied by a once-and-for-all acquisi-
account of national circumstances. More              tion of knowledge and know-how. Every bit
specifically, the inflexibility of the labour        as essential is the ability to learn , to com-
market , which is responsible for a large part       municate, to work in a group and to assess
of Europe   s structural unemployment , can          one s own situation. On the other hand , if
be traced back to specific institutional , legal     tomorrow s trades require the ability to
and contractual        circumstances in each         make diagnoses and propose improvements
country. The educational       system, labour        at all levels , the autonomy, independence of
laws, work contracts, contractual negotiation        spirit and analytical ability which come of
systems and the social security system form          knowledge will once again be      indispens-
the pillars of the various ' national employ-        able.

                                                                                             S. 6/93
Lifelong education is therefore the overall        The provision of a framework for exer-
objective to which the national educational        cising the right to advanced vocational
communities can make their own contribu-           training has already been mentioned. This
tions. Difficult choices will have to              is a major pillar of flexibility, which also
made between increasing university                 calls for initiatives    , sometimes radical , from
capacity or quality, between higher educa-         the two sides        of industry in cooperation
tion and vocational paths. However, each           with the public authorities:
country should be aiming towards univer-                                                       north of
                                                   . In certain countries of the
sally accessible advanced vocational training.        Europe the campaign against undeclared
As is shown by the Member States' contri-             work involves reducing certain unem-
butions , principles and methods of fin-              ployment benefits and cutting direct tax-
ancing may differ. In some cases,          the        ation on low incomes. However, unem-
emphasis is on equal opportunities for all            ployment benefits can only be reduced
individuals and the proposed response is              so far before the poverty line is reached.
the provision of training capital or cheques          These limits have already been reached
financed by the redistribution of public              in several countries;
resources. In other cases ,   advanced voca-
tional training is linked to businesses and so     . In several southern countries , the laws
contractual mechanisms will be proposed               on the conditions under which workers
for training investment or for co-investment          on unlimited contracts may be laid off
with the participation of wage-earners. In
                                                      need to be made more flexible,               with

any   event , public and private efforts must         greater assistance being given to the
be married to create the basis in each                unemployed and with less recourse to
Member State for a genuine right to initial           precarious forms of employment;
or ongoing training throughout one s life-         . In many countries , in both north and
time. This should be a key area of social            south, labour compartmentalization
dialogue at European level.                            detrimental both to the mobility of the
                                                       active population and to the retraining
The need for double flexibility                        of the unemployed.          Bridging access
both internal and external                             needs to be       established through collec-
labour markets                                         tive negotiation.
Generally speaking, the flexibility of the         Internal flexibility is the result     of   optimum
labour market has deteriorated under the           management of a company s human
effects of an accretion of partial measures        resources. The aim is to adjust the work-
designed to reduce     registered unemploy-        force without making people redundant
ment. All of these measures now need to be         wherever this can be avoided. Focusing on
re-examined by all the players with a view         the continuity of the link between the com-
to removing obstacles to employment.               pany and the worker, it maximizes the
The question of labour flexibility needs to        investment in human resources and staff
be examined from two angles: that of the           involvement. It is up to individual            com-
external labour market , where supply meets        panies to improve   internal flexibility by
demand , and that of the market internal to        means of staff versatility, the integrated
each business , i. e. the human resources at its   organization of work flexible working
disposal which it adjusts according to its         hours , and performance-related pay. Tai.
needs.                                             lored to the European company               model,   it
                                                   should be central to negotiations within the
Improving external flexibility means               company.
making it possible for more unemployed
persons to meet the identified requirements
of businesses.    The first step    here is to     The virtues of decentralization and
improve geographical mobility. This could          initiative
be encouraged by injecting new impetus
into the accommodation market and , in             The optimum operation of the labour
particular, by removing obstacles to the           market calls for a large degree of decentral-
construction of rented accommodation.              ization within ' employment areas .               In


S. 6/93
return , the national authorities should focus    For all countries of the Union , it is essential
on the quality of training and the homo.          to reduce the cost of unskilled and semi-
geneity of  qualifications. The successful        skilled labour by an amount equivalent to I
experience of several Member States shows         or 2 points of GNP by the year 2000. The
the importance of effective participation of      improvement in tax revenue resulting from
the social partners in the decentralized          this measure would offset the cost by up to
management of employment areas.                   30%. The remainder should be fmanced by
                                                  savings or other revenue. Irrespective of its
Likewise, it is only by       decentralized                      the CO2/energy tax pro.
                                                  intrinsic merits ,
approach, i.e. at company level , that adjust-    posed by the Commission is one of the best
ments to  working hours can lead to               ways of offsetting reductions in the cost of
improved competitiveness , and thereby            employment. Homogeneous taxation at
encourage job creation and job      retention.    source of investment income as proposed
Thus we can see how at Volkswagen                 by the Commission since 1989 would be
imaginative negotiations based on a four-         another possibility.
day week have led to a sensible , socially
responsible form of part-time working.            A full-scale overhaul of employment
More flexible retirement schemes , more           policy
diversified working years , and greater pro-
vision for part- time working correspond in
                                                  Investing in human resources is not the task
many situations to the wishes of salaried
                                                  of business alone. It is also the task of gov-
staff and the interest of undertakings which
are concerned to make better use of their         ernment. It is no longer possible                    to leave
                                                  masses of unemployed people in Europe
capital. Very often , such ' downward'
adjustments in working hours are blocked          unoccupied. Such is , however, the structure
                                                  of government spending on unemploy-
by inflexible practices which standardize         ment: roughly two thirds of public expendi-
the working week 'in Europe at between 37
and 39 hours. To remove these obstacles , it      ture on the unemployed goes on assistance
is necessary, on the basis of the specific pro-   and the remainder on ' active measures
visions of each country, to review labour
legislation (role of legislation on working
hours) and contractual practices (overtime
pay), and in many cases simplify the way in
which pension rights are calculated.                Employers ' Social Contributions
                                                              (Comparison at different wage levels)
                                                  50 %of_,o
Reducing the cost        of   unskilled and
semi-skilled labour
In eight out of the twelve countries of the
European Union , social security contribu-
tions are relatively more onerous      on low
incomes. These countries suffer the most
from what is one of the most severe struc-
tural causes of unemployment and unde-                                (. ","avomgew".   D3xavom,o_,o
clared employment in the Community.               "',,=, E"",p"'. c.mmiO"..


Studies have been carried out in       several
countries with very high levels    of security
contributions. These studies show that a
reduction of 30 to    40% in social security      A complete reversal of attitude is required
contributions for low- paid workers would         the aim being to prevent long- term unem.
increase employment by 2%. In other coun-         ployment. On the one hand, the unem.
tries , the possibility of replacing existing     ployed should be offered, according to how
forms of income guarantee payments with a         long they have been unemployed ,                        first
system of negative tax deserves close atten-      training leading to meaningful qualifica-
tion.                                             tions, then the possibility of working, poss-

                                                                                                       S. 6/93
ibly in the public sector         , for a number of      Union civilian voluntary service' could be
months. In exchange ,           unemployed people        introduced , comprising a training element
who are thus           given      real assistance in     and public utility work in another Member
returning to employment would make a                     State of the Union, to be financed by Euro-
personal investment in this training and                 pean Social Fund pilot initiatives. This
employment. This , too ,          is a   question   of   initiative could back up the ' Youthstart'
social dialogue in which the unemployed                  arrangements.
should themselves be involved.

Such a substantial change would require a                Dealing with new needs
considerable increase in public employment
services , the objective being for every                 Many needs are still waiting to be . satisfied.
unemployed person to be monitored per.                   They correspond to changes in lifestyles
sonally by the same employment adviser.                  the transformation of family structures , the
The job of the employment service would                  increase in the number of working women
become more diversified but comprise three               and the new aspirations of the elderly and
main tasks: provision of information , job               of very old people. They also stem from the
placement and support.                                   need to repair damage to the environment
                                                         and to renovate            the most disadvantaged
Contrary to popular opinion , such an over-              urban areas.
haul of     employment policy would not be
prohibitively expensive. For example , it has
been calculated that the cost of tripling
operational expenditure on the      public
employment services in the countries of the                Sources of new jobs
Union would mean an increase from 0.17
to 0.5% of GNP. Spread over a period                       Local      services
            the corresponding expenditure
three years ,
would be .almost entirely offset by the fall in            . Home help for the elderly and han-
unemployment, estimated at 100 000 in the                          dicapped, health care, meal prepara-
first year, 400000 in the second year, and a                       tion and housework;
million in the third year.                                 . Minding pre-school-age children
                                                             and schoolchildren before and after
Bringing the long-term unemployed -
                                                             school , including taking them to and
those who have been unemployed for more                            from school;
than 12 months -          back into      employment is
a difficult but not impossible task; this is               . Assistance to young people facing
demonstrated by the success of initiatives in                difficulties , comprising help with
several countries aimed at creating a real                         schoolwork provision of leisure
route back into employment for such                                facilities , especially sports , and sup-
people. These initiatives should be general-                       port for the most disadvantaged;
ized , in cooperation with various associ-
ations and the local authorities.                          . Acting as             caretaker for blocks of
                                                                   flats;
Finally, active employment policy should
cross a new threshold in promoting youth                           Provision of       leisure and cultural
employment. Anyone who leaves the school                           facilities ,   provided they are thereby
system before the age of 18 without                                made more accessible              to all
acquiring a meaningful vocational certifi-                         (adjusted opening hours            lower
cate should be guaranteed a ' Youthstart' . It                     prices , travelling shows , art schools
is proposed that a scheme should be pro-                           etc.
gressively established at national level                                              in business in rural
                                                            . Local shops kept
which will give everyone access to a recog-
nized form of training, whether or not                             areas , and also in outlying suburban
accompanied by employment experience.                              areas.
Moreover, at Community level European

 S. 6/93
The objection will be voiced that if such          supply. Thus a new ' social economy' would
needs exist, the market should rapidly pro-        be born , benefiting:
vide for them. In fact, the development of
both the supply of and demand for such             . on   the demand side,       from incentives
new services comes up against barriers:               such as income tax deductibility, or the
                                                      local issuing of ' vouchers ' along the lines
                                                      of luncheon vouchers , issued instead of
. on the   demand side there is the problem           providing the social services normally
  of price, already referred to in connec-            provided by employers and local auth-
  tion with the costs of employment;                  orities, which can be exchanged for local
                                                      services (' service vouchers
. on the     supply side there is reticence   to
  take jobs which are perceived .as being          . on the    supply side, from traditional sub-
   degrading, because they           are often        sidies for the setting-up of undertakings
                                                      which could be increased in cases where
   synonymous with domestic service and
  unskilled or selni-skilled work.                    a ' social employer' undertakes to employ
                                                      formerly unemployed people. Specific
                                                      training would be provided to develop
As a result, the development of the services          the skills needed for these new pro-
in question is either left to the undeclared          fessions.
employment market , or is publicly funded,
which is expensive. A new initiative could
stimulate both demand and supply, thus
creating a ' continuum' of possibilities             The scope     for job creation depends
ranging from supply totally protected by             largely on the existing structures and
public subsidies      to totally competitive         services in each country, lifestyles and
                                                     tax rules.
                                                     However,     several estimates agree that
                                                     some three million new jobs could be
  Improvements in the quality of life                created in the Community, covering
                                                     local services , improvements in the
  . Renovation of old housing with a
    view to increasing comfort (instal-
                                                     quality of life and environmental pro-
    lation of bathrooms and noise insu-              tection.
    lation) and safety;
  . Development of    local public trans-
    port services ,
                  which should be made             Call for action
    more comfortable, more frequent,
    accessible (to the handicapped) and            The analyses out in this document and the
    safe, and the provision of new ser-            possible solutions identified should guide us
    vices such as shared taxis in rural            towards a sustainable development model
    areas.                                         both from the viewpoint of the effectiveness
                                                   of the triangular relationship growth-com-
  Environmental protection                         petitiveness-employment and as regards the
                                                   environment and the improvement in the
  . Maintenance of       natural areas and         quality of life.
    public areas (rubbish clearance,
    street cleaning, path clearance, etc.          The effort to be made calls for adaptations
                                                   in behaviour and policies at all levels: the
  . Water  purification and the cleaning-          Community level, the national level, and
    up of polluted areas;                          the local level. Since we are aware of the
                                                   differing situations in Member States , we
  . Monitoring of     quality standards;           deemed it preferable not to formulate the
    Energy-saving equipment, particu-              possible solutions in unduly concise terms.
    larly in housing.                              It will be for each Member State to take
                                                   from the document the elements it regards

                                                                                          S. 6/93
as making a positive contribution to its own      into question the financial decisions taken
action.                                           as part of Package II by the Edinburgh
                                                  European Council. There is, therefore, no
Nevertheless , in the Commission s view , the     need to review the ceilings on resources.
individual chapters of Part B should pro-
vide the basis for work in the various spe-       Recourse to saving is the only other source
cialized meetings of the Council of Minis-        of fmancing. It would be modest in magni-
ters. If conclusion along these lines were        tude since the borrowings envisaged would
reached at     the forthcoming     European       account for   less than 2% of total market
Council meeting, this would facilitate and        ISSUes.
actually set in motion the mobilization of
the Community institutions in the pursuit of      For the rest, what we are advocating is not
the objectives set.                               only economically indispensable but also
                                                  financially viable and hence carries no risk
As for Community action proper, it is pro-        of adding to national public deficits.
posed to impart a new impetus or give a
new form , but only in accordance with five       Through these forward-looking measures
priorities:                                       the Community will lay the foundations for
                                                  sound and     lasting economic growth the
. Making the    most of the single market;
                                                  benefits of which will far outweigh the cost
. Supporting the development and adap-            of raising the funds required.
   tation of small and medium-sized enter-
   prises;                                        As a parallel development, and this is also
                                                  one of the far-reaching changes made to
. Pursing   the social dialogue that has , to     our growth model , the new-found consist-
   date , made for fruitful cooperation and       ency between macroeconomic policy and
   joint decision-making by the two sides of      an active employment policy will eliminate
   industry, thereby assisting the work of        all the behavioural or structural rigidities
   the Community;                                 that are partly to blame for the underem-
                                                  ployment with which we are having to con-
. Creating the major    European infrastruc-      tend. It will t4en be possible to satisfy the
   ture networks;                                 numerous needs that have not yet been met
                                                  as well as those to which the changes both
 . Preparing  forthwith and laying the foun-      in the organization of our societies and in
   dations for the information society.           the organization and sharing-out of work
These last two priorities hold the key to         will give rise.
 enhanced competitiveness and will enable
 us to exploit technical progress in the inter-    The Commission thus calls on everyone to
 ests of employment and an improvement in          conduct a lucid analysis   of our strengths

 living conditions.                                and weaknesses and to adapt behaviour to
                                                   the rapid changes taking place in today
 It needs to be stressed that the implementa-      world, setting our sights . and focusing our
 tion of these two priorities in no way calls      determination on what the future holds.




 S. 6/93
Development theme

Information networks                             production with consumers' specific, and
                                                 even individual , requirements. A new far
1. Why?
                                                 richer range of novel services in the fo  ~of
                                                 information , access to databases , audio-
                                                 visual, cultural .and leisure facilities will be
                                                 opened up to everyone. More specifically, it
                                                 will be possible to gain access to general
  Throughout the world , production sys-
  tems , methods of organizing work and          information directly, without any compli-
  consumption patterns are undergoing            cated technology, via a portable computer
  changes which will have long-term              connected, if need be, to a television set or
  effects comparable with the first indus-       telephone.
  trial revolution.

                                                   The same phenomenon will affect us as
!his is ~he
              result of the development of         citizens.
mformatlon and communications        techno-
logies. Digital technologies , in particular
have made it possible to combine trans           I~ will he possible to make the services pro-
mission of information , sound text and
                                                 vIded by the public authorities faster more
images in a single high-performance system.      selective and less impersonal , prbvided
                                                 measl!res ar~ ta~en to. safeguard privacy.
                                                 Certamservlces m which the public auth-
  The dawn of the multimedia world
                                                 orities have traditionally played a leading
                                                 role (health , education , social security, etc.
                                                 could be ~rovided far more widely, rapidly
This . will have far-reaching effects on pro-    and effectiVely. Market forces will be able
ductiOn st~ctures and methods. It will   spell
                                                 to playa greater part. Doctors , teachers and
chang~s 1!l the way companies are                students will have instant access      to vast
organiZed , m managers ' responsibilities and    databases.
in relations with workers. Small businesses
will benefit most. Working conditions will
be transformed by the greater flexibility          This is not a technological     dream for
possible with r~gard to working hours , the        the next century.
place of work Itself (teleworking) and ine-
vitably, . terms of contract and pay systems.
Accordmg to some estimates ,     six million
Americans already work at home.       New        Some aspects of this new society            are
data transmission systems will enable com-       already. be~ng put into place; many people
panies to globalize their     activities and     are begmnmg to reap the benefit. Naturally
strategies , forging forms of partnership and    these changes will be led by the Tria
cooperation on a scale never possible            powers first ,   but will gradually extend to
before.                                          the rest of the planet. They will be dictated
                                                 above all , by the needs of the users both
                                                 companies and consumers alike. Ind~stry is
                                                 already beginning to adapt to these new
  ~e change will also affect consump-            pn?spects. large-scale reorganizations are in
  tiOn patterns.                                 tram. They are making the traditional dis-
                                                 tinctions, for example between electronics
                                                 information technology,       telecommunica
The need for physical     mobility will be       tions and the audiovisual sectors increas-
reduced by the availability of products and      inglr obsolete. They are blurring' the bor-
services combining the advantages of mass        derlines between the secondary and tertiary

                                                                                        S. 6/93
sectors , between industry and services. They
are transforming the balance of power in         The aim must be not to slow down this
industry: the capitalization of Nintendo         change but, instead, to control it in
the video game maker, is already One third       order to avoid the dramas which
of IBM' s and its turnover is almost twice       marked the adjustments in the last cen-
that of Microsoft, the leading software pro-     tury but would be unacceptable today.
ducer. This process has already started in
the USA, where it is giving birth to unpre-
cedente~ partnerships and mergers between
                                                Above all, these changes have been brought
compames.
                                                about by market pressure and companies
It will gain ground in Europe. It is forcing    own initiative. The government decisions
the public authorities to review the regula-    taken in the USA and Japan aim at orga-
tory framework.                                 nizing and speeding up the process , by sup-
                                                porting companies' efforts. The emphasis
                                                has been on establishment      of the basic
  Concern has been expresed about               infrastructure and support for new applica-
  employment , but it is difficult to assess    tions and technological development.      The
  this factor precisely.                        US programme to establish the ' National
                                                Information Infrastructure' provides for a
                                                total investment of x times the spending On
Rapid dissemination of new information          the Apollo programme.
technologies can certainly speed up the
transfer of certain manufacturing activities
to countries with    distinctly lower labour
costs.                                            It is in Europe s interests to meet this
                                                  challenge since the first    economies
                                                  which successfully complete this
  However, the productivity improve-              change, in goods conditions , will hold
  ments which these technologies will             significant competitive advantages.
  allow throughout industry will also save
  large numbers of jobs which        would
  otherwise have been lost.
                                                Compared with its leading      competitors
                                                Europe holds . comparative advantages from
Weare withnessing rationalization of the        the cultural ,   social   technological and
 service sector. However, the enormous          industrial points of view. Since     1 January
 potential for new services relating to pro-    1993 its market has been largely integrated
duction, consumption , culture and leisure      although too many monopolies and too
acitivities will create large numbers of new    much overregulation persist.         Interoper-

jobs.                                           ability has not yet been achieved.
 For example , the services generated by        Already, the States which have taken the
 Minitel in France have created more than       lead with deregulation have the fastest
 350000 jobs. The foreseeable growth in the     growing markets and falling consumer
 number of audiovisual     services will con-   prices.
 siderably increase the demand for new pro-
 grammes. By the turn of the century there
 should be 10 times as many television chan-
 nels as now and three times the number of         Europe s main handicaps are the frag-
 subscribers to cable networks.                    mentation of the various markets and
                                                   the lack of major interoperable links.
 In any event , it would      be fruitless to      To overcome them , it is necessary to
 become embroiled in a fresh dispute about         moblize resources and channel endeav-
 the ' machine age , as was the case with the      ours at European level in a partnership
 first industrial revolution. Worldwide dis-       between the public and private sectors.
 semination of new technologies is inevit-
 able.

 S. 6/93
2. How?
The action plan is based on five priorities:


  Priority                                     Means
   1. Promote the use of     information         launch European projects On applications
     technologies                                and public services (transport, health
                                                 training, education and civil protection)
                                                 and strengthen cooperation           between
                                                 administrations (IDA programme)
                                                 promote teleworking
                                                 ensure closer involvement of users in the
                                                 drafting and implementation of technology
                                                 policies
  2. Provide basic trans- European ser-          develop the basic networks (ISDN and
     vices                                       broadband)
                                                 ensure network interoperability
                                                 ensure closer coordination between tele-
                                                 communications policies and aid from the
                                                 Structural Funds
  3. Create an appropriate regulatory            end distortions of competition
     framework
                                                 guarantee a universal service
                                                 speed up standardization
                                                 protect privacy and ensure the security of
                                                 information and communication systems
                                                 extend intellectual property law
  4. Develop training on new techno-             encourage acquisition of the basic knowl-
     logies                                      edge required in order to use new techno-
                                                 logies and exploit their potential
                                                 ensure widespread use of new technologies
                                                 in teaching and training
                                                 adapt the training for engineers and resear-
                                                 chers
  5. Improve industrial and techno-              increase the RTD effort and adapt it to the
     logical performance                         new market conditions (fourth framework
                                                 programme)
                                                 promote industry and technology watch
                                                 take up the results of RTD in industrial
                                                 applications
                                                 negotiate equitable conditions of access to
                                                 the competitive market at world level


The keys to the success of this plan are to       It is proposed that a task force on Euro-
define the measures clearly, to specify a         pean information infrastructures be estab-
timetable and to put in place the resources.      lished with a direct mandate from the Euro-

                                                                                         S. 6/93
pean Council. This task force will have the         in order to break the vicious circle perpetu-
job of establishing priorities , deciding on        ated by the weaknesses on both the demand
procedures and deeming the resources                and supply sides.
required. It should report to the President
of the European Council by 31 March 1994            To this .end,      the eight strategic projects

so that the plan can be put into action by          listed in the Annex are proposed.
mid- 1994 after consultation with the parties
concerned and the approval of the Euro-             They cover infrastructure,             services and
                                                    applications alike.
pean Council.

3. Which networks?                                    Establishment of a high-speed com-
                                                      munication network
The transport network has motorways with
several lanes, and access roads and service
areas allowing motorists to drive wherever          This infrastructure is necessary for the
they choose.
                                                    development of  multimedia services. It
The communications network will also                would use the most advanced data trans-
have:                                               mission technologies (optical fibre) and
                                                    fully capitalize on the digitization and high-
. highways along which    information will          speed transfer of information (high defini-
   move: these will be the broadband                tion, interactive and multifunction systems).
   optical fibre networks
                                                    This would extend the integrated            services
   access roads and service areas: these will
   be the services (disks ,   files ,   databases
                                                    digital networks to                 be established
                                                    throughout the Community by the                year
   electronic mail services and host com-           2000.
   puters);
. highway     users who will choose applica-
   tions for their work or private life.              Initiation of three              programmes to
                                                      develop electronic services
Europe s telephone networks are already
international , but the digital networks for
carrying information in the form of text            These services are necessary for diversifica-
data or images are mainly being developed           tion of the applications on a given infra-
on a purely national basis.                         structure network:
                                                       Electronic images: interactive video ser-
                                                       vices will revolutionize                 working
   In order to provide greater access to a             methods, training and leisure activities.
  wide range of interactive services and               The objective is to ensure Europe-wide
  create a common information area                     interoperability of these new          d fa carte
   action must be taken:                               services by 1997.

   . to ensure coordinated      project man-           Electronic access to information: this will
        agement;                                       entail bringing together             information
                                                       (administrative ,      scientific     cultural or
   . to   interconnect the various networks
        and make them interoperable;
                                                       other data) in databases to which all
                                                       users in the        Community should have
   . to    invest and innovate in order to             access.
        provide a wide range of information
        in the shortest possible time.                 Electronic mail: the various commercial
                                                       electronic document transmission ser-
                                                       vices must be made interoperable; devel-
 Such an approach is essential to stimulate            opment of this service is particularly
 the creation of new markets. New projects              important to        make small firms more
 must be undertaken rapidly and resolutely              competitive.

 S. 6/93
                                                   4. What decisions?
  Promotion of four priority applications:
 teleworking, teletraining,     telemedicine       At the moment,     the Council of Ministers
  and links between administrations.               and the European Parliament are conti-
                                                   nuing their discussions on the development
                                                   of data communications (IDA) networks.
                                                   In the autunm the Commission submitted
                                                   two proposals on telecommunications net.
                                                   works containing      a series of guidelines
                                                   (master plan) on the integrated services dig-
. Teleworking:    Projects are already under       ital network (ISDN) and broadband net-
  way in the Member States. The Com-               works.
  munity would support pilot programmes
  on the establishment of a transfrontier          The biggest difficulty encountered in the
  network for the management of human              discussions concerns the content of the
  resources.                                       work: some Member States feel that it
                                                   should cover the     infrastructure only but
                                                   most think that it should cover not only the
                                                   infrastructure but also the associated ser-
  Teletraining: The objective is to establish      vices.
  a network linking more than 100 univer-
  sities or colleges by 1996 and giving
  them all access to common training               5. Financing options?
  modules.                                         The estimated funding needed over the next
                                                   10 years will be ECU 150 billion. Some
                                                   ECU 67 billion will be needed       between
. Telemedicine: By the            year 2000        1994 and 1999 for the priority      projects
  multimedia links are to be established           selected. They will be covered mainly by
  between the main cancer research cen-            private investors. Financial support from
  tres , bone marrow banks and social              the national and Community authorities
  security centres.                                will playa marginal role to provide an icen-
                                                   five , as with other networks.
                                                   The Community could provide ECU 5 bil-
. Links between   administrations: To ensure       lion over the entire period from its budget
  smooth operation of the internal market          for networks , from the Structural Funds
  (taxation , customs, statistics), it is essen-   and, in particular , from the research pro-
  tial to improve the interchange      of data     gramme. This could be supplemented by
  between administrations and to provide           EIB loans and European Investment Fund
  companies and the public with easier             guarantees and the new fmancial       mech-
  access to this information.                      anisms described in the Annex.




                                                                                        S. 6/93
                 Trans- European telecommunications networks:

Information highways       Target area for                   Investment required
                           Strategic Projects                1994- 1999
                                                             (billion ecus)


Interconnected advanced       establishment of
networks                      high-speed
                               communication network
                               consolidation of
                               integrated services digital
                               network

 General electromc             electronic acces to
 servIces                      information
                               electronic mail
                               electronic images:
                               interactive video services

 Telematic applications        teleworking
                               links between
                               administrations
                               teletrallling
                               telemedicine

                            Total




S. 6/93
Development theme

Trans- European transport and                     this need which all the Member States
                                                  emphasized in their contributions.
energy networks
                                                  This is also a chance to:
1. Why?                                           . give our    industries the opportunity of
                                                     engaging in promising medium- and
Europe s ascendancy in the past was due to           long-term projects and of developing
the quality of its communications networks           new products;
which gave its inhabitants easy access to
natural and technical resources. By devel-        . seek the optimum combination of
oping the movement of people and good~,
                                                     existing transport modes (multimo-
Europe has been able to marry econo~lc               dality) in order to enhance performance
prosperity, quality of life and comme~Clal           and ~t the same time reduce their
                                                     environmental impact.
efficiency; it has also been able to remam at
the forefront of technology and to back
highly successful industry, Airbus being a
good example. Our transport, energy an~             Making traffic faster, safer and more
telecommunications systems are clear eVl.           environmentally compatible        facili.
dence of this tradition.                            tating and boosting trade, and bringing
                                                    Member States closer to their eastern
We need to continue along this road , to            and southern neighbours would herald
enter a new phase and to visualize other            the advent of the European Union.
frontiers in the light of the globalization of
markets , the growing mobility of capital
                                                  These networks are the complement to the
and technology and the investment needs
which are becoming apparent in the East           single market. After the huge collective
                                                  effort made to eliminate frontiers between
and the South. The development of trans-
European transport, telecommunications
                                                  the Member States, it is now necessary to
                                                  increase physical links , including those with
and energy infrastructure neworks answers         the most distant countries. This is also a key
                                                  factor in competitiveness ,   minimizing costs
  Promoting new or better designed                to businesses and private individuals , and
  infrastructures , accessible to all citizens,   optimizing existing capacities by improving
  will permit:                                    their compatibility.
     faster safer travel at lower cost , and
     thus ' an   increase in trade , while        2. Why now?
     reducing costs and distances and
     creating scope for other activities;
     effective planning in Europe in                Our investment in infrastructures has
     order to stem the emergence of                 been slowing down over the last
     serious socio-economic disequilibria           years.
     in all Member States;
  . bridge- building towards Eastern
     Europe, which is essential in order to       This is particularly true of transport; the
     meet     the immense investment              result is rigidities , procedural slowness and
                                                  malfunctions , which are blamed by econ-
     requirement resulting from the state
     of decay of communications and to            omic circles as being one of the main causes
                                                  of the current decline in competitiveness.
     organize the necessary economic
     complementarities.                           This can now be remedied with the aid of
                                                  the new provisions of the Treaty on Euro-
                                                  pean Union (Article 129).

                                                                                        S. 6/93
                                                 without, at the same time, embarking on
 The fact that not enough attention has          bold infrastructure projects. The two are
 been paid to developing infrastructures         complementary.
 is one of the reasons for the deteriora-
 tion in the quality of life.
                                                   Finally, potentialinvestroents by the
Time wasted because of traffic congestion          end of the century, which are put at
under-utilization of the new communica-            more than ECU 250 billion, are a key
tions media, environmental damage owing             factor in the         economic recovery of
to the failure to use the most efficient tech-      Europe.
nology are all to some extent contributory
factors in the present malaise of our cities
and the resulting social discord. The same is    3. How?
true of the thinly-populated rural areas
whose isolation is a threat to their     very
existence.                                          Article 129 of the Treaty on European
                                                    Union spells out the Community' s tasks
The rapid progress made in data pro-                and instruments relating to the estab-
cessing, environmental engineering, propul-         lishment of networks.
sion methods and new materials completely
change the outlook. We are living with sep-
arate, compartmentalized networks, with          Within the framework of a system of open
means of transport which are often               and competitive           markets , action by the
environmentally damaging. It will hence-         Community shall aim at promoting the
forth be possible to combine different trans-    interconnection and interoperability of net-
port modes , to use electronics to organize      works as well as access to such networks. It
links and traffic better, to connect networks    shall take account in particular of the need
in all sectors for which different national      to link island , landlocked and peripheral
authorities are responsible and to integrate     regions with the central regions of the Com-
stringent environmental standards in infra-      munity (Article 129b).
structure projects. A wholly new generation      It shall  establish      series   of guidelines
of projects is emerging, and a completely
                                                 covering the objectives , priorities and broad
different development logic.
                                                 lines of measures (master plans); thesegui-
                                                 delines shall identify              projects ofcommon
Countries such as the USA and Japan are          interest;    it shall support the       fmancial efforts
making significant targeted efforts to           made by the Member States for the projects
renew their infrastructures. New industrial      identified, particularly through feasibility
powers such as Singapore, Taiwan , certain       studies , loan guarantees or interest rates
parts of China and Argentina are creating        subsidies; it may also  help coordinate the
networks which integrate the latest techno-      policies pursued by the Member States and
logical advances.                                cooperate with third countries (Article
                                                  I 29c).

                                                  The European Parliament and the Council
   By focusing the necessary resources on         of Ministers decide on the guidelines and
   trans- European projects , we shall main-      projects of common interest by qualified
   tain our capacity to compete with the          majority; Member States must approve the
   rest of the world and improve the              guidelines and projects that COncern              their
   quality of life in Europe.                     territory.
                                                  The Community has two tasks:
 Equally, it is inconceivable that we should
 develop an economic partnership with the         . encourage          private investors to take a
 countries of Central Europe and Russia as               greater part in projects of     European
    preliminary to a       deeper association            interest;

 S. 6/93
. reduce , to this end, the financial or               advancing the opening-up of          certain
   administrative risks involved.                      regions of the Community;
It is therefore recommended that priority           . seaports ,with a view to promoting intra-
should be given to projects of Community               Community trade and trade with the rest
interest, the financial and administrative             of the world and relieving congestion
arrangements for which have been well pre-             certain inland links , with beneficial
pared , and for which environmental impact             environmental effects.
assessments have been carried out.
                                                    b) Energy
Project evaluation will concern the fman.
cial risks   , the possible sources of financing,      master plan and projects of common
the legal status (duration of concessions),         interest for electricity and gas will be pre.
management and             the environmental        sented at the beginning of 1994.
impact.
                                                    5. What are the priorities?
                                                    The projects will focus above all on the
  An administrative and fmancal action              trans- European transport network. This is
  plan will be drawn up for each project            the sector which will require the most sub-
  in order to guarantee investors the nec-          stantial investment , and where the gap bet.
  essary predictability and stability.              ween available financial resources and
                                                    needs is biggest. The aim is to develop        a
                                                    truly multimodal strategy, which is essential
4. Where are we now?                                in order to imprpve the efficiency of the
a) Transport                                        economy and the quality of life.

The plan for high-speed trains had already
been accepted by the Council in 1990 , and
                                                      It is proposed that major priority pro-
it will be updated in 1994 for integration in         jects of Community interest should be
a multimodal perspective.
                                                      selected on the basis of the master plans
On 29 October 1993 the Council and the                already approved, in order to bring all
European Parliament approved three                    the countries of the European continent
master plans on:                                      closer together. These concern:
. combined       transport, with work in two          . new strategic transfrontier links
   stages of 6 and 12 years;                            (Brenner rail link, Lyons-Turin rail
                                                        link, Paris- Barcelona- Madrid rail
   roads, with 55 000 km of trans- European             link, Berlin-Warsaw- Moscow motor-
   links including 12 000 km of motorway                 way link);
   to be built in 10 years;
                                                      . improving     connections between the
   inland waterways, with the establishment              various transport modes (Heathrow-
   of an interoperable network in 10 years.              London- Channel Tunnel link);
Three other plans will be presented in 1994           . improving     interoperability and effi-
on:                                                      ciency of networks by installing
                                                         traffic management systems (air, sea
. the   conventional rail infrastructure, with a         land) and thus significantly reducing
  view to   integrating lines for passenger              nuisance factors.
  traffic (regional , urban) and freight in
  the intermodal network and to extending
   links towards Central and Eastern                The development         of energy networks
   Europe;                                          reflects two priorities: the reduction of costs
                                                    by making better use of existing capacities
. theairport infrastructure, with a view to         and enhancing security of supply. The rust
  improving the linking-in of the Com-              priority is more particularly concerned with
  munity network internationally and of             electricity, while the second applies to gas.

                                                                                           S. 6/93
This will permit more rational overall use of        for transport and ECU 13 billion for
the available energy throughout the whole            energy.
European continent.                                  The purpose of the above assessment is to
As far as electricity is concerned , the objec-      create the best possible conditions for fin-
tive is essentially to increase interconnec-         ancing by the market in the framework of a
tion of networks and thus avoid theirsatu-           public- and private-sector partnership.
ration in some cases and, in others , provide
a better service to the more remote areas.
                                                       Financing is based on three principles:
                                                          financial equilibrium:          this can to a
  Making better use of existing electricity               large extent be ensured by private
  capacities will help protect the environ-               investors;
  ment.
                                                          compatibility with public           finances:
                                                          any contributions from Member
With regard to gas , Europe must come to                  States will respect the            guidelines
terms with growing consumption which will                 relating to the public debt;
increasingly by covered by imports from
                                                                             the Community will
the North Sea, Algeria or Russia.                         subsidiarity:

                                                          support feasibility studies ,         provide
                                                          loan guarantiees           or   promote the
                                                          closing of missing links in the frame.
  It is essential , in the interests of   econ-           work of projects of commo n interest.
  omic security, to speed up construction
  of trans- European        gas pipelines
                                                     With regard to the 26 transport projects
  capable of guaranteeing supplies and
  creating avenues for long.term cooper-             already examined in the framework of the
  ation with the producer countries.                 master plans (23) or in other Council bodies
                                                     (3), the Community has already financed
                                                     feasibility studies and work to the tune
Eight major programmes will shortly be               ECU 332 million.
proposed to the Council with this in mind.           It could provide almost           ECU IS billion
the success of all these projects    is closely
                                                     over the period 1994-99           from its various
linked with the deepening of the          internal
                                                     instrument, 1 which would be added to loans
market.                                              of an equivalent amount (growth initiative
                                                     facilities).
6. Financing options
                                                     The eight major energy programmes will
The financial requirements for the next              require ECU 13 billion, of which 10 must
year can be put at more than ECU 400 bil-            be provided by the market. The Com-
lion; by the end of the century alone , they
                                                     munity could provide ECU 1.2 billion over
will probably amount to ECU 250 billion              that period through the structural policies
(ECU 220 billion for transport and ECU 30            and the instruments           for interest-rate sub-
billion for energy).
                                                     sidies and financing of feasibility          studies.

The total investment involved for the pro-           Under these conditions , the Member States
posed projects amounts to ECU 82 billion             contribution will be marginal.




 S. 6/93
Annex
Investing in the                                          create, manage, access and transfer infor-
                                                          mation. It involves:
competitiveness of Europe
                                                          . the    creation of infrastructures (cable and
The trans- European networks are an essen-                    land or satellite-based radio communica-
tial element for the competitiveness of the                   tion), including integrated digital      net-
European economy and the smooth func-                         works ;
tioning of the single market.
                                                          . the development of services (electronic
1. Transport and energy networks                              images , databases , electronic mail);
     ECU 250 billion by the year 2000
                                                          . promoting       applications (teleworking,
These networks of transport infrastructures                   teletraining, telemedecine and linked
will enable our citizens           to travel    more          administrations).
quickly, more safely and more cheaply.
They will also           form a link to       eastern     The amount of investments        that could be
Europe and to north Mrica. In total some                  put into effect by the end of the century has
ECU 400 billion of investments                in the      been estimated at ECU 150 billion.
transport and energy trans- European net-
works will be required in the next 15 years
of which some ECU 220 billion by 1999.                    3. Environment   - ECU 174 billion on
                                                              large environmental projects by
Article 129b of the Treaty makes clear how                    the year 2000
to proceed. The Community! establishes a
set of guidelines that identify projects of
                                                          The environment is an integral element of
common interest. It then supports the fman-               the trans- European networks , for example
cial efforts of the Member States (feasibility
                                                          concerning combined transport networks
studies ,loan guarantees , or interest rate
                                                          designed to get traffic off the roads onto
subsidies). It can also contribute to the
coordination of the Member States ' policies
                                                          rail. The Commission         has nevertheless
and cooperate with third countries.                       environmental programmes of sufficient
                                                          size to merit eligibility for financial support
The principal guideline networks            (schemas      from the Community. These concern urban
directeurs) have been proposed by the Com-                waste water treatment and renovation of
mission or adopted by the Council and the                 water . supply distribution systems at an esti-
Parliament. The Commission has identified                 mated cost of ECU 280 billion in total over
a series of priority projects for the next five           12 years or ECU 140 billion by the end
years (25 transport projects amounting to                 the century. The Community could help
ECU 83 billion and 10 energy projects                     fmance some ECU 25 billion in this area of
costing ECU 13 billion) covering the Com-                 environmental concern over the period
munity, but also extending to central                     I 994-99.
Europe and north Mrica (energy).
                                                          4. Financing the trans- European
2. Telecommunications - ECU 150                               networks and large environmental
   billion by the year 2000                                   projects
A system of information highways for the
Community will allow the best means to                    The major portion of frnance         for these
                                                          investments will be raised at the level of the
                                                          Member State, either through private inves-
I The Council decides by qualified majority in co-deci-
                                                          tors (especially in the telecoms sector) or via
  sion with the European Parliament (Article     l89b);
                                                          public enterprises. The Community can
  guidelines and projects of common interest which
  relate to the territory of a Member State require the   however, playa role , as foreseen in the
  approval of the Member State concerned.                 Treaty, by supporting the financial efforts

                                                                                                 S. 6/93
of the Member States and mobilizing pri-                   within the Edinburgh ceilings. National
vate capital I . This requires a panoply of                budgets would not be required to support
financial instruments , as set out in the table            additional flllancing. In the case of the
below , some of which exist already and two                new instruments , the capital and interest
of which are new ('Union Bonds Convert-                    would be repaid by the promoters of the
ibles ). The new instruments are needed for                projects, with the Community budget
projects specifically included in the Master               available to back the repayment of the
Plans and complement the lending of the                    Union Bonds and the capital of the Euro-
European Investment Bank, which is more                    pean Investment Fund available in the
general. The budgetary            elements remain          case of the Convertibles. There would be
                                                           no risk of destabilizing the capital markets
1 In addition the ElF can guarantee up to a total of        given that the amounts concerned rep-
  ECU 6 billion of private loans for large infrastruc-
                                                            resent less than I % of the Eurobond and
 ture projects, averaging 1 billion per year to 1999.
                                                            bank credit markets.




                     Community financing of the trans- European networks
                                   (average financing    per year   1994-99)


      Source:                                                       Amount in billion reus
      Community budget:
      of which:
      TENs
      Structural Funds:
                                                                    (TENs):                     1.35
                                                                    (environment):
      Cohesion Fund:
                                                                    (TENs):                     1.15
                                                                    (environment):              1.15

      R&D:
                                                                    (telecommunications) :
                                                                    (transport):
      Em (loans);
      Union Bonds I (esp. transport and energy):
      Convertibles I guaranteed by ElF (esp. telecoms):              1.0

                                                           Total    20.


     1 See box.



 S. 6/93
                                    New facilities

Union Bonds
 Union Bonds' for growth would be issued on tap by the Union for long maturities to
promote major infrastructure projects of strategic interest covering the trans- European
networks plus cross-border projects with EFTA, Central and Eastern Europe and North
Africa. The beneficiaries would be project promoters (public sector agencies, private
companies) directly involved in TENs. The EIB would be invited to appraise and
advise the Commission On the overall structure of the fmancial arrangement and act as
agent for individual loan contracts.

Convertibles guaranteed by the European Investment Fund
Bonds issued for long maturities by the private or public company promoting the pro-
ject, guaranteed by the European Investment Fund. These would be either:
  convertible wholly or partly into shares or investment certificates; or
. by accompanied by   subscription warrants giving the holder a right to buy shares at a
  certain price; or
. performance-related through a    share in the profits of the company or venture con-
  cerned.
The maturities of the bonds and of the exchange terms would be coherent between the
expected returns of the project and the exercise period of the option. The ElF would
create a special window for this type of guarantee, especially for major projects linked
to telecommunications networks.




                                                                                   S. 6/93
              ARTB
    The conditions of growth,
co. mpetitiveness and more jobs
         (Preparatory work)
- GROWTH
Chapter
The macroeconomic                                   be exploited. The Community' s       achieve-
                                                    ment in creating the world' s   biggest single
framework                                           market is a major asset on which it will be
                                                    possible to build once the recovery sets in.
Community unemployment has increased                The recession , painful as it is, has speeded
steadily since the beginning of the 1970s           up the process of adaptation of firms to the
with the exception of the second half of the        new environment.
1980s , when nine million jobs were created
through a combination of appropriate                The world economy has continued to grow
national policies   ,a favourable .external         over recent years and a number of devel-
environment and the dynamism resulting              oping countries have experienced very high
from the prospect of the single market.             rates of growth. The presence of new
Overall , however, since the early I 970s           vibrant economies in Asia and, soon , in
demographic factors have led to an increase         Eastern Europe constitutes a huge oppor-
in the number of people seeking jobs , while        tunity and not a threat to our standard of
the number of jobs available stagnated or           living. These countries will be 'buying on
increased only modestly. Other developed            world markets as much as they will earn
economies have been patently more suc-              with their exports. The rest of the world is
cessful in responding to the challenge of           now experiencing again positive rates of
increasing job creation.                            growth of between 2 and       3% while world
                                                    trade outside the Community is expanding
The causes       of the Community s poor            by 5 to 6% in real terms. Finally, the price
relative performance in this area are               of oil is now back to the low levels recorded
numerous and deep-seated. The most                  in the mid- 1980s.
important ones can be summed up under
the headings of a suboptimal macroecon-             Over recent years , comprehensive analyses
omic management of the economy and of               have been made. They show that there is no
an insufficient effort of adaptation to the         miracle remedy, but they point to the exist-
changes which have taken place in the               ence of a wide range of measures to help
structure of the Community s economy and            growth , competitiveness and employment.
in its international environment. The 1980s         The challenge is now to appreciate the order
saw a change of policy orientation. The             of magnitude of the       likely effects of the
emphasis shifted towards creating more              various measures, to determine their appro-
stable macroeconomic conditions and                 priate mix and to implement the preferred
towards easing the pain associated with              strategy with determination. This will not be
 structural change rather than slowing it            easy. The factors which have hindered in the
 down. This reorientation brought positive           past the implementation of the right policies
 results in the second half of the decade            are largely still present.     Attacking the
 providing good growth but not enough new            sources of the present unemployment prob-
jobs. In 1992-93,    however, there was a loss       lems requires, therefore, a clean break with
 of confidence brought on in part by actions         the past. This will only be possible if a large
 outside the economic sphere. This and other         consensus on the necessary course of action
 errors put the economy into its worst reces.        to be followed can be developed: within
 sion.                                               each country, between management and the
                                                     labour force in industry and among the
 To the extent that the present problems are         members of the European Community.
 the result of inadequate policies in the more
 or less recent past, there is nothing inevitable
 in this state of affairs.                           This chapter outlines the macroeconomic
                                                     framework which policies must create and
 In   addition, there is a number of factors         within which the structural      interventions

 which are favourable to a rapid return              outlined in the following chapters will be
 sustained growth and which can and should           most successful.

 S. 6/93
    1. Views of the Member States                      within the framework of economic             and
                                                       monetary union, which is generally viewed
 In their contributions to the White Paper             as the right instrument for addressing struc-
 the Member States broadly agree On the                tural problems.         number of Member
 assessment made. They shall call for a clear          States advocate use of the economic policy
 analysis of the serious         economic situation    guidelines provided for in the Treaty
 with a view to enlisting the help of all those        European Union as a specific means of
 involved in the economic process in finding           tackling these matters.
 remedies requiring sacrifices that have to be
 shared fairly.                                         2. The problem
The problems of employment and competi-                The level of unemployment in the Com-
tiveness          about which governments, the         munity has reached very serious pro-
 European Council , employers and trade                portions. After five years of steady decline
unions have all expressed serious concern              the jobless totals in the Community started
      are the result of developments which             to rise substantially again at the beginning
have been witnessed for a number of years              of the I 990s.     In addition , Community
but do not appear to have provoked an                  unemployment is characterized both by
adequate political response. The pressures             high rate    of long-term unemployment
stemming from changes in the world                     which is nearing almost half of the unem-
economy are only aggravating the situation.            ployment total , and by its impact in partic-
At the same time, production processes                 ular among low-skilled people.
and , consequently, the nature of employ-              Particularly worrying is the substantial loss
ment have undergone radical change com-                of ground in the recent past. There are , of
parable, in certain respects , to the changes          course, identifiable economic reasons for
brought about by the industrial revolutions.           this, in particular the effect of very high
The performance of economies depends on                interest rates on investment , excessively
their capacity to adapt to these new circum-           high budget deficits in some Member
stances , and it is precisely in this area that        States , unsustainable exchange rates and
the Community is lagging behind.                       the problems of monetary instability. But
                                                       the rapidity of the downturn indicates also
The macroeconomic               framework in the
                                                       the importance of the ' confidence factor
Community is being affected by certain                 the decline in consumer and business con-
fundamental imbalances           which have caused
a vicious circle to be created. The current
                                                       fidence linked both to    economic pressures
                                                       and to the uncertainties arising from other
levels of public expenditure , particularly in         causes , in particular the difficult ratification
the social field , have become unsustainable           of the Maastricht Treaty. On present trends
and have used up resources which could
                                                       a stabilization of the rate of unemployment
have been channelled into productive                   cannot be expected before the end of 1994.
investment. They have pushed up the taxa-              By that date, more than 18 million citizens
tion of labour and increased the cost of
                                                       could be out of work: a figure equal to the
money. At the same time, the constant rise             total populations of Belgium , Denmark and
in the labour cost affecting both its wage             Ireland.
and non-wage components and caused ,              at
least in part, by excessively rigid regulation         The difference between the unemployment
    has hindered job creation. As a result             rates currently experienced in the major
the level of long-term investment has fallen           global economic areas         11% of the
and the lack of confidence            among those      civilian labour force in the Community
involved in the economic process has                   against rates of about 7 and 2.5% in the
caused demand to contract.                             USA and Japan respectively has given
                                                       rise to questions about the existence of a
The vital need to restore a       stable macroecon-    specific European unemployment problem.
omic framework           as a basis for sustainable,   An examination of the Community s past
job-creating growth is felt by all Member              performance and a comparison with the
States. They all point to the link between             other major areas ,   however,    suggests that
the efforts to redress the economic situation          no hasty negative conclusions ought to be
and the process of economic convergence                drawn.

                                                                                               S. 6/93
Before the first oil-price shock unemploy-                  actually declined, but this decline was offset
ment was low and the Community com-                         by an increase in the public sector) just at
pared well with its principal competitors.                  the time when demographic factors led to
The rate of unemployment in the Com-                        sharp increases in the labour force (0.7% a
munity was lower than that in the USA in                    year). This led inevitably to a                  continuous
each year of the period 1960- 80. Even com-                 and sharp rise in the rate of unemployment
pared with Japan, which has successfully                    from a rate of less than 3% in 1974                        to a
held down unemployment over a long                          peak of 10. 8%        in 1985.
period, the Community' s performance only
started to diverge radically in the period fol-             (c) During the years 1986- 90,                  the fruits of
lowing the first oil-price shock.                           the structural adjustment and policy re-
                                                            orientation which had taken place since the
To understand                how the Community'             beginning of the 1980s were reaped and the
unemployment performance deteriorated                       Community experienced stronger rates of
over time it is necessary to take a long-term               growth: 3.2% a year. Even if this average
perspective. To this end it is useful to distin-            rate of growth was a far cry from that
guish between four main periods: (a) the                    experienced during the 1960s ,                  it was suffi-
period up until the first oil-price shock, (b)              cient to generate a very strong increase in
the period from the first oil-price shock to                jobs since    the employment intensity
the mid- 1980s , (c) the second half of the                 remained at the higher level reached during
1980s , and (d) the present period of slow                  the previous period. Employment increased
growth or outright recession.                               by 1.3% . a year during this period, and
                                                            unemployment was reduced from 10. 8% in
(a) The 1960-73          period was highlighted by          1985 to 8.3% in 1990.
very high rates of GDP growth (4. 8% a
year). While growth was high , the employ-                  (d) Since 1991 the rate of increase of GDP
ment content of that growth was quite low.
However , the low rate of job creation (0.3%                slowed down substantially and in 1993 it
a year) was not a problem over this period                  became negative for the first time since
as the labour supply continued to grow at                   1975. Unemployment started its present
similarly modest rates (also 0.3% a year). As               worrying upward path which accelerated
a result, unemployment in the Community
                                                            sharply when employment declined in 1992
                                                            and 1993.
remained relatively stable over this period
and its average level was 2. 6% (see Chart I).
                                                            This rapid overview of the Community'
Chart 1
                                                            past employment performance shows
           Unemployment in the Community                    clearly that the Community s                      economy,
                (percentage of the civilian labour force)
                                                            with the exception of the period 1986-
                                                            has always been                characterized by low
                                                            employment creation (see Chart 2 and
                                                            point (b) above) and that the origin of its
                                                            unemployment problems go back to the



                                                             Chart 2

                                             , Ja~an                   Job creation in the EC, USA and Japan
                                                                                   Ondex : 1960-73 = 100)
  60 62 64 66 68 70 72 74 76 78 60 B2 64 as BB 90 92 94
                                                             160


                                                             140
(b) During the subsequent period 1974-
the rate of growth dropped substantially to



                                                              60
a figure of 2. 0% a year. The employment
                                                             120

intensity increased ,                but not enough
maintain positive             increase in
                                   rates of
                                                             100


employment. As a result , employment cre-
ation stagnated (private-sector employment                         60 B2 ~ 66   . mn M D           60 B2 94 as BB 90




S. 6/93
 beginning of the I 970s , when it proved                        unemployment performance of the Com-
 unable to increase its rate of job creation to                  munity over the past two decades is to be
 match the increase in the number of people                      found in the constraints that unresolved dis-
 seeking employment.                                             tributional conflicts and insufficient struc-
                                                                 tural adjustment placed on macroeconomic
. By contrast,the USA has been able to                           policies.
 respond to an even larger increase in the
 number of people looking for jobs with a                        Low investment is one striking consequence.
 strong increase in employment creation.                         Lower rates of capital accumulation in turn
 Japan has also managed to increase its rate                     took their toll on the competitiveness of the
 of job creation. The increase was less sub-                     Community' s economy and On its produc-
 stantial than that recorded in the USA, but                     tive capacity which is now expanding much
 was more or less in line with the rate of                       more slowly than in the past. The potential
 increase in the country s active population.                    rate of growth, i. e. the rate of growth at
 Where these two regions differ strongly,                        which it can grow for many years without
 however, is in the way the increase in job                      experiencing overheating problems , is now
 creation was achieved. In the USA the job                       estimated to be much less than it used to be
 creation of the last 20 years resulted essen-                   in the 1960s: just over 2% against more than
 tially from a modest rate of output growth                         5% (see Chart 4).
 and a very high employment content (low
 average productivity) of that growth. Japan
 on the other hand , experienced an employ-                      Chart 4

 ment content of growth lower than that of                                 Actual and potential rate of GDP growth
 the Community (a higher average produc-                                              in the Community
 tivity) but was able to couple that with a
 much stronger rate of output growth.                            6 .


 Chart 3

        Active population in the EC, USA and Japan
                         (index: 1960-73 = 100)


 160

                                                                 1970 1973 1976 1979 1982 1985 1988 1991        1994
 140




  60
 120

                                                                 The present recession is , to a large extent , a
 100
                                                                 consequence of the combination of a lower
                                                                 potential rate of growth and of policy errors
       60 ~ M 60   50 m ft N     n n     60 M M 60 60 60 ~ M     which led to actual rates of growth in excess
                                                                 of the potential rate. At the end of 1987 , the
                                                                 fear that the stock exchange crash might
 The macroeconomic causes                                        provoke a slump led to a worldwide sub-
 of unemployment                                                 stantialloosening of monetary policy. How-
                                                                 ever, at that time the rate of growth of the
 As the contributions received from the                          Community' s economy was already picking
 Member States show ,                     it is   now largely    up although this was not yet fully reflected
 acknowledged that the decline in the rate of                    in the available statistics. The prospects
job creation           in the       Community after the          opened by the single market project and the
 first oil-   price shock is to a very large extent              eventual feeding through of the      positive
 the       result of poor macroeconomic policies.                effects of lower oil prices had just sparked
 Structural and external factors also played                     off a period of strong investment expansion
 a large role , in particular the inadequate                     which was revealed by the statistics only in
 adjustment of industrial structures towards                     the spring of 1988.
 new market opportunities both within the
 Community arid elsewhere in the world                           The monetary stimulus , therefore , came on
 but the main explanation                         for the poor   top of a positive underlying trend. Given


                                                                                                              S. 6/93
that no compensatory tightenirlg of budge-        The employment intensity of growth is
tary policy took place , the Community'           determined by numerous factors , such as
economy experienced in 1988 a very strong         the relative cost of labour (especially for
rate of growth: 4.1% (against the 1.3% fore-      unskilled work) and capital,         working
cast by the Commission s services ~ and           time including part-time work, the sec-
many other forecasters - in January 1988).        toral composition of employment, tech-
                                                   nological developments and a large
This rate of growth, although not very high        number of microeconomic conditions. It
in historical terms,     was higher than the       is difficult to isolate the effects on
potential one. Given that the rate of growth       employment of any of these factors so it
remained above potential until 1990, ten-          is therefore easier to focus on the broad
sions appeared. Inflation accelerated              overall relationship between growth and
sharply in 1989 and wages followed in              employment     , i.e. the     employment
1990. Since the authorities were committed         threshold.
to a stability course , monetary policy            The employment threshold corresponds
became more restrictive. This unbalanced           by definition to the trend of the apparent
policy mix had obvious negative conse-             labour productivity of the economy . as a
quences for investment and growth. The             whole. Thus , lowering the employment
fiscal impulse resulting from German unifi-        threshold means lowering the overall
cation complicated things further. On the          productivity of the economy. But there is
one hand, it sustained growth when world           no contradiction between calls for
demand was faltering, but,      on the other
                                                   increased productivity growth in all sec-
hand, it imposed an additional COlnpensa-          tors open to international       competition
tory tightening of monetary policy and led         and at the sarne time calling for mea-
to an even more distorted policy mix and a         sures which increase the weight of sec-
deeper recession.
                                                   tors where productivity       increases are
                                                   low. In fact,             whereby the
                                                                   the process
The conflict between, on the one hand,             increased productivity emanating from
budgetary and wage trends, which adapted           the high-productivity        sectors feeds
very slowly, and, on the other band, the conti-    through to all sectors of the economy is
nuing pressure exerted by monetary policy          at the heart of any development model.
constitutes the single most important factor       Productivity must increase to guarantee
behind the present recession.                      the international competitiveness of a
                                                   country and to increase the amount of
                                                   material wealth distributable among the
                                                   whole community. At the same time , as
  Employment intensity                             the wealth of. a country increases , so can
 The employment intensity is the relation-
                                                   the relative importance of certain       sec-
                                                   tors , with usually a high labour content
  ship between the rate of growth of an            which help distribute the wealth so cre-
  economy and its rate of employment               ated and at the same time improve the
  creation. Very often it is measured by the
                                                   conditions for additional increases in
  so-called  'employment threshold:   which
                            measure for the        this wealth.
  is a purely descriptive
  employment content of growth. This
  threshold is the percentage change above
  which the growth rate of GDP leads to
  increases in employment. Contrary to a           3. Unemployment can be reduced
  widespread belief the phrase ' growth
  without jobs ' is often heard         the       The Commission recommends that the
  employment intensity of growth has not          Community sets itself the objective     of crea-
  deteriorated over recent years. In fact it      tingat least 15 million   new jobs, thereby hal-
  is now higher (the employment threshold         ving the present rate of unemployment by the
  is lower) than in the 1960s     and it has      year 2000. This can only be a target, but it
  hardly changed over the last 15      to 20      would be of great importance for our
  years (see Chart 5).                            citizens , in particular for the young who see

S. 6/93
poor prospects of employment ahead of                requires a performance better than that of
them. A target of this order of magnitude is         these years , but the difference is not so large
the minimum required to make a significant           as to suggest that it may be out of reach.
dent in the    human waste represented by            Other economies have done even better.
unemployment.                                        The USA, for instance, has recorded an
                                                     annual average rate of increase in employ-
The target, although ambitious, is not out of        ment of 1.9% over the 17-year period
line with the past performance of the Com-           1974-90!
munity' s economy or with what the perform-
ance of other economies would indicate to be         The immediate policy objective          of the
possible. Over the next five to ten years , the      Community must be to overcome the reces-
Community labour supply will probably                sion and start creating jobs again. Section
increase by about half a percentage point a          1.6 deals with this objective. The choice of
year. Demographic trends will account for            the policies which will have to be
most of this increase. The population of             implemented to overcome the recession is
working age is expected to increase by               conditional , to a certain extent, on the
around 0.3% a year, a rate substantially             medium-term growth pattern which is COn-
lower than that of the last 20 years. In line        sidered most appropriate to bring about the
with past trends , the rate of participation         required increase in employment. It is
(0. 7% a year) is also expected to increase          therefore useful to identify the medium.
once jobs again become available, thus pro-          term growth pattern which is to be aimed at
viding the rest of the assumed increase in           before discussing the     policies needed to
the labour supply. Half a percentage point           promote a recovery since the latter must be
a year is therefore the rate of increase in          consistent with the former.
employment the Community needs just to
keep unemployment stable. To the year                The present recession is resulting in a large
2000 this means creating almost five million         net destruction of jobs (about four million
jobs only to prevent unemployment from               jobs lost in 1992-93).   But the Community
increasing. A reduction in unemployment              present unemployment problem has more
to about half its present level (i. e. to 5 to 6%    deep-seated causes. The combination of the
of the active population) by the year 2000           current potential rate of growth and of the
deadline requires the creation of                    employment intensity of that growth is not
additional 10 million jobs.                          sufficient to generate the necessary increase
                                                     in the number of jobs. If growth were to
  , as a result of structural changes , partici-     return only to a rate close to the current
pation rates were to increase faster than            potential rate of growth Gust over 2%), the
what past experience suggests , then either          present employment intensity of growth
the unemployment target would have to be             would not even allow increases in employ.
revised downwards or the ambitions                   ment which kept pace with the increases in
regarding employment creation would have             the labour supply and consequently unem-
to be scaled up.                                     ployment would go on rising.
Achieving the target of creating at least                higher rate of job      creation can be
million jobs by the year 2000 implies that           achieved through various combinations of
from 1995 onwards , once the present reces-          faster growth and higher          employment
sion is overcome , employment creation               intensity. The contributions received from
remains steadily a rate of increase           of     the Member States and the EFT A countries
around 2% a year, certainly an impressive            contain a wide range of measures which
and ambitious target.                                help to reduce unemployment. Some mea-
                                                     sures aim essentially at increasing the rate
Between 1984 and 1990 , a slightly shorter           of growth, others aim to increase its
period of time than the one separating us            employment content while a few produce
from the     year 2000 , the Community               positive effects in both directions.
economy was able to create more than nine
million net new jobs. Between 1988 and              . It is not necessary, nor would it be wise, to
1990 , the average annual rate of increase in        seek to lay down in advance what        precise
employment was 1.6%. The proposed target             combination of growth and          of greater
                                                                                            S. 6/93
employment content of growth should be            It is not clear, however, whether an increase
achieved. Efforts must be undertaken in           in the employment intensity of the order
both directions at the same time. Given the       magnitude required to achieve this growth
difficulties in making progress in these          pattem is actually possible in the European
areas, which both lie outside the direct con-     economic and social context.
trol of policy-makers , there is no risk of
going too far in either direction.                An increase in the employment intensity of
                                                  Community growth to match the US per-
However, there are si~ficant differences          formance would require the implementa-
in the scope for progress towards faster sus-     tion , on a large scale , of measures
tainable growth and in that towards a             increasing the willingness of employers to
higher employment intensity. In addition          hire workers and in particular:
the social implications can be quite dif-
ferent and there are some important trade-        (i) a considerable downward widening of
offs. It is therefore right to examine the                 the scale of wage costs in order to rein-
degree of realism and the implications of                  tegrate those market activities which at
the main different alternatives: modest                    present are priced out of it;
growth and very high employment
intensity, and stronger growth and higher         (ii) a reduction in all other costs associated
employment intensity.                                      with taking on or maintaining labour
                                                            g. social security rules.
(a) Modest growth andvety high
    employment intensity                          The experience of the last 15                          to 20 years
                                                  suggests that such an increase may be very
Pessimism over the chances of       achieving     difficult to achieve. During the 1980s , some
stronger growth and worries         over the      progress has been made in reviewing the
environmental consequences           of such      regulations that hinder job creation                           and
stronger growth lead to predictions that the      substantial wage moderation has lowered
necessary rate of job creation would only         the relative price of labour as a factor of
be attained through a relatively modest rate      production , but the employment intensity
of growth and a much higher employment            of growth in the Community has hardly
content of this growth. Some people think it      changed (see Chart 5).
more desirable to aim , for instance, for a
combination of a return to rates of growth
close to the present potential rate of growth     ChartS
of the Community Gust over 2% a year) and                                                            of growth
the   achievement of       an    employment
                                                            Employment intensity

                                                                (Gap between employment and output growth)
intensity much higher than the present one
(a gap between output growth and employ-
ment growth of less than half a percentage
point).
This proposition is usually inspired by the
performance of the USA. Indeed , between
1973 and 1990 the USA experienced a rate
of growth , 2.3% per year , but labour pro-
ductivitygrew by 0.4% per year , hence a
                                                  -5
                                                   w " ~ . n                    ro ~        M M ~            00 ~
growth in employment of 1.9% per year on
average over the 17 years. This growth prac-
tically matched a growth in the labour            Probably, the progress that has been made
supply which was much higher than in              towards increasing it has only offset other
Europe and held down unemployment to              factors working in the other direction such
cyclical fluctuations around a nearly con-        as productivity gains resulting from the
stant average (5. 6% in I 972 , 5.5% in I 990).   introduction of more efficient production
During the same period ,       however, real      techniques and the rationalization made
wages per head grew by 0.4% a year com-           possible by the completion of the                            single
pared with 1.5% a year in the Community.          market.

S. 6/93
In addition ,
            such a growth pattern would          instance, if from 1995 onwards the Com-
have important implications    for wage          munity could achieve an increase in the
trends. Since more employment would be           employment intensity of growth of between
created for a given rate of growth, the          half and one percentage point (i.e. a gap bet-
apparent productivity of labour (real GDP        ween output      growth and employment
per person employed) would by defmition          growth of between I and I Y2 percentage
be lower. As a consequence, the room for         points against about 2 points at present)
real wage increases would also be smaller.       combined with a sustained rate of growth
Given the need to improve investment             of at least 3% a year , then the unemploy-
profitability, at least to improve the present   ment target for the year 2000 would also be
weak competitive position of the Com.            achieved. Roughly tWo thirds of the new
munity, gross real wages per head would          jobs would come from stronger growth and
have to remain practically stable. Further-      about one third from the higher      employ-
more, budgetary consolidation might lead         ment intensity of growth.
to a decline of average net real wages.
                                                 Real wages per head would be able to
                                                 increase moderately, but given the resulting
Some other macroeconomic implications            increase in employment (2%) the real value
must also be stressed. This lower growth
scenario would also be less positive for the     of total wages would increase by between 2
rest of the world since it would mean            and   2Y2% in real terms. This would be cur-
slower increases in imports with detrimental     tailed somewhat by the effects of the neces-
                                                 sary budgetary consolidation , but would
effects on the developing countries and          still leave room for a more substantial real
East European countries ' exports and            improvement in living standards and
income developments. In addition ,      there
                                                 adequate increase in private consumption.
may be some unwelcome social aspects of
the specific measures leading to a more          Rates of growth of this order of magnitude
employment-creating growth. In particular        are consistent with an environmentally sus-
the downward widening in the wage distri-        tainable growth pattern. Indeed , they will
bution would result    in a substantial real     make it possible to create the resources to
decrease in the lowest wages. This    would      reduce present pollution levels. In addition
not be possible without a lowering of unem-      stronger investment will also have positive
ployment compensations and social protec-        environmental effects since it will accelerate
tion schemes. Combined with the expan-           the introduction of new, less-polluting
sion of part-time work , this would also         techniques.
ceteris paribus widen the existing income
distribution towards larger inequality and       An increase in the employment intensity of
at the limit, could create ' working poor        growth of the order of magnitude of the one
unable to survive decently from their wages      envisaged in this second scenario , while not
and thus lead to a form of exclusion just        being easy to achieve , would not require the
damaging as unemployment. If the spirit of       drastic measures needed to reach the per-
the European social model is to be kept          formance of the USA. In addition it could
compensatory measures would have to be           be achieved with the consensus of most of
taken (e. g. negative income taxes for the       those concerned       thus   improving the
lowest income groups) with significant           chances of implementing at the same time
budgetary costs.                                 the macroeconomic policies required to
                                                 achieve higher growth.
(b) Stronger growth and more                     This question    of how to increase the
    employment intensity                         employment content of growth is dealt with
                                                 more specifically in Chapter 8.
The difficulties and problems     abovemen-
tioned suggest that the necessary pace of          4. The road to higher employment
job creation is more likely to be achieved by         creation
a growth pattern combining a more modest
increase in the  employment intensity of         Increasing the rate of growth which the
growth with a stronger rate of growth. For       economy of the Community can sustain for

                                                                                       S. 6/93
many years and increasing the employment           1995 , growth remains at the required higher
content of growth requires a strategy based        level up to and beyond the year 2000 and
on three inseparable elements:                     that the overheating which                appeared in
                                                   1989/90 does not              arise. This implies
(a) the creation and the maintenance       of a    increasing the productive capacity of the
   macroeconomic framework which                   Community' s economy, in other words
   instead of constraining market forces           increasing its potential rate of growth.
   as has often happened in the          recent
   past, supports them;                            Given that the capital/output ratio changes
                                                   very slowly    over time, a sustainable
(b) determined actions in the structural           increase in production requires an increase
    area aimed at increasing the competi-          in .the available stock of capital. In turn , this
    tiveness of European industry and at           presupposes an increase in investment
    removing the rigidities which are              leading, over time, to a much higher share
    curbing its dynamism and preventing it         of investment in GDP. This might have to
    from reaping the full benefits       of the
                                                   increase from .the present 19% to somewhere
   internal market; an adequate frame-             in the 23-24% region (see Chart 6). A . shift of
   work for the developing of new market           this magnitude can only be accomplished
    opportunities should be set up;                over many years.
(c) active policies and structural changes in
    the labour market and in the regulations       Chart 6

    limiting the expansion of certain sectors                Investment shares: EC, USA and Japan
    (notably the service sector) which will                              (percentageofGDP)

    make it easier to employ people and
    which will therefore increase the
    employment content of growth.
The necessary actions in the structural area
will be discussed in other chapters of the
White Paper. This section draws the atten-
tion to the most important macroeconomic                                                             USA

factors so as to underline a series of impor-        oo~ M$ M ro          M W ~ 00           00 00 00 ~ M
tant implications and to help identify some
useful intermediate policy targets. Its con-
clusions help to identify the framework            Fortunately, however, the actual rate of
which must be implemented to guarantee             growth of the Community can reach the
that actions in other areas translate in actual    target value of at least 3% faster than the
faster job creation.                               potential rate of growth since during the
                                                   initial years it will be possible to exploit the
Faster growth is a necessary component of          spare capacity created by the present period
any strategy aimed at reducing unemploy-           of sub- potential    growth.
ment significantly. The achievement of this
goal depends on a series of elements , some        Economic policy must therefore aim at fos-
of which are outside the direct control of         tering a higher rate of growth and ,             at the
Community policy-makers. A healthy                 same time at encouraging investment so
world economy and the maintenance of an            that it will grow faster than consumption.
open trading system are obvious examples.          This relatively slower real expansion of
But to a very large ,   and actually increasing,   consumption is the price that society must
extent the achievement of  faster growth           pay over the next few years to enSure a
depends on implementing the right policies         more equitable distribution of the access to
within the Community.                              gainful employment and to ensure its future
                                                   overall prosperity.
The real challenge facing policy-makers is
not just to increase the rate of growth,           Higher investment would produce positive
already a daunting task , but to ensure that       results over and above   the mechanical
the higher rate of growth can be maintained        relationship between capital and output just
over many years , i. e. to ensure that from        mentioned. It would, for instance, acce1-

S. 6/93
erate the incorporation of new technologies      the rate of national saving must come
into the production process thus leading to      essentially from an increase in public saving
more efficient and more environmentally          (reduction of public deficits) since the sav-
sustainable production. The competitive-         ings behaviour of the private sector (house-
ness of the economy of the Community             holds and enterprises) is very difficult to
would be greatly enhanced.                       influence (see Chart 7 which shows how
                                                 little it has changed over time). The dete-
Creating the conditions for investment- led      , riorationin national saving which has taken
growth, however, is another difficult task. A    place in the Community over the last 30
necessary, but not sufficient condition, is to   years is due almost entirely to the deteriora.
make sure that investment profitability          tion of the position of the public sector.
increases. But improving business        con-
fidence is the key element.                      Chart 7
                                                               National Saving in the Community
(i) Increasing investment profitability             en%duPIB
                                                 28 -
    requires distributing productivity                                   National saving

    increases among capital and labour.
    During most of the 1980s , real    wages
    increased in the Community on average
    by one percentage point less than pro-
    ductivity. This could constitute       an
    acceptable rule of thumb to be followed
    to achieve the necessary improvement
    in profitability and competitiveness.          00 ~ ~      00 00 ro 22 ~    ro ro 00   22 ~ 00 00 00
    Together with the expected growth in
    employment,    such an increase would
    provide for a      steady expansion of          5. The p.plicies to reduce
    households ' real disposable income and                unemployment
    of private consumption.
                                                 The analyses conducted over many years
(ii) Improving business confidence calls for a   have identified many policy actions which
      series of other actions which range from   influence the        rate of growth and the
      the maintenance of a stable macroecon-     employment intensity of growth. Most of
      omic environment and an adequate           these actions have already been tried and
    level of demand growth ,    to a determi-    have achieved some success. Their
    nation to . continue the process of struc-   implementation is not painless as very often
    tural adjustment and the launching of        these actions imply a trade-off between sac-
    bold projects which demonstrate the          rifices now and rewards at a later date. It is
    will and ability of governments to pro-      not surprising, therefore that their
    mote growth (further trade liberaliza-       implementation has almost always been
    tion in the GATT framework and the           discontinued or not pursued for a suffi-
    total opening-up of the single market        ciently long period of time.
    trans- European networks, far-sighted
    R&D efforts , other infrastructure pro-       Combination of macroeconomic
    jects, etc.                                  and structural policies
An increase in investment            however     The combination of the measures is also
achieved, has to be accompanied by a             important. Very often an appropriate com-
corresponding increase in the rate of            bination yields a result greater than the sum
national saving to prevent the appearance of     of the gains to be expected from each indi-
inflationary pressures and balance of pay-       vidual measure. In addition , there are
ments disequilibria. The Community' s cur-       strong interactions between macroeconomic
rent account is presently recording a deficit    and structural policies.             Structural policies
while its position as an advanced indus-         increase the effectiveness of macroecon-
trialized group warrants a surplus so as to      omic policies through the removal of some
allow it to transfer real resources to the       of the constraints that limit their use; the
developing world. The necessary increase in      positive effects of structural policies become

                                                                                                 S. 6/93
apparent only in a sound macroeconomic             identification and removal of remaining
context which allows stronger growth and           barriers and obstacles to the successful
finally, implementation         of
                                 structural        implementation of strategies for change by
                                                   firms. Only through the structural adapta.
policies becomes easier in a       context of
stronger growth.                                   tion of industry can the twin requirements
                                                   of higher productivity and more jobs be
The policies required to consolidate growth        achieved.
and to increase its employment content
coincide to a large extent , with the policies     Action in the structural area is essentially
which are needed to bring the Community            the responsibility of Member States. How.
economy out of the recession. The serious-         ever, many of the policy areas that have a
ness of the present situation increases the        decisive impact on structural adjustment
likelihood that    these policies      will be     and competitiveness are either influenced
implemented with sufficient determination.         by various Community policies or are pri-
But the most serious challenge facing policy-      marily dealt with at the Community level.
makers will be to maintain the awareness     of    The Community can therefore playa very
the need to implement appropriate macrO"           useful role in implementing appropriate
economic and structural policies even when         actions in the fields where it has primary
the recession is overcome.                         responsibility such . as trade and competition
                                                   policies.
Once the best policy mix for the attainment
of the medium-term goal of higher growth           A competitive environment is basic to
with a higher employment intensity is iden-        efficient allocation of resources and stimu-
tified, it will be necessary to assess the         lates investment innovation and R&D.
extent to which it also contributes to             However in rapidly changing economic cir-
achieving the immediate objective of over-         cumstances (globalization of markets , speed
coming the recession. Should it prove insuf-       and cost of technological change) major
ficient, it will be necessary to examine           restructuring and adaptation by firms is
whether other policy actions of a shorter-         necessary. To meet this challenge they need
term nature are possible without endan-            to be able    to   restructure unilaterally or
gering the achievement of the more impor-          bilaterally in cooperation with other firms
tant medium-term goals. This assessment            (mergers strategic alliances , etc.). This
will be conducted in Section 1.6.                  restructuring can be facilitated and speeded
                                                   up by the timely and judicious use of the
(a) Structural policies                            available instruments such as State aids
                                                   cooperation between companies , etc. This
The depth of the present crisis is largely due     pro action by firms and States needs to be
to insufficient progress in adapting the struc-    distinguished from anti-competitive prac-
tures of the Community' s economy to the           tices by firms or States that can slow the
changing technological ,     social and interna-   necessary structural adjustments.
tional environment. Although a consensus
emerged during the 1980s on the need to            Structural action can equally help to create
 accompany and accelerate structural               the right business and consumer environ-
 change instead of trying to slow it down          ment by making sure that the legal and
 the pace at which the European economy            regulatory infrastructure that has been cre-
 adjusted to change was only able to match         ated as the basis for the single market oper.
 but not to surpass , that of its major compe-     ates fairly and efficiently. In particular, the
 titors , with the result that vulnerability to    Community can make sure that the regnla-
 cyclical downturns and external shocks             tory environment in which business and con-
 remained high. Nevertheless , a mentality in       sumers operate is stable and predictable, and
 favour of change and willingness to under-         places the minimum bureaucratic burden on
 take a fundamental reassessment of cor-            economic operators, particularly small and
 porate performance has grown up                    medium-sized businesses. Finally, the Com-
 Europe over the past decade. In order to           munity can support , encourage and coordi-
 achieve optimal results , however, this posi-      nate efforts by Member States to accelerate
 tive development must now be assisted and          the diffusion throughout the European
 fostered by public authorities through the         economy of those technologies , like infor-

 S. 6/93
mation technologies               and biotechnologies       (ill) The  international environment must be
that will shape our society in the future and                     kept open  to allow the Community to
represent the key factor in shaping global                        participate fully in the development of
competition in the decades to come. These                         those areas of the world where the big-
policy issues will be further examined in the                     gest potential of unsatisfied demand
following chapters.                                               presently exists and which are likely to
                                                                  experience the highest rates of growth
The Community needs an adequate frame-                            over the next decade.
work for the developing of new market
opportunities. In Europe some sectors                 are
traditionally the exclusive preserve of non.                (b) Macroeconomic policies
market services or public utilities , in partic-
ular when it comes to the fulfilment of                     The main task facing           macroeconomic
public needs. Reforms aiming at separating                  policy-makers is to eliminate the conflicts
the different functions of public authorities               among policy objectives which have pla-
with regard to the supply of such services                  gued the Community over the last 20 years
as producer,      purchaser and regulator, in               and , more acutely, over recent years. Elimi-
sectors such as health care, telecommunica.                 nating these conflicts will make growth
tions , etc. , should enable the needs of users             employment and real convergence com-
to be better served at less cost for public                 patible again with price stability and
finances and with market creation                           nominal convergence and will ensure that
potential.                                                  progress towards EMU will go hand in
                                                            hand with stronger employment creation.
In recommending actions toit is
              Member States
implemented in the
                                                            In a stable and supportive macroeconomic
                                                            framework market forces will be able to
sometimes not very useful to make general                   deploy themselves       unhindered and      the
statements since the individual situations                  possibilities opened up by        the internal
are very different. Calls for a specific type               market will be realized.
of action to solve one particular problem in
   country, where the problem is very                       At the macroeconomic level ,         the first
serious , are resisted by individuals in other              medium-term objective will be to maintain
countries where the problem never arose or                  the stability of monetary policy. Monetary
has already largely been solved. The fol-                   authorities have, over recent years , behaved
lowing paragraphs attempt to identify areas                 in a way which is consistent with an infla-
for action common to the largest possible                   tion target of between 2 and 3%. It is neces-
number of Member States. The recommen-                      sary that budgetary policy and wage beha-
dations must be seen as a framework within                  viour adapt to this objective as soon as
which Member States will have to identify                   possible and remain compatible with it.
their individual scope for action.                          Interest rates will come down once infla-
                                                            tionary expectations       are stabilized .and
The necessary structural measures will be                   the perspective of lower budget deficits is
discussed in the other chapters of the White                established.
Paper. Here it will suffice to mention that
action will have to be taken in                three main   In addition it will be essential to make
areas :                                                     policy coordination more effective and to
                                                            maintain exchange-rate stability and the
 (i)   Greater flexibility should be intro-                 EMU perspective.      This will help to rein.
       duced in the economy as a whole. In                  force the stability of the macroeconomic
       particular, the        regulatory framework          framework, it will increase the credibility of
       should become more enterprise-                       policy-makers and will shorten the delay
       friendly.                                            until it will be possible to reap the full bene-
                                                            fits of monetary union. The implementation
(ii) Strategies should be developed to                      of a growth-oriented    strategy, such as the
       create an                 able
                     efficient labour market                one presented in this document will add
       to   respond to new competitive                      credibility to      thecommitment to
       situations.                                          exchange-rate stability.

                                                                                                   S. 6/93
Budgetary policy will have to contribute                        lines the interrelation between the European
the medium-term goal of more growth and                         integration process and rising living stan-
employment essentially in two ways: i)                          dards. The difficulties arise when these
achieving debt sustainabilityand ii) contri-                    general principles are translated into actual
buting to the necessary increase in national                    wage decisions.
saving. The first goal is necessary to reduce                   There is evidence of inconsistency between
the burden     that unbalanced budgetary
                                                                the stability objectives of the central banks
policies exert on monetary policies and on                      and past and current wage behaviour which
fISCal flexibility. The Maastricht criterion                    bears part of the responsibility for the conti-
for budget deficits (less than 3% . of GDP)                     nuing high level of short-term interest rates.
will constitute a useful reference point in                     This can be shown by some simple calcula.
the pursuit of this first goal. With a return                   tions. Under normal conditions , nominal
to stronger growth the budget deficit cri.                      wages per head       could increase by an
terion could be met by the Community as a                       amount equivalent to the inflation target of
whole by 1997. Individual countries may                         the monetary authorities (2 to 3% , as noted
reach this target sooner or later than the                      above) plus that part of the increase in pro-
Community average depending on their                            ductivity which can be distributed          to
starting positions.
                                                                labour. In the present situation , the increase
In a longer-term perspective, budgetary                         in productivity results only from a shedding
policy will have to contribute to increased
                                                                of labour in . excess of the decline in produc-
national saving. This will require increasing                   tion and does not correspond to any distri-
substantially public saving and will imply                      butable creation     of wealth. At present
budget deficits significantly below the 3%                      therefore, nominal wages   per head should
reference value indicated in the Maastricht                     not increase by more than 2 to 3% a year.
Treaty (between zero and one percentage                         However, notwithstanding a recent substan-
point).                                                         tial decline, current trends in some Member
                                                                States and in the Community as a whole are
An essential element of budgetary restraint                     still higher than this figure thus giving cause
policy will be the adoption of measures to                      for concern to monetary authorities.
improve the financial situation of the social
security system.                                                The elimination of this conflict is a neces-
                                                                sary condition for the return to growth in
Wages. There is a widespread consensus on                       the present situation , but once the Com-
the need for continued wage moderation                          munity' s economy is again on a sustained
and on the positive results it could produce.                   growth path ,  it will be important to ensure
In their joint opinion of 3 July 1992 ,                   the   that wages continue to increase in line with
social partners at the European level pre-                      the stability objective and the need to allow
sented a consensus view for               appropriate           for an increase in investment profitability
wage developments:                The conduct of wage           and competitiveness (the rule of thumb of
 negotiations is under the responsibility of the                 'productivity minus one percentage point'
 social partners.         The      more credible and            idenffied in Section 1.4.). It must be under-
 socially acceptable economic policies are,               the
                                                                lined that these EC-wide prescriptions
 easier the social partners can             anticipate low      should give room for an appropriate dif-
 or decreasing inflation rates the results of
                                       in
                                                                ferentiation according to Member coun-
 their wage negotiations. This would reduce                     tries , regions and vocational qualifications.
 the strain on monetary policy and contribute
 to the reduction of short- term            interest rates.        6.   Overcoming    the recession
 Furthermore, wage               developments have to
 take into account the requirements of the                      The first requirement that the policies to be
 profitability of employment-creating invest-                   implemented must satisfy to overcome the
 ment,     the competitiveness of           enterprises         recession is that of being consistent with the
 world markets and the              implications of ./itll       aim of the medium-term growth pattern.
 economic and monetary union. .The non-                          Within this framework, overcoming the
 inflationary and sustainable growth process,                    recession calls above all for a restoration of
 thus generated, would provide the appropriate                   confidence. Business leaders , the workforce
 scope for real wage increases which under-                      and citizens in general must be convinced

 S. 6/93
that the authorities will be able to correct         tion and higher long-term         rates. On the
the present imbalances and maintain over             other hand, if credible plans for budgetary
many years a sound and stable macroecon-             consolidation and agreements leading to
omic environment.                                    more moderate wage increases were to
                                                     materialize , expectations would be favour-
This requires measures in both the macro-            ably influenced and central banks might be
economic and structural areas. Macroecon-            able to lower short- term       interest rates in
omic policy actions can rapidly change the           advance of actual developments.
environment in which businesses operate
but structural actions are essential to the          A substantiallowerlng of short-term interest
improvement in their confidence. The                 rates throughout the Community would
effects of      structural policies will be felt     reduce tensions within the ERM and would
essentially in the medium term ,        but deter-   improve the financial position of firms and
mined actions are now vital in convincing            public budgets. The scope for reductions is
economic agents that action is under way             large: interest rates could come down sub-
which will bring results later.                      stantially in Germany if the appropriate
                                                     policies are implemented while in other
In addition it will be essential to give a new       countries the reductions could be even
and visible            impetus to the process of     larger to the extent that interest rate dif-
cooperation at the            international level.   ferentials can be reduced. A further signifi-
Rapid implementation of the provisions of            cant reduction would signal to economic
the Maastricht Treaty, conclusion of the             agents that the worst is over, that monetary
Uruguay Round of trade negotiations , and            policy had been loosened as much as it was
                 vlS- a-visthe
bold new initiatives           countries of          possible and that nothing would be gained
Eastern Europe and of the Third World                by further postponing any investment deci-
would be very important signals.                     sion which may have been contingent on
As soon  as the recovery sets in , the               the availability of the best financing
economy will be able to reap fully the bene-         conditions.
fits of the structural adjustment which has          A lowering of short-term rates in the Com-
taken place over the last decade and of the          munity would have a positive impact on the
completion of the internal market. These             competitiveness of European enterprises.
structural measures bring .substantial effi-         Together with the restoration of confidence
ciency gains which during periods of slow            this would trigger an export/investment-led
growth remain unexploited.                           cyclical upswing in the Community.
Improving rapidly the quality                        Budgetary policy
of the policy mix
                                                     Action in the budgetary area depends on an
Lower interest rates constitute a powerful           assessment of the likely impact on demand
instrument to boost the Community                    and on business and consumer confidence
economy in the short term. Interest rates            of changes in the present budgetary stance.
have already come down significantly over            In 1991 and 1992 , Member States have
the last 12 months. However, given the               allowed budget deficits to deteriorate since
depth of the present recession they still            it was considered that this would lend
remain too             high in many countries        measure of support to domestic demand. At
especially at the short- term end. Under             the beginning of 1993 additional efforts at
these circumstances , the first requirement is       the national level took place in the frame-
to create the conditions for further substan-        work of the Edinburgh growth initiative. By
tial reductions in short-term interest rates.        mid- 1993 , however, Member States reached
This calls essentially for . expected budgetary      a consensus 1 that no room for manoeuvre
and wage developments to be kept in line             in the    short term was available: any
with the monetary authorities '          stability   additional deterioration in budget deficits
objectives. Any lowering of short-term rates         was more likely to depress overall demand
not warranted by appropriate           budgetary
and wage behaviours would risk being                 1 EPC Opinion of8 July 1993 and EcoFin Council
offset by expectations of higher future infla-        conclusions of 12 July 1993.



                                                                                              S. 6/93
through its negative effect on confidence           To restore the credibility of the EMU pro-
than to support    it. On the contrary,     they    cess Member States must retheir commit-
recognized the need for concrete , credible         ment to this goal and back up their words
medium-term consolidation programmes.               with actions. Economic policy coordination
                                                    between the Member States must be made
The immediate target of these programmes            more effective. This calls essentially for the
should be to prevent further deterioration          development of a consensus as broad as
in budgetary    positions and to create the         possible On the policy framework outlined
prospects of      consolidation once the            in this document and apportioning in each
recovery sets in. The severity of the neces-        Member State the efforts which will be
sary adjustment will depend on the specific         required from all parties (using social dia.
conditions of each Member State,            but     logue procedures wherever possible). Those
efforts in this direction are required              in employment must be convinced that the
almost all countries. In addition , all govern-     measures called for in this document will
ments should attempt to switch expenditure          work and that the solidarity they will show
as far as is practicable , towards those items      in accepting some sacrifices will effectively
which most directly influence growth pros-          result in those now deprived of gainful
pects: education , R&D        infrastructure        employment being given a real chance.
investments , etc.                                  Increased efforts to improve the situation of
                                                    the public finances in order to meet the
Wages                                               criteria set out in the Maastricht Treaty will
                                                    require an update of the convergence pro-
The previous section highlighted the exist-
ence of an inconsistency between the infla-         grammes which remain useful instruments
tion target pursued by monetary authorities         for the development of a debate leading to
and actual wage behaviour in many coun-             such a consensus. The guidelines for econ-
                                                    omic policy aimed at dealing with deficiencies
tries. The sooner this inconsistency is elimi-
nated ,   the sooner short- term   interest rates   identified in this paper should be agreed asa
                                                    matter of urgency, if business confidence is
can be reduced. In some cases ,    however
the gap is so large that progress will inevit-      to be restored.

ably take some time. Tripartite agreements
between the social partners and govern-             A Community dimension
ments should be exploited where possible.
                                                    The success  of such a policy course in
 Developing a broad social consensus                restoring growth depends , however, on
                                                    various factors which are to a greater       or

The continuation of the EMU process is a            lesser extent outside the control of policy-
key element to secure a stable macroecon-           makers; in    particular business and con-
omic framework enabling the achievement             sumer confidence and the performance of
of higher , sustainable , growth. The Com-          the Community s main trading partners. It
 munity has long acknowledged the negative           is very likely that given the severity of the
 influence exchange-rate instability has on          present situation and the size of the budge-
 business confidence and there is a powerful         tary adjustment which will be inevitable in
 case for arguing that the full benefits of a        many countries , that the recovery will be
 single market can only be reaped in a mon-          modest and hesitant. This may call for an
 etary union. These considerations          have     intensification of the Community initiatives
 been at the basis of the Treaty on European         agreed at the European Council meetings in
 Union and     maintain their validity today         Edinburgh and in Copenhagen. In a cli-
 notwithstanding the ERM crisis of the last          mate of     growing business      confidence
 12 months. A group of countries so closely          various Community projects ,      such as the
 knit by a web of trade and financial links as       trans- European networks , lend themselves
 the European Community needs a stable               to initiatives which can mobilize large fin-
 monetary environment both internally and            ancial resources , coming essentially from
 externally.                                         the private sector , to fmance useful projects.




 S. 6/93
- COMPETITIVENESS
Chapter 2

The conditions                                      ment ratio (see Chapter 1). For this, it enjoys
                                                    significant comparative advantages: the
for growth and greater                              potential of its labour force and the social
competitiveness                                     consensus enabling that      potential to be
                                                    exploited, its valuable scientific and tech-
                                                    nical know-how, its integrated market, the
      awards global                                 density and quality of its infrastructures , the
A. T
                                                    improved fmancial structures of its firms
     competitiveness                                and the diversity of its culture and regions.
                                                    An economy based on the creation , dis.
For the level of employment in the Com-             semination and exploitation of knowledge
munity to improve , flrroS must achieve
                                                    will be one of the dominant features of the
global competitiveness on open and com-             2lst century, and against such a back-
petitive markets ,   both inside and outside        ground a number of these competitive fac-
Europe. It is the responsibility of the             tors will playa crucial role in generating a
national and Community authorities to pro-          recovery in growth and        an increase in
vide industry with a favourable environ-
                                                    employment.
ment, to open up clear and reliable pros-           The completion of the Europe-wide         fron-
pects for it and to promote its international       tier- free market on 31 December 1992 and
competitiveness. This responsibility is now         the improvements in its operation envis-
enshrined in the Treaty on European
                                                    aged by the strategic programme will allow
Union. Back in 1991    the Council of Minis-
                                                    firms to benefit from economies of scale
ters adopted guidelines for a Community in-         reduce their administrative and financial
dustrial policy geared to such an objective.        costs , have easier and more competitive
                                                    access to private-sector and public-sector
The globalization of economies and mar-             procurement, and cooperate more effi-
kets , which involves the intensification of        ciently with one another. This will give the
international competition through the emer-         Community a firm and well-organized base
gence of a potentially unique worldwide             from which to tackle the new problems
market for an expanding range of goods              posed by international competitiveness.
services and factors , brings out the full
importance of that    responsibility on the         However, the Community will also have to
part of national and Community authorities          overcome the handicaps which have contrib-
as   regards competitiveness. We must               uted to the erosion of its competitiveness
increasingly think in terms of competitive          within the Triad (Community, United States
rather than comparative advantages. Com-            and Japan) in recent years: Apart from the
parative advantages traditionally relate to         macroeconomic policy imbalances that
endowment in factors such as natural                have contributed to the real appreciation of
resources and are therefore fairly rigid.           Community currencies , there is firstly,
Competitive advantages are based on more            emphasized by the        Member States ,     the
qualititative factors and can         thus be       problem that their industries are not suffi-
influenced , to a large degree , by corporate       ciently well represented on expanding new
strategies and by public policies. In such a        markets , either in geographical terms or in
context , factor mobility and the capacity to       terms of products , with its firms sometimes
combine factors effectively and to organize         at a disadvantage in the face of the domi-
the social consensus on the share-out         of    nant positions held by certain international
value-added are becoming much more im-              groups and the growth of strategic alliances.
portant than the initial factor endowment.           Secondly, the regulatory environment is still
                                                    too rigid , and administrative and mana-
The Community will be able to improve its           gerial traditions too centralized and com-
global competitiveness considerably provided         partmentalized. Lastly, government policies
it achieves a substantial recovery in its invest-    are often still too defensive and do not take

S. 6/93
sufficient account of the new constraints         hours worked on average    in the Com-
imposed by global competition.                    munity compared with its main partners.
Four overriding objectives must be pursued
jointly by industry and the authorities if the          2. The Community s competitive
Community' s industrial competitiveness is                   position in a globalized
to generate the highest possible level of                    economy: Strengths and
employment:                                                  weaknesses
. Helping European firms to adapt to the          Since 1989 the Community has experienced
   new globalized and interdependent com-         a gradual decline in the growth rate ?f th
   petitive situation.                            production of goods and servIces.
                                                  Although the trend in its industrial competi-
   Exploiting the competitive advantages
                                                  tiveness is also worrying, it does have con-
   associated with the gradual shift       toa    siderable strengths on which it can draw in
   knowledge-based economy.                       order to redress the position and to manage
. Promote a sustainable development of            its transition to the 2lst century success-
   industry.                                      fully.

. Reducing the time-lag between the pace of       Weaknesses
   change in supply and the corresponding
   adjustments in demand.                         In the fierce competition prevailing on
                                                  world markets , Community industry is
This chapter analyses the Community               handicapped by the deterioration in its
strengths and weaknesses when it comes to         commercial competitiveness , by its failure
tackling these challenges and then goes .         to establish itself sufficiently on expanding
to identify the main components of a policy       new markets , by an unduly low level of
of global competitiveness.
                                                  R&D investment and by productivity rates
                                                  which still lag behind those of its major
  1. Views of the Member States                   competitors. Most Member States                         agree
Among the factors having a major imp~ct           with this assessment.
on the competitiveness of the Community
economy, Member States point particularly         (a) The trade performance of Community
to the following: the negative effects of
                                                         industry has deteriorated               since 1980

public deficits on investment; impaired                  as the downward trend in the rate of
                                                         cover of imports by exports shows (see
functioning of the labour market leadmg
                                                         Figure I).
whether in terms of cost, skills or flexibility
in the organization of work to a mis-
match between supply of and demand for                          Figure 1: Cover of imports by exports

labour; inadequate assimilation of         new
technologies combined with failure           to
exploit properly the results of r~search ~nd      140
technological development, leadmg t? dIffi-
culties in concentrating the productiOn      of   130
goods and . services in leading-edge and
high value-added industries.                      120


A number of Member States report market           110
rigidities or distortions in res~urce all?ca-
tion caused by government mterventiOn             100
either through excessive regulation or                                   Source: EUROSTAT
through various restrictions on competition.
Some Member States point to the heavier
burden which the ageing of the population
is imposing on the economy, and one               1 In the remainder of the text , the term ' industry' is
Member State establishes       a link   between     used to cover the production of both goods and ser-
competitiveness and the smaller number              vices.


                                                                                                        S. 6/93
                   Community industry
   In recent years ,                                  Europe and Japan is still around                  40%.
   has not only lost market shares as a               Closing this gap will necessitate in partic-
   result of the growing power of the                 ular a significant recovery in the investment
   newly-industrialized countries , as was            ratio. Productivity growth plays a key role
   foreseeable , but has also had to give             in international competitiveness while, at
   ground to the United States of America             the same time, making for an improvement
   and Japan.                                         in domestic living standards. Both the level
                                                      and the growth rate of productivity must be
   The situation has deteriorated         vis-a-viS   taken into account. The factors influencing
   the USA because of the adverse trend               productivity growth             are
                                                                                    technological
   of exchange rates. In the case of Japan            development, investment the rate of
   the reason is rather a failure to move             capacity utilization , the size and skills of the
   into expanding new markets as quickly              labour force ,   management skills, the organ.
   as Japanese industry. The erosion in the           ization of production and the use of
   market shares of Community industry                resources such as energy and raw materials.
   has been accentuated by the growing
   proportion of world trade accounted                (c) Corporate investment in R&D is one
   for by the newly-industrialized coun.                  area in which the Community must
   tries of South- East   Asia.                             make major efforts. In recent               years
                                                            annual average growth in R&D expen-
   Community industry s trade perform-                      diture has been highest in Japan (10%).
   ance is fairly uneven. A large part of                   Next comes the Community (8.1%), fol.
   industry (two thirds in terms of activity)
   lost market shares between           1986 and
                                                            lowed by the USA (7.9%).               The 1992
                                                            break in the trend of corporate             R&D
   1991 ,   either as a result       of increased
   import penetration of the Community
                                                            expenditure in the Community (and in
                                    losses on the           Japan) is very worrying in this respect
   market or because of
                                                            (see Figure 2).
   export front , or through a combination
   of the two.

(b) Community industry improved its posi-                        Figure 2: Growth of R&D expenditures

   tion on markets experiencing slow growth
   (railway equipment, cotton, textile and            160

   sewing machinery, miscellaneous tex-               150

   tiles , tanning and dressing, animal               140
   slaughter and meat preparation , grain
                                                      130
   processing and ethyl     alcohol distilla.
   tion), while its performance deteriorated          120

   on markets with high value-added such              110
   as office automation, information tech-            100
   nology, electronics , and medical and
   surgical equipment. Its structure is
                                                                          Source: DABLE
   therefore not yet geared to that
   expanding new        markets. This time- lag
   is all the more damaging in that these
   high-value-added markets are charac-
                                                      Strengths
   terized by rapid growth in the apparent
   productivity of labour, high wages and             However , Community industry can draw
   salaries , and a diffusion of techno-              on major strengths to help it adapt to the
   logical progress into other markets.               new conditions of world competitiveness. It
                                                      has a low level of indebtedness ,    and its
Apparent labour productivity in Community             profit margins are comparable to those of
manufacturing still lags a good way behind            its competitors. It has been able to restruc.
that of US and Japanese industry. There is            ture itself in step with the moves to establish
no sign of any narrowing of the gap (of               the single market. Its labour force is highly
more than 10%) with the USA and , despite             skilled. It has a high density of efficient
the progress achieved, the gap between                infrastructures.

S. 6/93
(a) Community firms have kept control of                       gins have shrunk to worrying levels
   their level of indebtedness in recent                       and , in some cases , have actually disap-
   years , albeit at the cost of some ageing                   peared.
   of their capital stock. Their indebted-
   ness is at present much lower than that                            Figure 4: Trend of profit margins
   of their competitors. Community firms
   are thus comparatively less vulnerable
   to any increases in interest rates ,               but
   they will also benefit comparatively less
   from further interest-rate                reductions
   (see Figure 3).
                                                                                                   - E:(;w.

                                                                                                   n JJ\f'J\/-L.
           Figure 3: Indebtedness of firms



                                                                            Source: DABLE




                                                            (c) Labour costs are an important element
                                                               underlying the competitiveness of Euro-
                                                               pean industry, though by nO means the
                                                               only one. Unit labour costs depend on
                           USA                Japan            wage and non-wage costs compared
                   Source: DABLE
                                                               with labour productivity. Thus high
                                                               labour costs can be compensated for by
                                                               high productivity to maintain competi-
   Japanese firms too face major problems                      tive advantage. It is when costs are not
   in adapting to the decline in consump-                      aligned with productivity that problems
                                                               for competitiveness arise. In relative
   tion and to the adverse effect of the
   strengthening yen on the volume of                          terms, the large rises and falls in unit
                                                               labour costs compared with those of the
   their exports.
                                                               Union     leading competitors which
                                                               have taken place since 1980 have been
(b) When the competitive               environment             reflected by fluctuations in bilateral
   became tougher at the end of the 1980s                      exchange rates between the ecu and the
   Community and US firms cut their                            US dollar and yen.
   profit margins significantly. Japanese
   companies , which traditionally operate                     Labour costs affect competitiveness dif-
   with smaller profit margins than their                      ferently with regard to other developed
   Community competitors , also saw their                      countries and to those in the process of
   profit margins squeezed , albeit to a                       industrialization. Non-cost items such
   lesser extent. These developments have                      as quality, delivery, design and cus-
   had the effect of narrowing the gaps                        tomer focus can assist in maintaining
   between these three trading blocs (see                      competitiveness          but
                                                                                         attention to
   Figure 4).                                                  relative costs , including labour costs
                                                               remains important. Compared with
   However , in both Europe and the                            newly industrializing countries, particu-
   United States , profit margins differ                       larly those just entering that path such
   appreciably from one market to                              as China, the differential in labour cost
   another, much more so in fact than in                       is too great for any significant employ-
   Japan. In Europe , industries facing rel-                   ment gains to be made in Europe from
   atively little international competition                    wage reductions in manufacturing
   still achieve high profit                  margins          industry. Only high productivity and
   whereas in industries more exposed to                       superior products will enable Europe to
   international competition profit mar-                       maintain a competitive advantage.


                                                                                                          S. 6/93
 3. The main lines of a policy of                      from the industrial policies of the
    global competitiveness                             Community' s main competitors.

                                                    (ii) The development of an active policy of
fa) Helping European firms to adapt                      industrial cooperation, notably with the
    to the new globalized and                           transition economies of Eastern
    interdependent competitive                          Europe and with the high- growth   econ-
    situation                                           omies along the Pacific rim. As far as
                                                        the countries in Eastern Europe are con-
In the wake of the globalization of econ-               cerned , much closer industrial cooper-
omies and markets ,   it is no longer possible          ation is necessary in order to ensure
to divide industry and geographical areas into          simultaneously a rapid modernization
clearly identified and relatively independent           of their economies a better division of
segments. European firms are engaged in                 labour within Europe and optimum
production both within the         Community            exploitation of       mutual interests.
and on third markets.      Their competitors            Cooperation must be based on   closer
increasingly have subsidiaries in the Com-              links between public support and pri-
munity. There is a multitude of inter-                  vate initiatives and on speedier pro-
national agreements between firms: more                 gress in establishing the legal frame-
than 400 international strategic alliances              work, investment conditions and guar-
have been entered into by large        firms in         antee arrangements which our firms
each of the last five years.                            require. For the industries concerned
                                                        this could be accompanied by a transi-
European firms have to compete with inter-              tional period to allow the necessary
national , polyvalent groups. The bound-                structural adjustments to be carried out
aries of traditional    industrial sectors are          under the best possible conditions. As
becoming less and       less sharply defined.           far as the Pacific area is concerned
This is particularly evident in the sphere of           increased market penetration by Euro-
 multimedia ' activities. Firms engaged in              peanfirms can be greatly facilitated by
telecommunications       information tech-              concerted efforts on the part of the
nology, consumer electronics pro-                       public authorities to remove the regula-
gramming and network management com-                    tory, administrative and indeed cul-
bine and come together in extremely com-                tural obstacles which have hitherto
plex groups and alliances which will very               impeded or deterred such penetration.
largely determine the creation and distribu.
tion of assets , including cultural assets , over   (iii) The establishment   of a coherent   and
the next decade on expanding new markets                concerted approach to            strategic
of key importance for the future.                       alliances, the uncontrolled develop.
                                                        ment of which could result in the cre-
Industrial globalization means that new bal-
                                    competition         ation of oligopolistic situations prejudi-
ances must be sought between
and cooperation. Four avenues are particu-              cial to competition at world level. The
                                                        growing number of industrial and tech-
larly important in devising a policy of
global industrial competitiveness:
                                                        nological alliances will have an impact
                                                        on all markets. These effects must con-
 (i) Capitalizing on the Community' s indus-            sequently be assessed simultaneously
     trial strengths, so as to safeguard pro-           and in a concerted manner by the com-
     ductive and innovatory capacities as               petent authorities pending the intro-
     well as a diversified ,       job-creating         duction of appropriate international
     industry that is spread throughout                 rules, particularly in the competition
     Europe , particularly on markets with a            field , so that the Community is not
     high. growth potential , such as health            placed at a disadvantage by the strict
     the environment , biotechnologies                  rules it imposes on itself in this connec-
     multimedia activities and culture. This            tion. In addition , Community firms
     aspect must take account of changes                must be able to rely on flexible instru-
     stemming from the     globalization of             ments of cooperation , in legal and tax
     markets , production and operators and             matters as well as in others , to allow


S. 6/93
     them to enter into the alliances that are   education and training, the efficiency of
     necessary to counterbalance the weight      industrial organization ,    the capacity to
     of some oftheir US and Japanese com-        make continuous improvements in produc-
     petitors.                                   tion processes , the intensity of R&D and its
                                                 industrial exploitation , the fluidity of the
(iv) The targeting of measures     to remove     conditions under which markets operate
     obstacles to the smooth functioning of      the availability of competitive service infra-
     markets in areas that severely penalize     structures , product quality and the way in
     European firms ' sales and growth           which corporate strategies take account of
    potential. European firms ' capacity for     the consequences of changes in society,
    exporting to , and setting up in , other     such as improved environmental protec-
    countries is sometimes far from being        tion.
    fully exploited because of the .difficul-
    ties stemming from the structural            Even more crucial is the capacity to incor-
    impermeability of certain markets. Pin-      porate all of these elements into coherent
    pointing such barriers to growth and         strategies. Between 75% and 95% of firms
    introducing specific measures to remove      total wage and salary bill is now accounted
    them may help significantly to improve       for by functions linked to organization
    Community industry opportunities             rather than to direct       production , for
    for selling its products on the markets      example information technology,      engin-
    concerned. This could be modelled , for      eering, training, accounting, marketing and
    example , on the ' trade assessment          research. Organizational capacity is thus one
    mechanism ' set up with Japan to iden-       of the key components of a firm s competi-
    tify the nature and causes of the Com-       tiveness.
    munity s poor trade performance in
    Japan in those sectors in which Com-         A number of these factors , such as training,
    munity industry is in a strong competi-      research and services , may be grouped
                                                 together under the heading of ' non-physical'
    tive position at international level.
                                                 (i. e. knowledge-based) investment , to which
(b) Exploiting the competitive                   government policies must in future accord at
                                                 least the same priority as they do to physical
     advantages associated with the              investment. This type of investment
     gradual shift to a                          becoming the key element in bringing about
     knowledge-based economy                     growth that is durable , creates skilled jobs
The wealth of nations is increasingly based      and is economical in its use of resources.
on the creation and exploitation of knowl-       This does not entail any increase in public
edge. Optimum advantage must be taken of         deficits , but it does presuppose far-reaching
this new form of progress available to Com-      reforms:
munity firms since it is an area in which the
Community enjoys a substantial head start.       . As regards taxes: The relative weight of
                                                   taxation borne by the various factors of
The shift      towards a knowledge-based           competitiveness should be adjusted in such
economy is reflected    in particular in the       a way as to reduce those components of
externalization of    certain activities by        taxation which act as employment disin-
industrial firms and by the faster growth of       centives and to increase those conducive
services. It does not mean that manufac-           to more efficient and less polluting use
turing industry is declining in importance         of scarce resources.
since this sector is at the very heart of this
development and continues to determine           . As regards the criteria governing the use
the overall competitiveness of the produc-         of national and Community financial
tive system.                                       instruments: There should in particular
                                                   be a review of the criteria governing the
The key elements in competitiveness   that are     admissibility of aid to industry, which
now of greatest importance are no longer           under most existing schemes , encourages
confined to the relative level of the direct       firms to increase the capital intensity of
costs of the various factors of production.        production and to boost their physical as
They include in particular the quality of          opposed to their non-physical invest-

                                                                                       S. 6/93
  ment in order to improve productive            the supply of goods and services to flfroS
  efficiency. The aim should be to take          for pollution control or abatement but also
  fuller account of the creation of value-       the expenditures made for the environment
  added and the non-physical content of          in the general context of improved produc-
  growth.                                        tion methods or products , as well as the
                                                 markets for environmentally-sound prod-
. As regards the priorities governing the use    ucts (green products).
  of public funds: Investment in training,
  research, the promotion of innovation          In the present context of global competi-
  and , generally speaking, the non-phys.        tion, the technologies employed in , and the
  ical components of value-added must be         organizational requirements for, the suc-
  treated at least as favourably as tradi-       cessful introduction of clean technologies
  tional forms of investment. The aim            are often similiar to those associated with
  should be twofold: to promote the emer-        the new manufacturing paradigm. The con-
  gence of new generations of products that      cept of lean (e. g. less energy, fewer raw
  make optimum use of all the techno-            materials) constitutes a significant improve-
  logies available on the world market           ment regarding the environmental friendli-
   and to encourage the dynamic incorpor-        ness of production processes and fosters the
  ation of innovation into processes , prod-     competitiveness of the industries concerned.
  ucts and organization. An essential pre-       Moving beyond        production processes to
  condition is that there should be              product markets provides an additional
   increase in research   activities by Com-     dimension for industrial competitiveness.
   munityfirms and greater selectivity in        Markets for environmentally-sound prod-
   government assistance.                        ucts provide an incentive     for flrroS since
. As   regards the regulatory framework:         they represent in any case a source of
   More must be done to ensure the effi.         potential profits. As stricter environmental
   cient operation of the single market , not-   requirements are imposed on export mar-
   ably by streamlining and rationalizing        kets ,   the application of clean technologies
   rules and regulations so as to make           becomes a condition of access         to these
   easier to establish new forms of labour       markets.
   organization and to    move away from         To promote the sustainable development of
    Taylorism  .A policy that focuses on
                                                 European industry, the Community should:
   quality and is consistent with the Com-
   munity' s approach to standardization          (i) increase substantially and coordinate
   must be pursued in order to exploit the           R&D efforts in the field of clean tech-
   know-how     of Community firms and               nology;
   avoid market fragmentation.
                                                 (ii) develop economic incentives to support
(c) Promote a sustainable                             the diffusion of R&D results into prod-
                                                      ucts and processes.
    development of industry
A policy of pollution prevention , in partic-    (d) Reducing the time-lag between
ular through a generalized development of                 the pace of change in supply and
clean products and processes, will not only               the corresponding adjustments in
prevent rapidly increasing clean-up      costs            demand
but also stimulate a faster diffusion of R&D
results. The first-mover advantage that will     As in the case of previous industrial revol-
result will contribute to a strengthened         utions , there is an appreciable time- lag bet-
overall competitiveness of European              ween:
industry.                                        . changes   in supply, where faster moderni-
The significance     of the so-called Eco-          zation is now under way through the use
industry as a quickly   expanding industrial         of increasingly efficient technologies
market is now widely accepted            and         resulting in a rapid increase in labour
according to 0 ECD studies , will expand             productivity and thus releasing substan-
considerably this decade. It covers not only         tial human resources;

S. 6/93
. changes in demand, which are lagging                of establishing themselves on these new
  behind changes in supply because of                 markets. I
  cumbersome rigidities in income distri-
  buti~n , in modes of consumpt~on , in the           On the supply side, we must:
  relatiVely low level of receptiveness to
  innovation within the Community, in the          . Encourage       continuing structural adjust-
  geographical structure of growth and in             ment in Community industry. This means
  the unsatisfactory functioning of mar-              facilitating privatization processes which
  kets.                                               can, in large measure, help to speed up
                                                      such adjustments.
It is imperative that an attempt be made to
reduce this time- lag so as to make optimum           Col1lI!1unity industry has not sufficiently
use of the human resources released as a              explOited all the opportunities afforded
result of the increasing productivity of the          by the rapid growth of markets in Asia
productive system. This can be done only by           and Latin America.
helping to broaden the sales opportunities
for Community industry through policies            . Underpin the dynamism of              SMEs. It is
geared simultaneously to demand ,            to       clearly more difficult and relatively more
supply and to improving the interaction               costly for SMEs than for very large flrroS
between them.                                         to find their proper place in the glo-
                                                      balized economy, to    have access to
On the demand side, this means:                       world technological capital and to avail
. Pursuing initiatives aimed at speeding up           themselves of the most sophisticated
  a concerted recovery in . consumption at            management techniques and business
  world level and helping to bring about a            services. The policies in support of
  revival in demand for Community                     SMEs must , therefore, take account of
  industry. The asymmetries         stemming          these new constraints and be strength-
  from the continuing large differences in            ened accordingly.
  the degree of openness of markets as bet-        Lastly, better interaction between supply and
  ween the most open areas ,           foremost
                                                   demand must be strongly encouraged by:
   amongst which is the Community, and
  those which , for    structural or   political      facilitating partnerships between large
  reasons , remain    largely protected are           finnsand their subcontractors. Effective
   reflected in a chronic growth deficit at           cooperation between component assem-
   world level. Resolute support for initia-          blers and suppliers is one of the essential
  tives to bring about a concerted     recovery       preconditions for reducing the total
   in demand and for the opening-up         and       time involved in innovation , optimizing
  industrial modernization of the protected           R&D expenditure , reducing overheads
  countries is essential in order to make             ensuring the technical homogeneity              o
  this ' shortfall' in growth.                        products and improving product quality.
. Looking at    the various measures liable to        The steps already taken in this direction
   promote the emergence of new markets for           by industry are proving extremely posi-
   goods and services. This is a reference            tive and deserve increased support from
   particular to those markets geared to              the public authorities;
   improvements in environmental protec-
   tion (on which Community firms are              . improving the       interfaces betweenprodu-
   particularly competitive), to the exploita-        cers and users. Although wide-ranging
   tion of biotechnologies and to the cre-            this objective is of particular importanc
   ation , management and dissemination of            for research if more rapid and more sen-
   information. In this respect,    the emer-
                                                      sitive account is to be taken of market
   gence of ' multimedia'      activities that
                                                      requirements in RTD policies and if
   exploit the scope afforded by the digital-         there is to be greater         complementarity
                                                      between Eureka and the Community
   ization of information in all its forms            research programmes. The research
   (written word , image and sound) will
   engender major upheavals that will ben-
   efit those firms and economies capable          I See the chapter on ' The information society'


                                                                                                 S. 6/93
effort, which is insufficient overall, must be     (ii) The machinery and criteria for govern-
stepped up, become more focused and be                 ment intervention that creates conflict
more effectively exploited as regards its              between the promotion of industrial
applications. Ensuring the broadest possible           competitiveness and job creation must
dissemination of information and facili-               be reviewed.     In so doing, the tax
tating contacts between all those involved             burden must be redistributed so as to
through the establishment of multidiscipli-            lighten the burden on labour          and
nary cooperation     are both    necessary in          increase the burden on the use of
order to foster not only competition in the            natural resources. The criteria for
development of technologies but also effec-            granting public     assistance must be
                                                       reviewed so as to take better account of
                                                       value-added and so as not
tiveness in exploiting them;

   stimulating the development of ' clusters           encourage an unjustified increase         in

   of competitive activities that draw on the          the capital intensity of production. The
   regional diversity of the Community. The            regulatory framework must be trans-
   proliferation within the Community of               parent , stable and predictable.
    clusters ' that combine industrial , techno-   (Hi) The promotion of non-physical, knowl-
   logical and geographical        advantages
                                                        edge-based investment must be made
   may hold one of the keys to job creation.            the top priority of the general policy in
   This requires the active involvement of              support of investment. Training,
   all the actors     concerned , something
                                                        research and know-how in general
   which can be greatly facilitated by struc-           must be treated as proper targets of
   tural measures taken at Community and                investment in their own right. The nec-
   national level. In this area,     as in the
                                                        essary consequences should be drawn
   preceding ones , the main emphasis should            notably as regards changes in tax and
   be on a horizontal, transsectoral and                accounting rules.
   multidisciplinary approach.
                                                   (iv) A dynamic policy of industrial cooper-
 These guidelines are summarized in the                 ation must be set in motion ,     starting
 attached table.                                        with the countries of Eastern Europe
                                                        and with the Pacific area. The details
                                                        of such a policy must be established as
                                                        a matter of urgency in collaboration
 Conclusion                                             with the private-sector and public-
                                                        sector operators concerned , on the
                                                        basis of clearly identified mutual and
 So as to establish the bases for such a policy         reciprocal interests.
 of global competitiveness and ensure that
 its positive effects on employment come            (v) Measures must be taken shortly to
 through as rapidly as possible , the Com-              strengthen the competitive functioning of
 mission proposes that the European                     markets. A European approach should
 Council adopt the following objectives and             be developed that takes account of the
 guidelines:                                            proliferation of strategic alliances ,   par-
                                                        ticularly in the field of competition , so
   (i) Government intervention      in industry         as to prevent the development of domi-
      must be refocused on horizontal mea-              nant positions         at   world level.
      sures and on growth markets where                  Machinery for pinpointing problems
      there is strong potential for European             in the functioning of markets and for
      industry to develop, such as health                assessing their industrial implications
      the environment, biotechnologies                   must be set up so as to identify and
      multimedia activities and culture. This            tackle rapidly the obstacles facing
      also means that precise and short-term             European firms against the backdrop
      deadlines should be set for     restruc-           of global competition.
      turing activities whose development
      prospects are not satisfactory in terms       (vi) The coordination of moves to facilitate a
      of markets.                                        revival in consumption and reinforce the


  S. 6/93
interaction between changes in supply        ation between operators (SMEs and
and demand at both  international and        large firms , producers and users
Community level must be strength-            public and private actors) must be
ened. Priority should be given to            improved along multidisciplinary and
employing all the resources available        multisectoral lines. Lastly, there must
and in particular structural policies , in   be a European policy    on quality  that
order to speed up the development of         complements the policy On standardi-
clusters of competitive activities that      zation and is geared to promoting acti-
draw on the Community s         regional     vities with a high value-added.
advantages. The networks for collabor-




                                                                               S. 6/93
                            Guidelines for a policy of global competitiveness


               Objectives                                                Means



1.     Helping European                    capitalizing on the Community s industrial strengths
      firms to adapt to the          .    developing an active policy of industrial cooperation
      new globalized and
                                             establishing a concerted approach to strategic alliances
      interdependent
      compedtive situation                   targeting measures to ensure the competitive functioning of
                                             markets



2.    Exploiting the                 . reforming tax           policies so as not to create employment disin-
      compeddve advantages                   centives and to promote incentives for the efficient use of
      associated with the                    scarce resources
      gradual shift to a             . developing a          policy to encourage ' non- physical' investment
      knowledge-based                        (training, research, technical assistance)
      economy
                                             bolstering policies to streamline and rationalize rules and
                                              regulations
                                     .       reviewing the criteria governing the use of public instruments
                                             in support of industry so as to enhance their impact on the
                                             growth of value-added and employment
                                     .       launching a European policy aimed at quality




 3.    Promote a sustainable          . increase       substantially and coordinate R&D efforts in the field
       development of                        of clean technology
       industry                       .      develop economic incentives to support the diffusion of R&D
                                             results into products and processes.



 4.    Reducing the dme-lag           Demand-side measures:
       between the pace               . pursuing initiatives aimed at facilitating a concerted revival in
       change in supply and                   consumption at world level
       the corresponding                                                  of new markets
                                      . promoting the emergence
       adjustments in demand
                                      Supply-side measures:
                                      . encouraging continuing           structural adjustment by supporting
                                              privatizations
                                      . underpinning the          dynamism of SMEs
                                         Measures to improve the reladonship between supply and demand:
                                             facilitating partnerships between large firms and their subcon-
                                             tractors
                                         .   improving the interfaces between producers and users
                                              establishing collaboration networks so as to develop clusters
                                              of competitive activities



     S. 6/93
B. Making           the most of the                particular), developing standardization in
                                                   certain areas, monitoring the application of
internal market                                    single market legislation more closely,
                                                   removing tax barriers and harmonizing cer-
The agreement under the Single European            tain taxes are seen as priorities.       Several
Act to   establish an area without internal        Member States stress the need for the single
frontiers in which the free circulation of         market to create a propitious business
goods,   services , capital and persons            environment; in this context , they suggest
ensured represents the single most impor-          streamlining existing administrative rules
tant step that the Community has made              and procedures, carrying out cost/benefit
towards a rational economy and greater             analyses before going ahead with new mea-
prosperity. Ensuring that this         ambitious   sures , and studying ways and means of
objective is translated into practical reality     reducing the cost of red tape for businesses.
an essential condition for economic growth,
competitiveness and employment in the
Community.                                           4. The development of a strategic
                                                        programme
The Community has met most of the original
targets which it set itself for the establish-     The Commission has therefore decided to
ment of a single market. The one out-              publish in parallel with this White Paper a
standing failure to date is the maintenance        strategic programme for the internal market
of physical controls on the free movement          which provides a comprehensive view of
of people , although the economic impact of        priorities for action in this area and which
this gap may be limited as the most econ-          will serve as a ' road map ' for the develop-
omically-significant parts of Community            ment of the single market.
legislation in this area, i.e. recognition of
the right of establishment and of pro-
fessional qualifications , are already in          The strategic programme contains          three
place.                                             parts :

The establishment of genuine single                (a) Completing the legislative
market in the Community is not, however                 programme
a matter of once-and-for-all enacting Com-
munity legislation within a deadline. It is a
continual process of ensuring that , as far as     The Commission will press for early deci-
possible , a single legislative framework gov-     sions on the limited number of measures
erning economic activity is enforced and           identified in the 1985 White Paper which
where necessary, developed in a coherent           have not yet been agreed , as well as on new
way within a continually changing environ-         proposals aiming at securing the free move-
ment. The decisions of individual enter-           ment of people.
prises and citizens are the hard core of a
working single market. The challenge               It has to be recognized that the internal
before the Community now is to make sure           market is not yet a reality in certain sectors
that they are not hindered from taking full        where national legislation and the granting
advantage of it and to respond quickly to          of exclusive rights deny access to the
any signs if it is not working well.               market and prevent competition in any
                                                   form. For energy, telecommunications and
Views of the Member States                                        for example , proposals have
                                                   postal services ,
                                                   been made but these may have to be streng-
Making the most of the opportunities               thened in order to      achieve liberalization
offered by the single market is perceived in       while ensuring that public policy objectives
the Member States ' contributions as one of        such as ' universal service , are fully realized
the keys to making the European economy            where appropriate. Further liberalization of
more competitive. Liberalizing sectors that        the transport sectors       is also needed
have not yet been opened up to competi-            notwithstanding the considerable progress
tion (energy and telecommunications in             in recent years.


                                                                                          S. 6/93
(b) Managing the Community area                      while contributing directly to reduced costs
                                                     for business and the citizen.
This part of the programme is intended to
ensure that the necessary arrangements are           (e) Developing the single market
in place to permit adopted legislation to be
applied effectively and efficiently, so that         A dynamic view of the single market is nec-
individuals and enterprises will be able to          essary for the Community' s achievement to
take full and fair advantage of the possi-           be sustained and preserved. The third part
bilities which the internal market offers            of the strategic programme aims to ensure
them. This is not a bureaucratic exercise. It        that the internal market can develop to meet
is a joint effort by the Community Member            new needs and to launch       new initiatives to
States and enterprises to avoid unnecessary          ensure that a continental-scale open market
costs , to ensure fair competition , to build        is fully realized. Not all such initiatives will
up the confidence of both producers and              be of a legislative nature; they also include
consumers ~ a condition for economic                 close cooperation between the Commission
recovery ~ and to guarantee that the single          and the Member States , and between public
market is a practical reality.                       authorities and the private sector.

The main priorities are effective control of         The following objectives are identified in the
national transposition of Community law, a           strategic programme as essential for this
reinforcement of administrative cooper-              purpose:
ation between Member States in the
application and enforcement      of Com-              (i) improving the evaluation of the effec-
munity law ,notification procedures to pre-               tiveness of Community rules including,
vent the emergence of new barriers to free                when appropriate , the need to simplify
movement the auditing of national                         them;
enforcement measures and measures to                  (ii) providing a more favourable environ-
facilitate legal redress where Community                   ment for business. This is the central
law is infringed.                                         part of the      programme , including
The need for administrative cooperation also
                                                          initiatives to ensure greater competi-
                                                          tion ,   protection of   intellectual prop-
requires the establishment of an efficient
                                                          erty, cross-border   payments and direct
reliable and user- friendly      system of com-           and indirect taxation ,    standardization
munication and data exchange between
                                                          and quality policy and a package of
administrations. Until it is operational
                                                          measures designed to assist small and
unnecessary costs resulting from inefficient              medium-sized enterprises to operate
administration will be borne by the
economy as a whole. What is called for is:
                                                          more effectively. The resolute
                                                          implementation of competition policy
                                                          and control of State aids is one of the
  (i) an accelerated, progressive and wide-
                                                          essential elements to ensure a greater
     ranging introduction of an electronic
     mail network;
                                                          flexibility of the system     in order to
                                                          increase competitiveness;
 (ii) a high degree of coordination between           (iii) promoting the development of trans-
     the 13 administrations involved;
                                                           European networks;
(iii) a series of flanking measures in order          (iv) ensuring that the   development of the
      to facilitate the operational use and                internal market is sustainable. The
      further development of the network.
                                                           commitment to 'sustainable and non-
 It is proposed that this initiative to establish          inflationary growth respecting  the
 an effective communications network - a                   environment' in the Treaty on Euro-
 new trans-European network for effective                  pean Union must be reflected by
 admiJrlstration  be taken by the Com-                     action at Community level to ensure
 munity public authorities quickly in order                that measures taken to protect the
 to facilitate the priority objective of the effi-         environment are fully effective and
 cient management of the internal market                   compatible with a single market.

 S. 6/93
 (v) ensuring a secure environment for the                 liberalization of Community financial
     citizen , the employee and        the con-            services markets. Direct investment
     sumer;                                                through mergers and acquisitions       in
                                                           other Member States       has increased
(vi) greater transparency in preparing any                 sharply, the number of cases rising
     new Community legislation , if it were                from 2 190 in 1987 to 4 553 in 1992;
     shown to be needed.
                                                      (iv) the establishment  of the internal
  5. The impact           of     the internal              market has been accompanied by a
                                                           surge in intra- Community foreign
     market on growth ,          competitive-
     ness and employment                                   direct investment, which has been
                                                           heavily concentrated in those sectors
It is impossible today to        assess the full           most directly concerned by internal
effect of all the measures designed to bring               market liberalization;
about a single market because they are not             (v) the internal market programme has
yet fully in force. Although the internal
market has not reached its full potential , its
                                                           also attracted considerable interest
                                                           from overseas investors , particularly
credibility and irrevocability have exerted                on the part of US , Japanese, and
profound effects on business behaviour. On                 EFT A companies;
average , econometric calculations show that
the contribution of integration to economic           (vi) part of this investment has taken the
growth has accounted for around 0.4% per                   form of a wave of cross-border mer-
year in the period 1986 to I 992.                          gers and acquisitions , which con-
                                                           stitute a strong indication of com-
The following indications also suggest that                panies ' intentions to set up their
the internal market is acting as the catalyst              presence on partner country markets;
for a shift in the competitive   environment to
the benefit of the consumer and of greater           (vii) in banking and insurance sectors
prosperity in the years ahead:                             where obstacles to cross-border trade
                                                           were particularly pronounced, there is
  (i) the removal of border formalities is                 evidence of a profound change in the
      facilitating cross-    border trade                  nature of cross-border competition
      although internal market legislation to              reflected in a growing number of
      increase access to public procurement                branches and outlets in other Com.
      markets and to remove technical                      munity countries and in an increasing
      trade barriers have yet to make their                share of national insurance markets
      impact widely felt;                                  held by partner country producers;
 (ii) the importance of intra- Community             (viii) portfolio investment in the Member
     trade as a share of total trade has                    States coming from other parts of the
     steadily increased (the share of                      Community has increased signifi-
     imports rising from 53.4 to 59.3%         of          cantly (between 1983 and 1990 it
     the total between 1985      and 1992 ,   and          increased by five times in the UK
     exports from 54. 9   to 61.3%);                      doubled in France and increased by
                                                          one and a halftimes in Germany);
 (iii) the removal
                of controls on capital
     movements has allowed for a marked               (ix) there are indications that the removal
     increase in the degree of integration                 of non-tariff barriers is already facili-
     of some Member States into interna-                   tating intra-Community commerce
     tional capital markets , which           will        and competition in the sectors most
     facilitate cross-border investment and               affected by the internal market pro-
     ease credit restrictions in some                     gramme (transport goods , electrical
     Member States which had contributed                  engineering, COnsumer electronics,
     to higher costs of capital in those                  office equipment , machine tools).
     countries. Free capital movement also                Statistics which suggest that such an
     represents a precondition for effective              evolution is taking place are the


                                                                                            S. 6/93
     increase in the proportion of a              ators. In qualitative terms   , SMEs playa
     Member State         trade which             major role in providing young people with
     directed towards other Community             their flfst jobs , thereby being instrumental
     countries , and the increasing share of      in the training of the labour force, and they
     national consumption which is met            also help to provide productive employ-
     by intra- Community imports. This            ment for the less sought-after categories of
     development implies increased                individuals on the labour market since they
     presence on national markets and , by        recruit disproportionately large numbers of
     extension, greater competitive disci-        young people , women and unskilled wor-
     pline on domestic enterprises.               kers and operate wage and productivity
                                                  structures of their own.
In accordance with the Council resolution
of 7 December 1992 on making the single           However, the rate of SME failures , which
market work , the Commission will be con-         according to certain indicators , s~ems to be
ducting a study from 1994 to      1996 on the     on the increase in most Member States , is a
impact of the single market,      a period in     worrying factor as regards the maintenance
which the relevant Community legislation          and growth of total employment.
will be more widely applied. This study will
focus on individual sectors as well as on the     Analysis/assessment
possible macroeconomic effects.
                                                  However, SMEs are not short of strengths
  6. Supporting the development                   that can help them cope with the changes in
     SMEs so  as  to make the internal            the economic situation in the Community,
                                                  notably the recession in the European
     market fully effective                       economy and in the other developed coun-
For many SMEs , completion of the single          tries.
market means a change in the environment
in which they operate , although they do not      The strengths of SMEs are ,      firstly, their

always see any scope for actively exploiting      presence on expanding new markets (acti-
the new opportunities available because of        vities less vulnerable to international com-
the lack of a European or international           petition , the service sector, market niches
framework for their markets or production         the development of particularly innovatory
processes.                                        technologies) and , secondly, their internal
                                                  organization (flexibility due to the dispro-
Unless the confidence of SMEs in the pros-        portionately high level of recruitment of
pects opened up by the single market is           certain labour-force categories , notably
restored , an important potential for growth      young people and women , and the greater
will go unexploited. The Community must           willingness to adapt working conditions as
therefore devise a back-up strategy designed      and when necessary).
to make it easier for businesses, particularly
SMEs, to adapt to the new requirements of         The weaknesses of SMEs will be determined
competitiveness and thus ensure that     econ-    by their structural capacity to deal with the
omic operators are properly mobilized in          complexity of the administrative and legisla-
support of growth , competitiveness and           tive environment (administrative and legisla-
employment. SMEs playa          crucial role in   tive requirements , including those      per-
the link between growth and employment.           formed on behalf of the authorities , such as
On the usual    definition of    SMEs (fewer      VAT formalities and the deduction at
than 500   employees), they provide more          source of employees        ' taxes and   social
than two thirds of Community employment           security contributions; the introduction of
(70. , of which 29% is accounted for by           new environmental or social security rules
firms with fewer than 10 employees) and           and a new standardization/certification
generate more than two thirds of Com.             system as part of the arrangements        for
munity turnover (70.3%) and between 65            implementing the single market; barriers to
and 85% of value-added in those countries         the carrying-out of certain activities , not-
for which data are available. They are con-       ably in the service sector along the dividing
sidered to be the greatest potential job cre-      line between market and non-market ser-

S. 6/93
vices); to overcome financing difficulties         single market, bearing in mind the need to
despite the increase in the number and             increase competitiveness.
diversity of the financial instruments avail-
able to firms; to come to terms with the com-      The general objective of such measures
plexity of managing a firm and to develop          should be to           integrate SMEs more closely
strategic policies, a problem which stems in       into the single market so as to underpin their
particular from the fact that in small busi-       competitiveness as they take           up the national
nesses most management functions are per-          Community and               international challenges
formed by the head of the business himself          facing them , with the accompanying dual
even though he does not always possess the          aim of (i) helping to preserve the number of
necessary specialized skills and knowledge         jobs     in the Community by supporting
and that he has to switch between the pro-          existing SMEs and assisting with the
duction function and the management                renewal of             the productive      base, and
function.                                          (ii)   increasing the number of jobs          by sup-
                                                   porting firms             with a high-growth        or
  7. Views of the Member States                    employment potential.

In the contributions they sent to the Com-         To help enterprises face up to the dual chal-
mission for the purpose of preparing the           lenge of growth and competitiveness, on the
White Paper, most Member States high-              one hand , and employment , on the other
lighted the priority they give to measures to      an enterprise pact for employment could be
assist the activities and development of           proposed.
SMEs. Suggestions were made for
improving access by SMEs to sources of             As part of an integrated programme, such
financing, the results of research , and           measures would be grouped together under
training. Other suggestions concerned sup-         two headings:
port aimed at    facilitating subcontracting
and cooperation between SMEs and their             (a) Making credible in the short term
participation in information , advisory and            the potential available to SMEs in
cooperation networks. Some Member                      the single market
States also emphasized the need for simpler
administrative procedures and formalities          Restoring the confidence of firms prior to
including those relating to social security,       encouraging them to increase their competi.
labour or tax rules , and for arrangements to      tiveness and job-creating capacity requires
promote job creation by SMEs. This shows           two types of action:
that the Member States are aware of the            (i) Identifying and alleviating the constraints
need to step up their current efforts , which             of a tax ,   social security, administrative
the Community could support through the                   financial or other nature that hamper
action programme adopted on 14 June.                      the establishment or continued opera-
However , to meet the expectations of                     tion of SMEs
Member States and firms , a mass effect
must be sought, in partnership with the            Concerted action with the              Member States
Member States , so as to enhance the effec-        and the organizations representing SMEs
tiveness, coherence and visibility of the mea-     could be proposed with a view to          examining
sures in support of SMEs. In this context , a      existing legislation       that impedes the creation
number of specific measures can be laun-           and development                of businesses; action
ched by the Community under an inte-               could be taken to           exchange iriformation on
grated programme.                                  best practices       for simplifying and harmoni-
                                                   zing legislation and to            devise improvements
  8. Proposals and remedies                        in priority areas (for example , payment
                                                   terms , taxation and the transfer             of busi-
In the light of the above   assessment ,   it is   nesses ).
essential to identify a   series of back-up
measures which the      Community should           In view of the difficulties which social
launch with the broad aim of taking                security and labour provisions pose for
account of SME requirements within the             SMEs, particular attention should be
                                                                                                  S. 6/93
focused on these aspects , both in terms of       (ii) Improving the quality of management in
the rules applicable and in terms of simpli-            SMEs
fying their application, including the provi-     A key factor in safeguarding      the competi-
sion of information, so as to promote more        tiveness of SMEs and hence their long-term
flexible use of the workforce ,   particularly
                                                  employment potential is an improvement in
by very small businesses.                         managerial skills in order to  remedy the
                                                  structural weaknesses of SMEs. The mea-
(ii) Improving the financing of firms             sures already taken in this field could be
                                                  made much more effective if coordinated
                                                  action on the part of all intermediaries
In this area, which is of crucial importance      placed emphasis on a number of key areas
for SMEs , the first aim should be to give        so that SME managers could become aware
practical effect to the renewed cal.ls by the     of the changes they need to make in their
Heads of State or Government for an               role.
increase and improvement in the financial
resources made available to SMEs (Edin-           There is a need to foster,      in cooperation
burgh and Copenhagen facilities , and Brus-       with the Member States and chambers of
sels decisions). Steps should also be taken       commerce and industry, a demand for infor-
to improve relationspaving the financial
                  ,
                     between
                                way for
                                                  mation, training and advice in order to over-
institutions and SMEs                             come the specific obstacles in business.
more generous allocation of private finance       Among these initiatives , appropriate advice
to SMEs and broader use of the most appro-        could significantly increase the rate of sur-
priate financial instrnments.                     vival among SMEs.
                                                  To achieve this , the potential existing
 (b) Exploiting the dynamics of the               among business intermediaries should be
     single market in order fo boost              exploited to the full. In this connection, the
     competitiveness in the             medium    Community could also look into the scope
      term                                        for improving the supply of direct advice to
                                                  firms on the various aspects of their day-
                                                  to- day management.
(i) Supporting cooperation between flfms
                                                  (iii) Supporting the development of firms
The Community could step up its efforts to                with a high-growth potential
 foster cooperation between firms by pro-
 viding financing beyond the first stage of the    Among the smallest firms in the economy,
 search for   partners. It has already taken       the firms most likely to create a large
 steps aimed mainly at encouraging the
                                                   number of permanent jobs are those with
 search for partners and initial contacts be-      the determination and skills to expand their
 tween entrepreneurs , but in many cases           business either because their markets are
 appropriate back-up (at national or
                                                   not yet saturated or because they are in as
 regional level) for a   given period would        yet uncharted markets. Such firmS are to be
                                                   found both in manufacturing and in         the
 make it possible to follow up developments
 in a way that could increase the scope for        service sector; the problem , though ,   is to
                                                   identify them.
 cooperation between SMEs.
                                                   Identification will be possible only if the
 Another means of fostering cooperation            firms themselves are encouraged voluntarily
 would be to provide support for participa-        to gear up for growth. A number of mea-
 tion by SMEs in enterprise networks aimed         sures that could be widely applied have
 at introducing flexible and specialized pro-      been tried out in order to encourage SMEs
 duction systems. This concerns in particular      to take the initiative , either by having
 the networking of subcontracting firms in         recourse to a synergistic approach (mem.
 the face of the threats posed by the major        bership of ' business clubs ) or by way of an
 changes taking place in their relations with      audit method (e.           Euromanagement'
 their main customers.                             Coordination at       Community level      and


 S. 6/93
quality control would make it possible to        erably within the context of the social dia-
confer on firms taking part in technological     logue professional profiles and by pro-
audits recognition that they were capable of     viding corresponding vocational training
participating in national     or Community       leading to the award of approved qualifica-
RTD programmes.                                  tions.

(iv) Supporting employment        growth           9. Guidelines for an           integrated
     service SMEs                                     programme to assist SMEs
Recent work on the growth of service acti-       In order to strengthen , within the frame-
vities has highlighted the importance of         work of broader partnerships , the effective.
improving productivity in this sector, a         ness , consistency and visibility of the mea-
development which , far from creating a          sures to assist SMEs , it is necessary to
problem in terms of employment, would be         examine practical proposals for an inte-
a decisive factor in ensuring the growth of      grated programme involving a Community
service firms and in the future competitive-     initiative for SMEs.
ness of the developed economies. We must
thus turn our attention away from                As a matter of priority, the integrated pro-
improving productivity       in theclassical     gramme should address       three   objectives
sense to improving performance, that is to       from among all the measures set out above;
say a combination of quantitative develop-       these objectives correspond to measures
ment and better quality.                         which could not be implemented without
                                                 appropriate financing or the scale of which
Improved performance depends first and           would be restricted by the ability of the
foremost on conducting an awareness and          Member States or the intermediaries con-
mobilization campaign among service firms        cerned to finance their general application
and their representative organizations.          in full: ,
Through its role of anticipating and sup-
porting changes    , the
                     Community can , in           (i) introduction of new financial facilities
cooperation with the partners concerned               for SMEs;
assist in identifying and disseminating models
for service activities that could                (ii) support for cooperation between firms;
                                           be
developed in the future but have not yet         (iii) support for improvements in manage-
been created for want of sufficient knowl-           ment quality.
edge among individual creators of markets
and their potential or of the technological      Such a programme would have to assert the
changes likely to influence the provision of     principle of partnership between the    Com-
services and the market in services. It can      munity and the Member States in co- fin-
also support     the development of pro-         ancing projects within the Community,
fessionalism in service activities, this being   would have to be flexible as regards geo-
essential if the   growth and employment         graphical priorities and would have to
potential in these branches of activity is to    ensure active cooperation on the part of
be exploited , notably by identifying  pref-     SME intermediaries.




                                                                                      S. 6/93
Chapter 3

                                                              itical impetus was subsequently given by the
Trans- European networks                                      Copenhagen European Council: it called
                                                              on the Commission and       the Council to
  1. The stakes                                               speed up the adoption of master plans in
                                                              the field of transport, energy and telecom-
Traffic jams are not only exasperating, they                  munications and the examination of the
also cost Europe dear in terms of produc-                     Commission s proposals on telematic net-
tivity. Bottlenecks and missing links in the                  works; it also extended the duration and
infrastructure fabric; lack of interoper-
                                                              amount of the Edinburgh facility, so that in
ability between modes and systems; non-
                                                              some cases Community financing might
communication between too many closed                         amount to 90%; furthermore projects
and scattered telecommunications circuits.                    awarded a declaration of Community
Networks are the arteries of the single                       interest are to be given privileged access to
market. They are the lifeblood of competi-                    Community financial instruments.          The

tiveness , and their malfunction is reflected                 European Council , meeting in Brussels on
in lost opportunities to create new markets                   29 October, extended the scope of the Edin-
and hence in a level of job                  creation that
                                                              burgh lending facility to cover transport
falls short of our potential.                                 infrastructures.
                                                              Four master plans for transport and the
The establishment of networks of the high-                    plan relating to telematic systems are now
est quality throughout the whole Union and                    in place. Discussions are already in pro-
beyond its frontiers is a priority task. It will              gress in the Council on some of the plans
require a joint , massive and sustained effort                and the Commission intends to present the
on the part of the authorities                at all levels   other draft plans shortly. Major obstacles
and of private operators. The potential to                    persist, which are holding up implementa-
create jobs is substantial , both directly in                 tion of the objectives of Article 129b of the
the short term by initiating the large-scale                  Treaty within the stipulated framework of
projects proposed and through the benefi-                     a system of open and competitive markets
cial effect in the long term on production
conditions in Europe.                                         It is   necessary to step up the   pace again.
                                                              Networks can - and in the present econ-
The Commission s analysis shows that the                      omic context, must - provide fresh
overall volume of direct investment                  to be    impetus. The Commission s analysis shows
mobilized by             1999 could amount to                 that the installation or completion of net-
ECU     400 billion , of which         ECU      220 billion   works as a whole is progressing too slowly.
would go to transport            ECU         150 billion to   There are many reasons for this, depending
telecommunications and            ECU         13 billion to   to a large extent on the specificities of each
energy transport. The sums involved are                       type of network concerned.
therefore fairly substantial. However, the
possible gains in terms of employment cre-                      2. Opinion of Member States
ation , economic cohesion and as an aid to
regional planning are no less considerable.                   Low-cost, efficient infrastructures are gen-
                                                              erally regarded by the Member States as
The message has not gone unheard. The                         being essential to promoting competitive-
new Title XII of the Treaty on European                       ness; by creating trans- European networks,
Union sets the framework. The objective of                    it should be possible to derive greater ben.
developing trans- European networks is to                     efit from the internal market. Several
enable citizens , economic operators and                       Member States consider that the efficiency
regional and local communities to derive                      of infrastructures   depends on their inter-
full benefit from the setting-up of an area                    operability at Community level together
without internal frontiers and to link the                     with their deregulation , and On greater
 peripheral regions with the centre. The pol-                  competition in the energy and telecommu-

 S. 6/93
nications sectors in particular. In the trans-       The contributions from the governments of
port sector ,several Member States indicate          the Member States, as set out above, echo
that priority should be given to congested           the substance of these points. All the contri-
areas and transit, links to peripheral areas         butions on the subject stress the importance
traffic management systems , combined                of networks to the efficiency and proper
transport and high.speed rail links.                 functioning of the internal market , the
                                                     linking up of peripheral      areas with the
With regard to promoting networks ,  some            centre and the impact on economic cohe-
Member States stress the need to apply               sion throughout the Community. The
market-oriented solutions and to encourage           Member States broadly agree on the need
private-sector participation and fmancing.           for a greater role for private financing and
They are also        keen to see rapid and           better financial engineering. They also
optimum use of resources within the current          agree on the need to promote the most effi.
budgetary constraints and with due regard            cient use possible of networks by ensuring
to the subsidiarity principle.                       interconnection and interoperability. Some
                                                     Member States stress the importance of cre-
Some Member         States feel that account         ating or reinforcing market conditions , the
should be taken of links to the countries of         need to respect the financial perspectives at
Central and Eastern Europe in the plan-              Community level and the principle of subsi-
ning of trans- European networks.                    diarity.

  3. The four key elements of the                    Consequently, the objective of the Com-
      initiative                                     mission s proposals must be to attract pri-
                                                     vate investment in networks by helping to
On a general       level , four factors of key       create the      conditions in which it   will

importance to the proposals have emerged             flourish, for example by removing the
from the analysis:                                   obstacles that persist , among others in the
                                                     slowness of procedures at various levels
 (i) The state of the Community s             and    and by supplementing private investments
     Member States ' finances leaves vir-            with public funds where necessary. Stimu-
     tually no margin to increase public fin-        lating the participation of private investors

     ancing beyond that .already planned.            will have a direct effect on growth , competi-
     The Commission           proposals take         tiveness and employment in the Com-
     account of this fact and do not entail          munity, as it will advance projects which
     new public financing requirements.              would otherwise not be implemented , how-
                                                     ever necessary and ' ripe ' they may be , or
(ii) The massive investment required in              which would suffer unreasonable delay.
     some sectors , particularly in transport        The Commission therefore proposes a prag-
     infrastructures , necessitates new types        matic approach involving integrated pro-
     of partnerships between private and             jects.
     public financing, backed by financial
     engineering encompassing all the dif-           The three types of networks involved each
     ferent sources and types of financing.          have different characteristics and suffer
                                                     from different problems requiring           a
(iii) The absence of open and competitive            response tailored to their own particular
     markets is hampering, to differing              operating conditions. These responses are
     degrees , the optimum       use of   existing   examined further on. They        have some
     networks and their completion in the            points in common which make it possible
     interests both of consumers and opera-          to pursue a pragmatic joint approach.
     tors.                                           the basis of a broad consensus between pol-
                                                     itical and economic circles on the need to
(iv) The inherent sluggishness of the prepa-         establish such networks , a genuine partner-
     ration ,          authorization and
                planning,                            ship should be sought between all con-
     evaluation procedures creates major             cerned: the public authorities at all appro-
     obstacles to the implementation of              priate levels, in accordance with the subsi-
     large projects.                                 diarity principle, network operators , users

                                                                                           S. 6/93
service providers , fmanciers , and industrial-      Commission proposes to act as a catalyst in
ists. The large number of parties involved in        this respect.
itself represents a challenge since it is neces-
                                                     It will be essential to play an active role at
sary for them to be able to combine their
interests and resolve any possible dif-              Community level to unlock private invest-
                                                     ment in the new open , competitive climate
ferences of opinion.
                                                     of the single market. Although the fmancing
For each type of network, the nature of the          and implementation of the specific projects
partnership may vary according             to the    will have to be agreed  on a case-by-case
problems to be resolved and the objectives           basis , it is equally important to improve
to be achieved. For            example, to resolve   market conditions in general by means of a
transport infrastructure financing problems          framework favourable to the involvement
emphasis should be placed on the pivotal             of   institutional and private investors.
role of players capable of mobilizing         pri-   Various factors could influence the con-
vate investment. On the other hand , in the          ditions on the fmancial markets , such as an
case of telecommunications there is a need           innovative approach to guarantees and
for a partnership with the network users in          insurance in the framework of the Euro-
order to enable the market to be developed           pean Investment Fund, interest-rate sub-
in response to their expectations. Where             sidies for Community loans or tax incen-
energy is concerned , the partnership should         tives to attract long-term capital. Direct fin-
involve players capable of optimizing net-           ancing would be another possibility. The
work efficiency without diminishing the              Commission will present proposals on this
requisite level of competition in this sector.       matter.

This partnership is simply a        modus operandi   Also at Community level , attention must be
to be applied discerningly on a Community            focused on enhancing the role of the declar-
scale , or on an even wider scale if the net-        ation of Community interest. If this declar-
works are extended. Arriving at a consensus          ation is to have the desired      profile and
on the solutions to be implemented is not            impact on the availability of private capital
the least of the difficulties. There needs to        projects to which it has been awarded
be a willingness to find joint solutions             should have easier access to Community
involving measures at all decision-making            financial instruments and benefit from a
levels: Community, national , regional               binding timetable for completion of the
public authorities , economic operators , etc.       requisite administrative procedures.
A strong political signal would enable this
partnership to be implemented with a view              4. Transport infrastructures: A
to addressing the problems identified as                   financing problem
pragmatically as possible.
                                                     Financing problems are             particularly
Their respective roles are     complementary         apparent in relation to transport infrastruc-
and , as far as the public authorities are con-      tures , a sector with a major impact on
cerned , clearly defined in the various legis-       employment in the construction industry.
lative and administrative              instruments
                                                     By 1999, investment of ECU 220 billion
existing in the Member States. At Com-
munity level , the new Title XII of the              will be necessary for trans- European trans-
Treaty defines responsibilities and their            port networks alone ,    e. between ECU 30
                                                                             i.


limits in the light of subsidiarity. Coordina-       and 35 billion per annum. The Community
                                                     could mobilize ECU 90 billion of this
tion among Member States is one of these
responsibilities , and there are numerous            including      the
                                                                      contributions fro
                                                     Member States. However, given the current
and powerful elements and support instru-
ments available at Community level for this          state of Member States ' finances      , it
purpose.                                             inconceivable that the remainder could be
                                                     financed through the budget. Furthermore
The initiative must be taken to unite all the        the need for high- quality networks does not
levels of responsibility concerned and the           stop at the Community s external borders;
necessary powers , and to write together the         it will be essential to extend the networks in
score for each of the projects selected. The         particular within the boundaries of the

S. 6/93
European Economic Area and to the East.              (iv) Economic importance       in terms of
The magnitude of the deficit is both sub-                employment creation and industrial
stantial and worrying. Although the level of             impact is essential, over and above the
savings is still high , it has proved difficult to       economic viability of the project       as
mobilize private-sector investments in this              such. The increase in the competitive-
field. There are two reasons for this: firstly,          ness of advanced technology products
and above all , any kind of risk inherent in a           and services merits special attention in
project dampens the enthusiasm of the pri-               this context.
vate investor. This may concern feasibility,
technical viability, authorizations , deadlines      (v) Last but not least,    only projects that

or competition from other modes. These
                                                         have passed the environmental impact
elements need to be clarified , evaluated and            scrutiny will be eligible.
conclusions drawn. The same response                     The Commission has drawn up an
must be applied to the second disincentive,              indicative list (see Annex) of 26 major
which is a natural follow-on from the first:             projects , representing an overall invest-
uncertainty about the return on, and hence               ment of the order of ECU 82 billion
the profitability of, the investment.                    on the basis of which it will initiate dis-
                                                         cussions as soOn as possible with the
The objective is therefore clear. In order to            authorities concerned and the relevant
launch the process of reflection and prepa-              economic circles.
ration for the partnership immediately and
effectively, an initial list of projects which           Each project on the list will be evalu-
are both of Community interest and have                  ated jointly with all the actors con.
the potential to mobilize private economic               cerned , in accordance with the partner-
operators must quickly be drawn up. To                   ship principle defined above. The
this end , the following      selection criteria         evaluation will focus above all on the
could be applied:                                        inherent risks of the project and the
                                                         possibilities for covering them under
 (i) The Community interest of projects , all            acceptable conditions. It will also be
     of which must figure in the master                  necessary to    identify the public fin-
     plans for trans- European        networks           ancing sources that can be mobilized
     presented or due        to be    presented          and the nature of the instruments that
     shortly, is obvious in the case of new              could be used to assess the expected
     transfrontier links of a strategic char.            revenue from the projected traffic and
     acter (e. g. transalpine and Pyrenean               to consider the possible duration of the
     links ,   sea crossings , links with the            concession , the most appropriate legal
     East); it is also clear in the case of pro-         formula for involving the interested
     jects which interconnect national net-              parties , the management of the project
     works and ensure their interoperability             the administrative obstacles and the
     and access      to networks , including             impact on the environment. The evalu-
     transfer from one mode to another;                  ation should lead to the presentation of
     and for projects which take account of              an action plan for each project in the
     the special needs of the countries on               form which gives it the political profile
     the periphery of the Community.                     necessary to speed it on     its way and
                                                         secure its fmancing.
(ii) The proposed financing of these pro-
     jects must allow for private investment           5. Energy transport infrastructure:
     the magnitude of which will depend on                Towards better utilization             of
     an evaluation of the risks presented by              capacities
     each project or series of projects on a
     given network.                                  The reliability and efficiency of energy sup-
                                                     plies are key factors in the competitiveness
(Hi) Priority will     be given to projects          of industry and in terms of their effect on
     capable of being implemented at short           the consumer s pocket. There are various
     notice , i. e. which are sufficiently well      reasOnS for this , but among them , the sub-
     prepared and feasible.                          optimum use of      existing networks and

                                                                                            S. 6/93
brakes on their desired expansion are a          energy networks. As with the other trans-
major problem in the central parts of the        port networks mentioned above , it would
Community in particular, and one which is        be worth examining giving more force to
closely bound up with the situation on the       the declaration of Community interest.
market for electricity and gas.
                                                 In the light of estimates based on projects in
Unlike transport proper, planning of trans-      progress scheduled and planned by
European energy transport networks is not        industry, the total amount of investment in
in the first instance   a financing problem.     trans- European electricity and natural gas
Investments in energy networks are gener-        networks could reach ECU 13 billion by
ally more lucrative and do not require the       the end of the decade.
same degree of fmancialsupport from the
public sector. There are only some periph-       Until now ,   Community action to promote
eral regions of the Community where              energy transport networks has essentially
public aid to certain projects is both neces-    focused on financing. The European Council
sary and useful. In such cases ,the Com-         has also called on the EIB to step up this
munity' s Regional and Structural Funds          type of aid. A first series of loans under the
and the EIB provide a suitable framework         new facility has already been decided. The
and market conditions do not strictly            Commission intends to give specific finan-
speaking, pose problems.                         cial support to feasibility studies , as an
                                                 incentive to carrying out the technical
What tends to be the problem is that private     economic and environmental studies neces-
sector investments are often hampered by         sary to determine projects and mobilize the
administrative constraints. These con-           various funds and Community financial
straints are above all the consequence of        instruments and programmes , with a view
exclusive import and export rights ,    trans-   to contributing to the financing of energy
port monopolies , limited possibilities to       transport infrastructure projects whose
construct and operate gas pipelines and          implementation depends on such support.
transmission lines.
                                                 However, on a more general level , the
Removal of these constraints is essential to     Community must remove the obstacles to
the relaunch of investment and network           speedy establishment of these networks. In
planning. Furthermore , the opening-up of        view of the major obstacles already men-
markets and deregulation means greater           tioned , the Commission is seeking the sup-
competition and thus greater energy effi-        port of the European Council to ask the
ciency. The competitiveness of European          Council and European Parliament to bring
industry would be generally strengthened as      their work on completing the internal
a result.                                        energy market already proposed by the
The development of energy networks also          Commission to a rapid close. The Com-
helps to protect the environment , by            mission , for its part , will re-examine the
favouring the use of primary fuels with the      proposal regarding third- party access to the
least carbon dioxide emissions , and             network given the importance of the evol-
intensify cooperation with non- Community        ution of national monopolies on      imports
countries in Europe and the Mediterranean        and exports and on the      establishment of
region , the main suppliers in this area.        lines and sales.
Speeding up the development and more
efficient use of networks is therefore vital.      6. Telecommunications networks:
Gas consumption and imports are already               Creation of new markets
increasing; in the case of electricity, inter-
connection and improvement of the man-           The establishment of trans- European tele-
agement of  electricity systems continent-       communications networks is a precondition
wide falls short of what is considered essen-    for the creation of the ' common informa.
tial to the proper functioning of the single     tion area . It is particularly important for
market.                                          the completion of the single market.
The slowness and complexity of adminis-          The social and economic stakes are high.
trative procedures are also an obstacle to       Today, the telecommunications industries


S. 6/93
account for an annual market in terms of         At present, this transition to interactive
services of ECU 285 billion at world level       trans- European networks and services is
and ECU 84 billion at Community level.           being held up by the fragmentation of mar-
The equipment market is worth ECU82              kets, by insufficient interconnection and
billion at world level and ECU 26 billion at     interoperability and by the absence of
Community level. The expected          annual    mechanisms to ensure coherent manage.
growth rate until the year 2000 is 8% for ser-   ment. Although these are obvious short-
vices and 4% for the equipment market. It is     comings , the problems concerning the tele-
estimated that this sector alone will account    communications networks and services
for 6% of GDP at the end of the century,         differ considerably from those of the other
not including the    indirect effects on the     trans- European networks for the following
economy as a whole of network installation       reason: supply of services is inadequate
and operation.                                   and , where it does exist, too costly, with the
                                                 result that demand is also too low as in this
In the not too distant future ,   the telecom-   case it is supply which determines demand.
munications networks will be capable of          As a result, demand is not manifesting
instantly transporting and processing voice      itself, which in turn discourages the creation
traffic, text and images between any loca-       of a viable . supply. This is a vicious circle.
tions , be they homes, offices or businesses     The general economic situation is aggra-
thanks to digitization techniques and elec-      vating this trend and the private sector will
tronic processing of information. These net-     only invest in this area of services , which
works will therefore constitute the nervous      have been liberalized , if conditions are such
system of the economy, and more generally        as to limit the risks to an acceptable level.
of tomorrow s society.
                                                 To break this vicious circle and stimulate
With the aid of these new networks , it will     the creation of new markets, the Com-
be possible to transmit myriads of texts         mission proposes to identify strategic trans-
(commercial messages, newspapers corre-
                                                 European projects in collaboration with all
spondence , training courses , catalogues
                                                 the various parties concerned. The aim will
technical notices , etc. ), images (films
                                                 be to target our activities in order to iden-
medical images , graphics , etc.) and sound
                                                 tify potential new markets; to tackle
transmissions (voice traffic, music, etc.        obstacles to their development, be they of a
stored and combined in databases , for use       financial regulatory or standardization
in the most diverse applications (leisure        nature; and to define the specific details
education , medical care , tourism, manufac-     and functional characteristics of the services
turing activity, etc.                            to be developed and the typology of poten.
Although voice telephony networks and            tial suppliers. As in the case of transport
services are already international , the same    networks , the national and Community
is not true of other networks and services       authorities will restrict their financial invol-
relating to information in text data and         vement to .a marginal , catalytic role.
image form. Such networks are currently
developing at national level only.               This means that, taking account also of the
                                                 conditions of competition on the world
If a common information area really is to        market, Community action will consist in
be established , the digital national networks   removing obstacles of a general nature
must, like the telephone network , be inter-     (problems of industrial property, security,
connected and managed in a coherent              training, protection of privacy, etc.), in pro-
fashion in order to form trans- European         viding R&D support to project implemen-
networks which will provide access to a          tation , in contributing to the performance
wide range of interactive services. Hence,       of feasibility studies and in granting loan
the new telecommunications           networks    guarantees and interest-rate subsidies.
themselves using different vectors (cables
terrestrial and satellite radio transmission     The strategic projects would be carried out
etc.) will have a beneficial effect on all       at each of the three interdependent ' levels
economic activities and transform the way        that make up the telecommunications net.
of life of Europe s citizens.                    works: the carrier networks for trans-

                                                                                         S. 6/93
mission of information, generic       servIces    the location of activities and access to avail-
and telematic applications.                       able employment can be optimized.
With regard to the networks that serve to         Telematic applications are the third level
carry the information (voice , data , images),    which concerns adapting the service to the
the objective would be to consolidate      the    specific needs of user groups. Public admin-
integrated services' digital network and to       istration in connection with the         single
install the high-speed communications net-        market is of particular interest here , as
work using advanced transmission and              already discussed         in   Chapter 2.
switching techniques (asynchronous                Exchanges of data and the coordinated
transfer mode: ATM), which will help              accelerated introduction of an electronic
digitized multimedia services to make             mail network between administrations
breakthrough.                                     involved in the management of the single
With regard to the generic (universal) ser-       market should also enable businesses and
vices , which form the common basis for all
                                                  citizens to have easy access to the adminis-
telematic applications , three areas would be     trative information they require. This objec-
considered:                                       tive is being pursued in the framework of
                                                  the Community TNA- IDA project.
 (i) access to information services ,   . which
     should provide all users with user-          Distance learning is another area of con.
     friendly access to databases containing      siderable public interest which will help to
     information of all types available in        improve skill levels in an on- going fashion
     multimedia libraries , laboratories or       without the need for costly infrastructures.
     administrations;                             The same applies to telemedicine which is
                                                  designed in particular to give practitioners
(ii) electronic mail, which will enable           remote access to specialist centres of excel-
     documents to be transmitted fast and         lence , to provide diagnostic aids and a basis
     cheaply. The market most concerned           for deciding on treatment, and to contribute
     apart from large     undertakings and        to exchanges of research results in the fight
     administrations , is that ofSMEs;            against serious illnesses such as cancer and
(iii) interactive digitized video services        AIDS. Finally, the application of telematics
                                                  to transport (road ,maritime, air) is now
     covering the whole of the Community,
     the emergence of which it is vital to        becoming an important aspect in transport
     promote, as their general availability       infrastructures.
     will revolutionizeworking practices
     leisure and training. They offer new         It is estimated that the volume of financing
                                                  to be mustered by public and private inves-
     possibilities for customized services
      pay-as-you-view      and ' video      on    tors in the areas currently identified as
                                                  being favourable to the creation of new
     demand' services), creating new              markets in services        will amount to
     demand and hence jobs.
                                                  ECU 150 billion from 1994 over a period of
The general availability of such services in      six to 10 years.The priority projects pro-
the Community will promote the develop-           posed until 1999 would amount to ECU 67
ment of ' teleworking , which will mean that      billion.




S. 6/93
                 Infrastructure for the trans- European transport network

                                        Indicative list of projects

                                                                      Indicative
                                                          Member       total cost
                       Project type                         States                             Maturity
                                                                        (million
                                                          involved
                                                                         BCU)


      Brenner axis;   rail connection   through the 1/ AID             io 000       Studies in progress
      Alps

 2. Paris- Brusseis- Cologne- Amsterdam-London                          2500        Completion             feasi-
      (PBKAL); high-speed train: Belgium                                            bility studies

 3. Paris- Brussels- Cologne-Amsterdam- London                          2100        Completion             feasi-
      (PBKAL); high-speed train: Netherlands                                        bility studies

      Paris- Brussels- Cologne-Amsterdam - London                       3900        Completion             feasi-
      (PBKAL); high-speed train: London-Tunnel                                      bility studies
      access

      Madrid- Barcelona- Perpignan;   high-speed    E/F                 6800        Studies in progress
      train

      Fehmarn belt crossing; fIXed link between     DKiD                4500        Studies in progress
      Denmark and Germany; estimated con-
      struction costs for the tunnel/bridge; new
      construction or upgrading of railway needs
      to be decided (preliminary cost estimates
      ECU 2 to 4 billion)

 7. TGV Est; high-speed train Paris-Strasbourg                          4000        Studies under comple-
                                                                                    tion (F)


 8. TGV Est; high-speed train Karlsruhe-                                8500        Partially ready to go
    Frankfurt- Berlin

      Rotterdam- Betuwe line/(Cologne- Frankfurt-                       3100        Studies under comple-
      Karlsruhe-Switzerland- Italy); railway line   (D/(CH)/I)                      tion
      (cost estimates for the corridor
      German/SwIss border ECU 9. 6 billion)

10.   Lyons-Tunn; high-speed train/combined         F/I                 6200        Studies in progress
      transport

II. Urban by-passes for combined transport D/F/lIE                      2300        Ready to go
    corridors and selected combined transport
      projects

12.   Nuremberg- German/Czech border- Prague;       D (Cz)              1000        German part; ready
      motorway                                                                      go; Czech part: studies
                                                                                    fmalized

13. Berlin- Warsaw- PolishiBelarussian   border     D/(P)               3200        Ongoing studies
      (Moscow); motorway (new construction)


                                                                                                          S. 6/93
                                                                   Indicative
                                                        Member      total cost
                       Project type                       States                          Maturity
                                                                     (million
                                                        involved      ECU)


14. Patras- Athens- Thessaloniki- Greek/Bulga.                        1500       Works in progress
      rian border; motorway

15.   Lisbon-Valladolid (Spanish/French border);      PIE            2000        Works in progress (P)
      motorway

16. (Dublin)- Holyhead - Birmingham - Cam -           UK (IRL)        1000       Works partially in pro-
      bridge- Felixstowe/Harwich-(Benelux); road                                 gress
      corridor (by sections)



17. Bari- Brindisi- Otranto; motorway                                 1000       Studies in progress

18.   Road traffic management system                                  1000       Technology available;
                                                                                 programme
                                                                                 designed; some centres
                                                                                 already in place

19. New Athens airport (Spata)                                        2000       Studies in progress , con-
                                                                                 struction     consortium
                                                                                 chosen; contract not
                                                                                 signed


20.   Air  traffic management system for Europe                       8000       Defmition      system
      (CNS/ ATM); this includes also the satellite                               completed;    projects
      system Inmarsat- III (navigation payloads)                                 ready for implementa-
      and associated ground segment                                              tion

21. Channel Rhine- Rhone                                              2500       Studies in progress

22. Channel Seine north                                               1500       Studies in progress

23. Connections between Elbe and Oder; inland                            600     Studies in progress
      waterways

24. Danube       upgrading: section between                              700     Studies in progress
      Straubing and Vilshofen; mland waterways

25. Vessel traffic management system for Com-                         1000       Works in progress in E;
      munity waters                                                              demands from Cohesion
                                                                                 Fund M.


26. Multimodal positioning system by satellites       D/F +            1000      Studies in progress
      system                                          European
                                                      Space
                                                      Agency

                                              Total                  81 900



S. 6/93
                       ELECfRI            CITY NETWORKS
(a) Connection of isolated electricity networks
   al: Northern Ireland          Scotland
   a2: Ireland  - United Kingdom
   a3 :   Germany Italy          Connection to the new   Liinder
   a4: Greece
   a5: Greece Connection of Crete
   a6: Spain                     Connection of the Balears

(b) Improvement of interconnections between Member States
    b I:  Germany -           Denmark
   b2: Germany                Netherlands
   b3: Germany                Belgium
    b4:   France -            Belgium
    b5:   France -            Germany
    b6:   France -            Italy
    b7:   France -            Spain
    b8:   Belgium -           Netherlands
    b9:   Belgium -           Luxembourg
   blO: Spain                 Portugal
(c) Improvement of electricity networks within Member States in conjunction with improved
     interconnections between Member States or with non-Community countries
     c1 : United Kingdom        Wales
   c2: Denmark East-                    West link
   c3: Netherlands North- East area
   c4: France North- East area
   c5: Italy North-South and East-West links
   c6: Spain North- South link and lines along the coast of the Mediterra-
                    nean and the Cantabrian Sea
   c7: Portugal     Improvements regarding interconnection with Spain
   c8 :   Greece                 East- West link

(d) Creation or improvement of electricity interconnections with non- Community countries
   dl: Germany -               Sweden
   d2: Germany           Poland
   d3: Germany           Norway

     Italy
   d4: Germany
     Italy
   d5:
                         Austria
                         Switzerland

     Italy
   d6:
   d7:
   d8: Greece
                         Austria
                         Tunisia
                         Balkan countries
   d9: Greece            Turkey
   d1O: United Kingdom - Norway
   dll: Netherlands Norway
   d12: France           Switzerland
   d13: Spain            Morocco

                                                                                    S. 6/93
                                  GAS NETWORKS
( e) Introduction of natural gas in new regions
   el: Northern Ireland
   e2: Germany                      New   Lander
   e3: Corsica and Sardinia
   e4: Spain                        New regions
   e5: Portugal                     Whole country
   e6: Greece                       Whole country, including Crete

                 isolated or separated gas networks
           Ireland -
(t) Connection of
    f1 :
    f2 :   Great Britain
                                   Northern Ireland
                                   Continent
       Germany
    f3:Belgium                     Connection of German network to gas
                                   Pipelines coming from Zeebrugge
    f4:
    f5:
           Germany
           Spain                   Connections to the new

                                   France
                                                          Lander

    f6:    Portugal -              Spain


        Ireland
(g) Improvement of reception capacities/LNG storage and underground storage
    gl:
    g2: Germany
                                 Construction of an LNG station

    g3: France
        Italy                    Construction of an LNG station
                                 Extension of LNG . stations
    g4:
    g5: Spain
    g6: Germany
                                 Extensionlconstruction of LNG stations
                                 Extension of LNG stations

    g7: France
                                     Creation of underground storage facilities

    g8: Spain                        Creation of underground storage facilities
                                     Creation of underground storage facilities

(h) New gas supply pipelines
    hI: Norway                       Belgium or Netherlands: new project planned
    h2: Norway                    - Germany (Emden): Europipe project
    h3: Norway                    - Denmark- Sweden: Scanpipe project
    h4: Algeria                   - Morocco- Spain- France (Toulouse/Fos)
    h5 : Algeria                                  capacity increase
                                  - Tunisia- Italy:
    h6: Russia                    - Ukraine- EC: upgrading of existing gas pipeline system
    h7: Russia                    - Belarus- Poland-
    h8: Russia                       Scandinavian countries-
    h9 : Bulgaria                    Greece

NB: LNG could be an interesting alternative to some gas supply pipeline projects that have
      not yet been . finalized.




S. 6/93
Chapter 4
Research and              technological           its total public,   private   , civil and military
                                                  spending on         RTD stood  at some
development                                       ECU 104 billion , compared with ECU 124
                                                  billion for the USA and ECU 77 billion for
Research and technological development            Japan. This was equivalent to an average of
(RTD) can contribute to renewing growth,          2% of GDP in the Community, 2.8% in the
strengthening competitiveness and boosting        USA and 3% . in Japan or,          in relation to
employment in the Community. However              population , ECU 302 per inhabitant in the
in order to achieve this a series of con-         Community, compared with ECU 493 in
ditions must be satisfied: an adequate level      the USA and ECU 627 in Japan. However
of funding; an appropriate range of               there are big differences between the
research activities; and effective mech-          Member States with research             spending
anisms for transferring the results.              accounting for 2. 6% of GDP in Germany,
                                                  for example , but only 0. 7% in Greece and
  1. Opinion of the Member States                 Portugal. Investment by businesses is par.
                                                  ticularly weak , as they fund only 52% of all
As it is difficult to increase public spending,   research in Europe compared with 78% in
the Member States agree on the need to            Japan, for example.
promote investment in RTDin the private
sector especially and to increase the effec-      The Community also has proportionately
tiveness of their RTD through cooperation         fewer researchers and engineers: 630000 (4
between companies and with universities           out of every I 000 of the working popula-
and research centres.                             tion) compared with 950 000 (8 per I 000)
                                                  in the USA and 450 000 (9 per I 000) in
Where Community RID            is concerned       Japan.
emphasis is placed on coordination of RTD
conducted by the        Community and the         Figures like these are meaningless in abso-
Member States , focusing on key areas , sim.      lute terms and must be treated with caution.
plifying procedures , in particular to facili-    The use made of the funds is more impor-
tate the access of   SMEs to RTD , and            tant than the amount spent. And more
especially improving the dissemination and        important than the       absolute number of
application of RTD results , notably by pro-      researchers are their qualifications , their
moting standardization.                           ability to meet the needs of developing
                                                  industries and the extent          to which the
Among the practical measures proposed             capital they represent is utilized. Neverthe-
mention is made of tax incentives for RTD         less , on the whole this lower investment in
investments , the promotion of companies          both financial and human terms gives cause
specializing in new technologies , and the        for concern.
launching of major RTD projects.
                                                  (b) Coordination of research
  2. Assessment of research in the
     Community                                    A second weakness is the lack of coordina-
                                                  tion at various   levels of the research and
In the Commission s opinion , Europe              technological development activities ,       pro-
research and industrial base suffers from a       grammes and       strategies in Europe. First
series of weaknesses.                             there is the lack of coordination between
                                                  the national research policies. The Com-
(a) Level of resources                            munity' s research budget accounts for only
                                                  4% of research         spending by the
The first of these weaknesses is financial.       Member States. Even adding the resources
The Community invests proportionately less        allocated to joint European RTD activities
than its competitors in research and techno-      in other frameworks (e. g. under Eureka
logical development. In 1991 ,   for example      ESA, CERN , EMBL, etc.), the budget

                                                                                            S. 6/93
amounts to only 10% or so of the        total.    gress made on this          point in most
Despite the coordination called for by the        Member States; the lack of risk capital
existence of these activities and the need for    help firms through the development phase
the Member States to take         them into       and the reluctance of private-sector finan-
account when defining their own policies          ciers to invest in activities if they consider
the national policies are still developed         the risks too great or the return too uncer-
largely without reference to one another.         tain; insufficient account of RTD in busi-
                                                  ness strategies and the lack of coordinated
This lack of    coordination is particularly      strategies between businesses, universities
marked between military and civil research        and the public authorities (compared with
activities in each Member State which are         Japan , for example); the lack of facilities or
conducted within relatively self-contained        the regulatory obstacles to business start-
institutional frameworks, between which           ups by researchers and the lack of mech-
bridges are only just beginning to be built.      anisms for harnessing the knowledge and
In some Member States military activities         technologies generated by defence research;
account for a     large proportion of all         the targeting on markets which are too
research (44% in the United Kingdom , 37%         small and the weak capacity        to foresee
in France and 17% in Spain).                      future needs and demand on the market
                                                  etc.
One immediate consequence , which can
vary in intensity from one sector to another
but is generally relatively important, is the       3. The solutions
lack of coordination of business strategies
                                                  (a) New directions for research
too , not only with public research policies
and with the activities of universities and       To restore the dynamic combination of
public research centres in each                   technology, growth and employment , the
Member State hut also with the strategies of      Community and the Member States must
other European businesses.                        take measures on several levels. These can
                                                  be divided into two main groups. The first
(c) Application of research results               comprises measures aiming essentially at
                                                  restoring the competitiveness of European
The greatest weakness of Europe s research
                                                  businesses and renewing growth. One aspect
base, however, is its comparatively limited
                                                  will be to correct the traditional weaknesses
capacity to convert scientific breakthroughs
                                                  of Europe s research and industrial base
and technological achievements into indus-
trial and commercial successes.    In most
                                                  and to restore Community firms to the fore-
major fields and disciplines , Europe is up
                                                  front of the world economy. The other will
                                                  be to extend the geographical coverage and
to the highest standards in the world in
                                                  to take account of the new needs of society in
terms , for example , of the number of publi-
cations by researchers and of references          the Community and throughout the world.
thereto. In certain fields heavily dependent      The effect of these measures to restore com-
on action by the public sector, such as tele-     petitiveness on industrial     activity in the
communications , transport or the aerospace       Community will have a positive indirect
industry, European firms can also point to        impact on employment. Coordinated mea-
indisputable technological successes. The          sures to take account of the new needs of
European chemical and pharmaceutical              society should in turn create a number of
 industries are in the forefront on world
                                                  jobs. Alongside these measures , however, a
 markets. However,    in all other fields of       second category of action should also be
                                     excep-
 advanced technology, with a few                   taken targeted more specifically on
 tions , European firms have failed to con-        improving the employment situation.
 vert their scientific and technological
 achievements into products and competi-
                                                   (i) Restoring competitiveness     and
 tiveness.
                                                         renewing growth
 This weakness stems from a combination of
 factors: the still inadequate links between       To make European companies more com.
 universities and businesses , despite the pro-    petitive , action is needed on the three tradi-

 S. 6/93
tional weaknesses of Europe s scientific and      potential users and makers of new prod-
industrial base. First, steps must be taken to    ucts, component suppliers and manufac-
allow better application of the results of the    turers of the end-products would provide a
research carried out in the Community, i.e.       means of deriving maximum benefit from
the establishment of operational mechamsms        the work carried         out by companies
at national and European level for the            research departments and establishing con-
transfer of technologies from university lab-     sistent strategies , guided by earlier anticipa-
oratories to companies, from one company to       tion of the needs of the market. They could
another and from the    military to civil         be planned in conjunction with the defmi-
research sectors. One key aspect must be          tion and implementation of major projects
substantially to step up the measures to          bringing together rival European com-
improve the business environment ,      in the    panies for work on carefully targeted tech-
form of scientific and technical informa-         nological objectives.
tion , fmancial services , aid to protect inno-
vations , training in new technologies , etc.     With regard to overall research funding, the
                                                  objective of a gradual increase to 3% of GDP
In this context       sufficient importance       should be borne in mind. It is not a ques-
should be attached      to small businesses.      tion of ' more of the same research' . In view
Small businesses working in high-technology       of the current budgetary constraints in all
sectors producing capital goods and               European countries , companies should bear
advanced consumer goods or applying               a larger share of the spending. Their objec.
advanced technologies in manufacturing            tive should be to achieve investment levels
industry, represent a significant potential       comparable to those of their rivals by pro-
source of growth. In the USA, a very large        viding greater funding for in-house research
proportion of emerging technologies was           and work in universities. Appropriate regu.
first developed by small firms which are          latory and tax measures should be taken to
better equipped to anticipate the needs of        make it easier for the private sector to bear
the market and to react rapidly.                  such a higher share of research spending.

Beyond the coordination already existing in       (ii) New geographical markets and new
practice today, measures should also be                needs of society
taken to further effective coordination of
research activities, strategies and pro-          In addition to competition and market
grammes in Europe. The first thing must be        forces , considerable potential for growth
coordination between the national public          lies in catering for a wider geographical area
research bodies: the coordination structures      than the Triad alone (European Com-
now being set up between most of the              munity, USA and Japan) and for the
major national bodies should be strength-         emerging needs of society. The newly indus-
ened and institutionalized. A forum for con-      trialized countries in the Pacific region
certation and exchanges between the various       compete with the Community in basic and
European research bodies and centres could        intermediate technologies and will soon be
also be set up. To encourage the develop-         able to develop more sophisticated techno-
ment of concerted strategies linked to the        logies themselves. For several years they
Community' s activities , a science and tech-     will offer a window of opportunity for com-
nology assembly could also be established         panies in the Community. Countries such
based on the Commission s existing consul-        as   these which are keen to acquire
tative committees.                                advanced production technologies but also
                                                  by virtue of their explosive development
Companies , particularly firms conducting         face serious environmental problems , offer
large amounts of research, should also coor-      large potential markets.
dinate their   strategies more closely in the
framework of Community projects. Based on         Both as a source of high- level scientific and
or alongside existing consortia , frameworks      technical know-how and as a market for
for intercompany cooperation should be            specific technologies and advanced produc-
established at Community level. These             tion processes, the countries of Central and
frameworks for close cooperation between          Easteru Europe, which are not only geogra-

                                                                                         S. 6/93
phically but also historically close to the      CD-    , etc. )   and the corresponding hard-
Community, provide further rich potential        ware. With their impressive capacity to
for innovations which Eastern and Western        store enormous quantities of text, sound
Europeans should harness together, by            and moving and fixed images on the same
pooling their complementary skills.              medium, combined with the possibility of
                                                 multiplying the effects by linking up with
Accompanied by measures to create viable         telecommunications systems ,  these products
demand in the countries concerned , the          will revolutionize the media industries.
establishment of truly effective mechanisms
for transferring technologies to developing      At the crossroads between satisfying the
countries would also provide Europe with         worldwide needs in the fields of energy,
substantial potential markets for specific       health and the environment and the
products and requirements.                       requirements for .competitiveness ,    biotech-
                                                 nology is one of the fields offering the
One key aspect of this broadening of the         greatest potential for innovation and a par-
horizons of the Community             research   ticularly rich source of growth. What is
should be closer cooperation to implement
        programmes reflecting the biggest
                                                 more  ,a   significant proportion of the
very big                                         research and development work in this field
worldwide needs for the next century: energy,    is carried out by small and medium-sized
global change and food.                          businesses. However, in order to ensure
                                                 development of activities in this field com-
New needs which could make a significant         mensurate with actual and potential needs
contribution to restoring growth are             steps must be taken to establish an appro-
apparent in three areas: the environment,        priate regulatory framework, to harmonize
health and the media. The market in              the measures taken in the various countries
environmental products and services , for        and to define a global strategy bringing
example, covers pollution detection and          together the public authorities , research
monitoring technologies environmental            bodies , businesses and the various sectors
improvement technologies ,    clean techno-
                                                 of society concerned.
logies (i.e. improvements to conventional
technologies to take    greater account of       Impact on employment
environmental requirements) and ecotech-
nologies (entirely new technologies based                                                 restore
on novel raw materials and energy sources).      The measures described        above to

Added to this market in goods , there is also    competitiveness and take       account of the
the market in services such as water treat-      new needs         of   society should have a
ment, waste processing, etc. On the basis of     moderate, but indisputably positive indirect
                   , this world market in
the latest estimates
                                                 impact on employment. The rise of the
environmental products and services is           environmental industries could possibly
                                                 have a great impact on competitiveness and
worth some ECU 190 billion per year now
                                                 should have at least the same effect in terms
and could reach ECU 270 billion by the
                                                 of safeguarding existing jobs as the concept
year 2000.
                                                 of quality did a few years ago. By contrast
The second area is health. Alongside new         there is undoubtedly potential to create jobs
molecules to treat diseases of the nervous       in the health and media sectors. The devel-
system and degenerative and viral illnesses      opment of new formulas        for care in the
not yet properly controlled , the principal      home based on decentralized assistance and
market concerned is in advanced preven-          health-care technologies will create a need
tive technologies and methods allowing           for health-care , assistance and training staff.
treatment in the home by the patients them-      The new market in . media products in addi-
selves or by non-specialist staff, automatic     tion to , rather than in place of, existing
monitoring and diagnosis systems , remote        printed and audiovisual media should also
monitoring, etc.                                 generate a whole cascade of new jobs.

 In the field of the media , one category        Of course, the measures to encourage busi-
heading for vigorous expansion is the range      ness start-ups in high-technology sectors
of multimedia products (CD- ROM , CD-            should in turn have a positive impact on


 S. 6/93
employment. In the USA, firms of this type       term. Special formulas could be devised to
are often started up by researchers    leaving   encourage companies to fund research by
universities or big businesses. The increase     universities.
in the number of firms of this type should
create a certain number of jobs for develop-     The Member States could also study and
ment engineers , administrative staff, etc.      introduce schemes to lighten the social
The same applies to the measures to              security contribution burden on rmns and
increase the total number of researchers         research bodies creating new jobs for resear-
and engineers      in the Community.       Of    chers and engineers together with fmancial
course ,   the primary objective should    be    or career incentives for further on-the-job
optimization of the available resources by       training for the scientific and technical staff
adapting the skills of the existing scientific   in service. In    addition to its impact
and technical staff to the new needs. How-       employment , action in this field could also
ever, the creation of new jobs for resear-       promote the dissemination of knowledge
chers and engineers as fast as Europe            and of new technologies. Within the
scientific and industrial base can absorb        existing schemes to help business start-ups
them would be the most effective means of        formulas could also be defined for helping
ensuring a net increase in the resources         researchers to start up businesses. Financial
allocated to research activities.                instruments under the direct or indirect
                                                 control of the national authorities could be
The policies and programmes conducted by         adjusted to provide companies , particularly
the Member States . and the Community            small businesses, with the risk capital to
should also aim at promoting  technologies       develop the innovations which they have
which will save the maximum number of jobs       prepared.
or require or encourage the creation of new
jobs as long as they have an equal effect on     (ii) Commuuity measures and concerted
competitiveness and growth and an equal               action
capacity to satisfy the current and fore-
seeable needs of society. Tools and methods      The Community itself should   also take
must be devised to        determine the net      measures to back up these activities. The
impact of a wide range of technologies on        broad lines of the fourth (1994-98) frame-
employment.                                      work programme currently being discussed
                                                 already clearly point towards the establish-
(b) Specific means                               ment of mechanisms to coordinate the
                                                 national efforts (research consortia) and
(i) Measures by the Member States                industrial research policies (particularly in
                                                 the form of support for Eureka projects),
Since most of the spending on research and       concentration on a limited number of key
development in the Community is under            technologies with a major impact on many
the control of the Member States , most of       branches of industry, greater support for
the measures mentioned must be taken at          the dissemination of the results of the
national level. The provisions outlined should   research carried out in the Community,
be put into practice in the national policies    establishment of a system of access to and
and programmes. In view of the current con-      participation in the   programmes specifi-
straints on research budgets and to ensure       cally for small and medium-sized busi-
the most effective action possible   in cost!    nesses ,   etc.
benefit terms , priority must be given to the
indirect regulatory instruments under the        In conjunction with the fourth    framework
control of the Member States.                    programme and the preparations about to
                                                 be started for the next programme ,       new
In the context of transferring a higher pro-     large-scale research projects should be
portion of research spending to the private      defined in conjunction with the national
sector and of shifting government interven-      research bodies and companies.
tion from direct support to indirect instru-
ments , tax credit schemes for research could    Implementation of the guidelines proposed
be developed to encourage companies to           will also call for changes in the rules and
invest more in science , even in the long        instruments for Community research. In


                                                                                       S. 6/93
practice, there are clearly limits to the single   the   possibility of    agreeing guidelines at
formula of   50%  funding of the .costs of pre-    Community level        On business start-ups
competitive research      projects. Formulas       funding of the application of research
creating a more flexible link between proj-        results or changes in the conditions of
ect- funding and the obligation to produce         employment for scientific staff will have to
results , tailoring the level of public support    be studied. Steps will also have to be taken
to the economic and social importance of           to ensure that the measures implemented
the results , will have to be explored. More       are compatible with competition policy,
practical formulas in terms of costs and           notably on agreements and State aid.
benefits      such as low-interest loans           Finally, to maximize the impact of the mea.
repayable over very long periods , will have       sures taken at Community level and by the
to be developed.                                   Member States , significant efforts will be
                                                   required to     make the Community' s research
To facilitate the adoption of converging,          external relations and commercial policies
proactive measures in the Member States            more compatible.




 S. 6/93
Chapter 5

The changing society, the new                   appropriate regulatory and political
                                                environment should be created and the
technologies                                    implementation of trans- European telecom-
                                                munication services . stimulated. Training
Introduction                                    systems should foster the application of
                                                these technologies. Europe should imple.
Information and communication techno.           ment the conditions that will allow it to
logies (lCTs) are transforming dramatically     maintain a sufficient level of mastery over
many aspects of economic and social life        technology and benefit from an innovative
such as working methods and relations, the      and competitive ICT industry, within an
organization of companies , the focus of        open and competitive environment.
training and education , and the way people
communicate with each       other. They are     Member States vielQ(~
resulting in major gains in productivity in
industry, and in the quality and perform-       The Member States ' contributions on this
ance of services. A new ' information           subject place the emphasis on cooperation
society ' is emerging, in which management      between the Community and the Member
quality and speed of information are key        States to promote economies of scale; the
factors for competitiveness: as an input to     Community could focus its efforts on facili"
the industries as a whole and as a service      tating the development of market forces
provided to ultimate consumers , informa-       while ensuring free competition and pro-
tion and communication technologies             moting systems compatibility.
influence the economy at all stages.
Comparable changes in productivity will be      A. The information society
achieved by further progress in life sciences
- biotechnology - through the creation of         1.   Introduction
innovation in highly competitive areas of
industry and agriculture.                       This decade is witnessing the forging of a
                                                link of unprecedented magnitude andsig-
The competitiveness of the European             nificance between the technological innova-
economy will to a great extent depend both      tion process and economic       and social
on the conditions of utilization and on the     organization. Countless innovations are
development and application of these tech-      combining to bring about a major upheaval
nologies. Since they are amongst the highest    in the organization of activities and
growth activities in industrialized countries   relationships within society. A new ' infor-
and they are also highly skilled labour acti-   mation society ' is emerging in which the
vities , their potential for employment cre-    services provided by information and com-
ation is considerable , in particular for the   munications technologies (ICTs) underpin
creation of new services. At the same time      human activities. It constitutes an upheaval
potential drawbacks of widespread use of        but can also offer new job prospects.
these new technologies , such as the risk of
non-skilled people being left behind by pro-    With easier access to information , it is
gress in information technologies , should      becoming increasingly easy to identify,
be combated through positive policies.          evaluate and compete with economic acti-
                                                vities in all sectors.   The pressure   of the
Various obstacles to an optimum exploita-       market- place is spreading and growing,
tion of these technologies have been            obliging businesses to exploit every oppor-
encountered in Europe , and they should be      tunity available to increase productivity and
removed. The diffusion of best      practice    efficiency. Structural adaptability is
aimed at business should be promoted and        becoming a major prerequisite for econ-
the development of Community-wide               omic success. The growing interconnection
applications favoured. To this end , an         of the economy is leading to major produc-

                                                                                        S. 6/93
tivity improvements in the production of         and process     information (sound , text
goods but also in relation to services , and     images) in digital form.
the borderline between goods and services
is     becoming increasingly blurred.
Throughout the world there is a trend
                                                 Companies operations have become
                                                 unthinkable without the use of ICTs. These
towards specialization and professional-         technologies are enabling them to seek total
ization in economic activities which is grad-    integration of their own functions in space
ually extending to subcontractors and ser-       and time and in terms of their environment.
vice providers. To be able to compete            The introduction of ICTs , globalization and
worldwide, European industry must exploit        international competition are forcing com-
all possible ways of improving its competi-      panies to rethink the way in which they
tiveness by making growing and effective         organize their production. Where the gen-
use of ICTs. It must favour innovative and       eral public is concerned, the penetration of
attacking strategies aimed at acquiring          ICT-dependent products and services into
market shares rather than simply adjusting       everyday activities is also striking. This gen-
by reducing its production costs.                erates new forms of economic and social
                                                 organization , the structure of which is no
Businesses .are very much aware of the           longer subject to geographical constraints
importance of applying ICTs in order to          but depends on telecommunications net-
stay competitive. The job situation has gen-     works or teleports: teleworking is emerging
erally remained more favourable in com-          as a major .social phenomenon. Authorities
panies which have introduced microelec.          concerned with the management of public
tronics than in those companies that have        funds and wishing to provide their consti-
not used this technology. The main effects       tuents with better quality services also call
have been job substitutions on the basis of      upon ICTs. Relationships between the gen-
different qualifications. The spread of ICTs     eral public and the authorities are changing,
within the Community has generated               and more fundamentally the present
increases in productivity and in GDP, and        boundaries between the role of the State
a lower rate of inflation. The overall impact    and the market are altering.
on employment depends to a large extent
on how competitive the European ICT              Despite the undeniable progress that has
industry is: the better it performs , the        been made , the penetration of ICTs is not
greater the benefit in terms of the impact on    an unmitigated success story. The change.
employment. However , the current wor-           over towards an information society has
rying employment situation within the            placed severe demands on the adaptability
Community cannot be blamed on the pene-          of those concerned. The risk of exclusion
tration of the ICTs into the industrial and      for example , as a result of inadequate skills
social fabric.                                   or qualifications and , more generally, the
                                                 emergence of a two-tier society should not
The economic impact of teclmological pro-        be underestimated. Europe must prepare
 gress on growth and employment depends          itself for this changeover in order to capi-
 on the innovation       process , which has
                                                 talize upon the economic and social
 become interactive. The linear model             advantages while analysing and mitigating
 innovation , with the innovative act being       any adverse consequences: an increase in
 isolated , has in today s world been replaced    the isolation of individuals ,intrusions into
 by    complex mechanisms: innovation             private life , and moral and ethical prob-
 requires constant and organized interde-         lems. It is important to identify to a greater
 pendence between the upstream phases
                                  downstream      extent the employment possibilities for
 linked to technology, and the
 phases linked to the market.
                                                  those who encounter difficulties in inte-
                                                  grating into a    working world which is
 The means       available to create , process    becoming increasingly complex and
 access and transfer information are remod-       demanding. Social responsibility is a matter
 elling relationships in our societies. One of    for employers , employees and the State.
 the most important aspects of current devel-     The information society is producing a sig-
 opments is the breathtaking expansion in         nificant acceleration of economic and
 the means available to us to communicate         social changes , and new and more flexible

 S. 6/93
forms of employment are emerging which                  (vi) users, who are not only trained in oper.
often require new forms of social             protec-        ation of the applications , but are also
tion.                                                        aware of the potential of ICTs and of
                                                             the conditions required for optimum
  2. A common information area                               use thereof.

The move towards an ' information society               (b) What opportunities?
is irreversible, and affects all aspects of
society and interrelations between econ-                The common information area is a factor
omic partners. Creation of a common infor-              for economic and social improvement. In
mation area within the Community will                   the current competitive context , access to
enable the Community fully to seize these               and mobilization       of   information are
opportunities.                                          becoming the central aspects    of produc-
                                                        tivity and competitiveness , especially for
(a) What is a common information                        SMEs. The capital and non-capital invest-
        area?                                           ment required to set up information tech-
                                                        nology infrastructures directly supports
The common information area consists of a               growth and contributes to structural
number of indivisible levels:                           improvements in the conditions of supply.
                                                        The common information area is also a
 (i) the information itself, converted and              factor for economic and social cohesion: it
        collated in electronic , i.e. digital , form    will allow reconsideration of siting and
        (databases, document bases , image              make it possible to promote new decen-
        bases , CDI, etc.                               tralized methods of organizing work, for
(ii) the hardware, components and software              example , teleworking. It contributes to the
        available to the user to process         this
                                                        performance of other major infrastructures
        information;                                    in particular transport infrastructures    , and
                                                        constitutes an aid for the protection of the
(iii) the physical infrastructure (terrestrial          environment and risk management. Last
        cable infrastructure , radio communica-         but not least, infrastructures are a powerful
        tions networks and satellites);                 lever for the development of new services
                                                        and in this way can make a significant con-
(iv) the basic telecommunications          semces,      tribution to improving the job situation. In
        particularly electronic        mail      file   particular, certain services for which the
        transfer, interactive access to databases       State has been responsible hitherto , and
        and interactive    digital   image trans-       which are subject to increasingly tight
        mission;                                        budget restrictions , could be transferred
                                                        permanently to the market. There are many
(v) the applications, for which the above-              examples of such new services      related to
        mentioned levels perform the storage            communication and social relations: educa.
        processing and transmission functions           tion and training,   culture , security,     etc.
        providing users with the specific ser-          They cannot be developed free       of charge
    vices they need. Generally, users ' see             and be funded implicitly by the taxpayer.
        only the application to which they are          They call for the introduction of new
        connected; the transport side needs to          methods of payment, such as the pay- per-
    be ' transparent' for them.     Conse-              use system.
        quently, applications are the area
    where the         greatest efforts must be          Modern technologies      are fundamentally
    made to improve the structuring of the              changing the relationship between the State
    information and user-friendliness.                  and the general public. The ordinary citizen
    With the aid of the applications , their            can have access to ' public   services   ' on an
    performance and the              conditions in                       and these will be invoiced
                                                        individual basis ,
    which they can be used , the common.                on the basis of the use made of them.
    information area will have an econ-                 Transferring such services to the market-
    omic and social impact and can help to              place will lead to new private-sector offers
    improve the employment situation;                   of  services and numerous job-creation

                                                                                                 S. 6/93
opportunities. However, this will have to be      and in particular the liberalization of value-
accompanied by a reduction in user costs;         added services and a programme designed
otherwise , no-one will be willing to make        to culminate in 1998 in the liberalization of
use of such opportunities. It will also be        voice telephony, RTD support programme
essential to ensure that this transfer does       stimulation of the      development of data-
not entail social disadvantages.                  communication systems of general interest
                                                  establishment of a standardization policy,
                                                  and a policy of innovation and support for
(c) The policies pursued with the                 regional policy.
     Triad (European Community,
     United States and Japan)                     The development        of an ' information
                                                  society' will be a global phenomenon , led
The move towards an information society,          first of all by the      Triad , but gradually
and the opportunities     which it provides       extended to cover the entire planet. In pur-
will in the long run be as important as the       suing its   strategy, Europe should aim at
first industrial revolution. It is difficult to   achieving three objectives:
predict the pace at which this change will
take place. The economies which are the            (i) from the outset , placing its approach in
first to succeed in completing this change             a world perspective , and therefore
satisfactorily will have major competitive             encouraging the international alliance
advantages. The USA and Japan are there-               strategies of its companies and opera-
fore attempting to speed up the process.               tors; promoting where possible the
                                                       development of open systems and
In the USA, the public authorities have      a         international standards; working resol-
strong desire to maintain US technological             utely towards the opening-up of third
pre-eminence , in particular . on national               country markets , in order to seek
economic security grounds , and are making               genuine reciprocity, and opposing any
technology the driving       force behind a              form of discrimination;
revival in US economic growth and compe-
titiveness. The policy to establish informa-       (ii) ensuring, at the same time , that the sys-
tion technology infrastructure spanning the              tems developed take due account of
entire USA is considered vital for the                   European characteristics: multilin-
country s growth. The project to speed up
the introduction of     new high-speed net-              gualism , cultural diversity, economic
                                                         divergence , and more generally the
works , computer systems and communica-                  preservation of its social model;
tion technologies is not limited to invest-
ment in    physical infrastructures.   It also
                                                  (iii) creating the conditions whereby, in an
includes the   development and installation
                                                        open and competitive international
of new technologies and applications.                   system , Europe still has an adequate
                                                        take-up of basic technologies and an
In Japan       political awareness of the               efficient and competitive industry.
strategic importance of ICTs for Japan
economic development dates back to the            Fuller use of the potential offered by infor-
I 960s, and a social consensus on the             mation and communication technologies
priorities and the means and programmes
required was already achieved at that time.
                                                  can:
The recognized importance of ' information
infrastructures ' to maintain Japan s devel-      create new service markets;
opment has given rise to a programme
under the new Japanese economic recovery          facilitate provision of services by the private
plan.                                              rather than the public sector , including a
                                                   new partnership between the private and
The Community and the Member States                public sector ,   for example for training;
 have taken numerous steps to create infor.
 mation infrastructures: revision of the regu-     speed up administrative decision-making
 latory framework for telecommunications           procedures.

 S. 6/93
  3. The objective: To create new                    (i) diffusion of best practice and develop-
         service markets                                 ment of European ICT applications
                                                         which is the fundamental objective in
Europe has the know- how and experience                  view of the contribution which it can
to establish a   common information area.                make to restoring growth and strength.
However, to harness them , there needs to                ening competitiveness;
be a collective effort and a political fram~
work so that the measures to be taken can           (ii) liberalization of the telecommunica-
                                                                     which alone can release
                                                         tions sector,
be implemented as quickly as possible. This
process will primarily be led by the private
                                                         the market forces of the information
sector and underpinned by the emergence                  society; users must be offered a broad
of new needs and new markets. It is there-                range of options at attractive tariffs;
fore necessary to define the role of the            (iii) faster standardization, which alone can
public authorities unambiguously.                        create a European information area
                                                         from the fragmented communications
In the first instance, it will be their responsi.        areas;
bility to address the ' societal' implications
as a whole, avoiding exclusion phenomena            (iv) trans-European telecommunications
maximizing the impact on employment                      infrastructure, which is essential as the
adapting education and training systems                 basic foundation of the information
and taking due account of the cultural and               society.
ethical implications for the general public         The policy for creating a common informa-
including aspects relating to the protection        tion area should set the following priorities:
of privacy.

The second task of the public authorities            (a) Diffusion of best practice and devel-
will be to remove the remaining regulatory               opment of European ICT applica-
obstacles to the development of new mar-                 tions. This is the fundamental objec-
kets. However, investors wait-and-see' atti-             tive in view of the contribution
tude can also be . explained by the fact that            which it can make to restoring
for want of a communication infrastruc-                  growth, strengthening competitive-
ture, demand cannot be expressed suffi-                  ness and improving the employment
ciently clearly. To resolve this dilemma                 situation.
there is a need for the public authorities to
provide encouragement          guidance and          (b) Creation and enforcement of a legal
opportunities for concertation.
                                                         regulatory and political environment
                                                         encouraging private initiative by
The third task of the public authorities is to           opening up the market to competi-
create the conditions whereby European                   tion , taking due account of the inter-
companies develop their strategies in an                 ests of the Community (the existence
open internal and international competitive              of universal services and the emer-
environment, and can continue to ensure                  gence of European operators) and of
that crucial technologies are mastered and               individual citizens (protection of
developed in Europe.                                     data . and privacy, security, etc.
The changeover towards an information                (c) Development of basic trans- Euro-
society is a very complex process requiring              pean telecommunications services,
new forms of partnership and cooperation                 which are a     sine qua non   for the free
between the public and private sectors. In               movement of information.
the measures proposed below, the principle
of subsidiarity must be applied fully bet-           (d) Provision of       specific training
ween the private sector and the public . auth-           targeted on extensive use of informa-
orities and also between the Community                   tion and on the needs of the ICT
authorities and the national administra-                 industries for qualified human
tions.                                                   resources.
A strategy for establishing a common infor-          (e) Technology take-up and improve-
mation area must satisfy four specific                   ment of the performance of the
requirements :                                           European ICT industries , a precon-

                                                                                             S. 6/93
     dition for adapting the applications            homogeneity in terms of standards in
     to thespecific situation in Europe              particular. Clear priorities must be
     for making full use of technological            defined. They offer the prospect of
     progress and for maximizing the                 creating a market large enough to
     impact of the measures proposed on              make investment in telecommunica-
     employment.                                     tions infrastructure profitable and
                                                     guarantee satisfactory amortization.
                                                     They could concern:
These five complementary priorities form
an indivisible whole. The first     sets the
                                                     AdmiJrlstrations, through an extended
objective and the others are the means to            version of the IDA programme.
attain that end. In the current climate of
rapid technological and industrial change            Major public services. On the basis
action must be started as soon as possible to        work already carried             out    efforts
establish a European information infra-              should be concentrated on effective
structure and give a positive lead to the            implementation of a limited number
strategic intentions and choices made by             of major projects leading to a political
businesses. The instruments or bodies nec-           commitment: an integrated air-traffic
essary to ensure the compatibility and inter.        control system, a European road-
operability of products and services must            traffic management network , a Euro-
also beset up without delay.                         pean medical information system , a
                                                     network of research centres ,          a Euro-
(a) Diffusion of best practice and                   pean   distance- learning service ,    a ' com-
    development of European ICT                      puters in schools '        programme or a
     applications                                     European civil protection system.
Strict implementation conditions are                 Teleworking and telepartnerships. Tele-
needed to exploit all the potential offered           working and telepartnerships have an
by ICTs. In particular , the introduction of          important part to play in the reloca.
computer systems must go hand- in-hand                tion of work and of businesses to the
with the identification        of companies           disadvantaged areas of Europe (rural
strategic objectives , the functions and sup-         areas ,   peripheral areas or old indus-
port to be provided by the system , and               trial areas ,   etc.   ). A European project
appropriate work organization. This is an             could be launched to promote the
area where the awareness of the user com-             development of teleworking and tele.
panies must be raised.                                partnerships.
It is recommended that the following action           Greater involvement of leT users in the
be taken:                                             creation and implementation of Com-
                                                      munity programmes.
  (i) Diffusion of best practice in the use of
      ICTs. Attention should be focused on            Strengthening the coordination of pro-
      the conditions under which ICTs are             grammes
      used: a programme for the diffusion
      of best ICT practice aimed at busi-        (b) Creation of a regulatory          and
      nesses , in particular SMEs , would sig-
      nificantly improve the impact of ICTs          poliffcal enwronment
      on their competitiveness and ability to    Creation of a        common information area
      create jobs.                               will depend primarily on private             sector

  (ii) Launch of European   applications pro-    investment. It is therefore essential to create
      jects. The crux of the matter is not       a legal environment which will stimulate
      technology, but organization. In order     the development of such investments and
      to avoid a proliferation of uncoordi-      guarantee that they are used in the public
      nated and incompatible applications        interest. Several types of action can be
      in Europe , several major applications                                       most of
                                                 taken to achieve these objectives ,
      projects should be launched to cata-       which . have already been initiated , and
      lyse the market and promote greater        should be intensified where appropriate.

 S. 6/93
  (i) Opening up to competition, to provide               The following action can be recommended:
      the broadest possible range of services
      at the best price to suit the market.                (i) development of support networks: Euro-
                                                               ISDN and integrated broadband com-
 (ii) Universal service: since the traditional                 munication (!Be) system. Mobile radio
      operators are becoming increasingly                      communications (GSM , PCN) are
      independent of the State and are                         another area in which efforts should be
      exposed to growing competition ,            it is        made to speed up development;
      necessary to        derIDe precisely        . the
      universal service                 their
                               obligations
                                                           (ii) acceleration of the standardization pro-
      price and how they should be financed.                    cess and integration of standards into
                                                               services , in particular those which are
(ill) Standardization: given the standardiza-                  vital to service interoperability;
      tion policy conducted hitherto at Com-
      munity level , enhancing the efficiency             (ill) strengthening of coordination, in partic-
      of the present system means speeding                     ular     between telecommunications
      up standardization processes , ensuring
                                                                policy and the Structural Funds.
      transparency in standardization (dec-
      laration ab initio of patents by stan-              (d) Providing the right training
      dards proposers) and guaranteeing all               The competitive pressures on European
      companies equitable rights to exploit               industry require from all staff an increas-
      the patents underlying the standards.               ingly high level of skills and an ability to
(iv) Protection of data and privacy, in par-              use new technologies effectively. Managers
     ticular ensuring complete reliability of             need specific training to make them aware
      data transfer systems.
                                                          of the potential of ICTs and their organiz-
                                                          ational and socio-professional   implications.
 (v) Security of information and        communica-        Technicians and other workers need
      tion systems:         both industry and
                                                          have specific ICT-related aspects better
      Member States are calling for coordi-               integrated into the training for their basic
      nated action to solve the problems of               trade. Schoolchildren and students should
      security of information and communi-                learn to use ICTs , in particular in order to
      cation systems.                                     resolve general education and training
                                                          problems. Educating potential ICT users to
(c) Providing the        Community with                   enable them to make effective use of ICTs
                                                          entails training as many people as possible
      basic trans-European                                in the basic skills and providing specialist
      telecommunications services                         training for some of them.
European telecommunications               face con-       Europe has made a big effort to develop
siderable difficulties , notably the incompati-                         computer science, but it
                                                          basic training in
bility and non-interoperability of the                    does not have sufficient qualified staff, and
national telecommunications services ' net-               insufficient attention has been paid so far to
works. The principal problem is not techno-               the application of new technologies in
logical , it is the result of the structure and           training and education systems. In partic-
organization of the market: the absence of                ular, the possibilities opened up by dis-
telecommunications operators of a Euro-                   tance-training should be better exploited.
pean stature and the non-existence of basic
services at European level (electronic mail               The following recommendations are put
and file transfer, remote access to databases             forward:
and interactive image transmission ser-                   (i) There needs to be an in- depth analysis
vices). I
                                                              of the importance of the greatest
                                                              possible number of people being given
1 It should be noted that standardization could lead to       the basic knowledge for making the
  the introduction of European telephone paycards or
                                                              best possible use of data-processing sys-
  a European ' Minitel' without the need for specific         tems , and the conditions and resources
 technological development                                    necessary to achieve this; on user-


                                                                                                S. 6/93
   oriented training: generalize the use of          gramme concerning the generic tech-
   new     technologies in teaching and              nologies necessary for the emergence
   training, notably by developing appro-            of an information and communication
   priate software and training teachers             infrastructure special emphasis will be
   and instructors;                                  placed on taking into account users
                                                     and market needs and the general aim
(ii) on producer-oriented   training: it             of making the economy as a whole
   essential to train theengineers and               more competitive. The impact of the
   researchers which the European ICT                programmes will be strengthened by
   industry needs and to coordinate the              involving users, and through training,
   ICT-related training provided under the           coordination with national initiatives
   various specific Community RTD pro-               and Eureka and international cooper-
   grammes.                                          ation. Careful consideration needs to
                                                     be given to taking better account of the
(e) Harnessing technologies and                      importance of incremental research
    improving the performance of                     industrial realities and the interactive
    Europe s    ICT industry                         nature of the innovation process.

Unlike its   competitors , Europe     s ICT      (iii) Exploitation of RID projects through
industry does not have a firm hold on its            industrial policy. Specific action could
home market. Europe must be given the                be launched consisting in developing
applications necessary to meet its needs and         pilot demonstrations in those areas
the ability to devise the requisite applica-         where market forces are slow to com-
tions software. A solid software industry            mercialize the         results of RTD
base is inconceivable without close cooper-          (multimedia, in particular).
ation with equipment suppliers and early
knowledge of how their equipment per-            (iv) Adapting industrial and commercial
forms. Because of the speed of new devel-
                                                                     new international situa-
opments , it is essential to know the specifi-       policies to the
cations of equipment and components                  tion. Globalization of the economy and
before they are    available on the market           the existence of unfair competitive
otherwise it is possible only to follow devel-       practices in the various markets of the
opments , which leaves very little scope for          Triad create       competitive advantages

initiative. Having a strong European ICT              which could seriously handicap Euro-
industry would also help considerably in
maintaining a scientific and technological            the Council higher priority
                                                      pean companies. In accordance with

                                                              , 1 resolution of
                                                      November 1991
community in Europe, and particularly in                                   specific measures
                                                      should be given to
harnessing generic manufacturing tech-
nology.                                               aimed at levelling competitive practices
                                                      and launching international cooper-
It is recommended that action be taken in             ation programmes.
the following areas:

  (i) Promotion of ' strategy watch' at Euro-      4. Conclusions: Combining our
      pean level. There should be action to            efforts
     raise awareness on strategy watch ,    to

     reinforce the measures already taken
     and to coordinate and rationalize
                                                 A Community policy aimed at establishing
     existing resources in order to remedy       a common information area will help to
                  strategy watch structures      increase competition and improve Euro-
     the lack of
     and organizations in Europe.                pean competitiveness. It will help to create
                                                 jobs. It should be backed         up by specific
 (ii) Support for the R&D effort. The            measures aimed at         facilitating economic
     rapidity of technological progress
     requires that the R&D effort be main-       I Council resolution of 18 November 1991 concerning
     tained and even reinforced. In the            electronics, information and communication techno-
     priorities of the fourth framework pro-       logies (SN 211/91).


 S. 6/93
and social changes , and ensuring that all       B. Biotechnology and              its
workers have jobs which reflect their quali-
fications. To this end , steps should be taken      diffusion
to promote the    creation of new jobs ,   for
                                                  5. As    result of intensive scientific
example , in new social services.                research and major discoveries over the
                                                 past four decades in molecular biology, bio-
Devising a policy to promote a common            technology has emerged as one of the most
information area requires in particular the      promising and crucial technologies for sus-
setting-up of an efficient system for cooper-    tainable development in the next century.
ation between      the parties concerned.        Modern biotechnology constitutes              a
Because of the Community s political struc-
                                                 growing range of techniques , procedures
ture, this is much more difficult than in the    and processes , such as cell fusion, r- DNA
USA or Japan.                                    technology, biocatalysis , that can substitute
                                                 and complement classical biotechnologies
Establishing an information infrastructure       of selective breeding and fermentation. This
will require urgent and structured measures.     confluence of classical and modern techno-
If these measures are to be credible and         logies enables the creation of new products
successful , it is important to define them      and highly competitive processes in a large
clearly, to specify a timetable and to put in    number of industrial and agricultural acti-
place resources or   structures which will       vities as well as in the health sector. This
ensure that this timetable is respected. We      would provide the impulse to radically
must therefore combine our efforts         in    transform the competitiveness and growth
Europe and make greater use of synergy in        potential for a number of activities and
order to achieve as soon as possible objec-      open up new possibilities in other sectors
tives aimed at building an efficient Euro-       such as diagnostics , bioremediation and
pean information infrastructure and taking       production of process equipment (biohard-
the necessary measures for creating new          ware). In terms of the quality of life, we
services.                                        should not underrate the important poten-
                                                 tial of biotechnology  for improving the
It is proposed that a task force    on Euro-     environment by correcting pollution     and for
pean information infrastructures    be estab-    improving health by preventing or reme-
lished with a direct mandate from the Euro-      dying illness or other physical problems.
pean Council. This very high- level task
force would follow guidelines set by the         The Community has taken a number of
European Council and would have the task         initiatives , on the one hand , to promote the
of establishing priorities , deciding on pro-    competitiveness of bio- industries and , on
cedures and setting schedules. It would be       the other hand , to ensure the safe applica-
required to report to the European Council       tion of biotechnology. It implies mainly
within three months after first consulting all   funding of research and development and
the parties concerned.                           the putting into place of a regulatory frame-
                                                 work.
It would consist of one member of the              6. Potential of biotechnology and
Commission , several members of the gov-
ernments of the Member States , representa-           similarities with information
tives of the European Parliament and high-            technologies
level representatives of industry, operators     Reinforcing the potential of biotechnology
users and financial institutions.                are a number of features which biotech-
                                                 nology shares with electronics and informa-
The task force should be set up before the       tion technologies: it is science-based,    the
end of 1993.                                     scientific input being the most crucial ele-
                                                 ment of the technology trajectory; the gap
At the same time   , the European Council        between developments in basic science and
should instruct the Council to speed up the      their research and development applica-
work already being done aimed at setting         tions and even further downstream is small
up information infrastructures.                  and diminishing; a very major and growing

100                                                                                      S. 6/93
stimulus can be expected for process equip.       technology that the      US biotechnology
ment, instrument and engineering sectors;         industry s revenues will grow at an average
and finally the   impacts of the    processes,    rate of 40% to reach usn 52 billion by the
techniques and hardware represented by bio-       year 2000. The current industry size in
technology are across a number of sectors.        Japan is officially put at usn 3. 8 billion
                                                  and is estimated by the Ministry of Interna-
The Community is highly competitive in these      tional Trade and Industry to reach usn 35
sectors which cover chemicals , pharmaceu-        billion by the end of the century.    In the
ticals , health care , agriculture and agricul-   Community, despite the emergence of asig-
tural processing, bulk and specialized pla~t      nificant number of flfroS and a substantial
protection products as well as decontamI-         growth in markets, primarily of bio-phar.
nation, waste treatment and disposal. These       maceuticals , to over USD 3 billion , at the
sectors where biotechnology has a direct          current rate of growth , the value of output
impact currently account for 9% of the            and employment is about the same as that
Community' s gross value-added (approxi-          in Japan. It is therefore clear that by the
mately ECU 450 billion) and 8% of its             year 2000 with an estimated world market
employment (approximately 9 million).             of ECU 100   billion for the biotechnology
Beyond this , perhaps only modern biotech-        industry, the Community growth rate will
nology has the potential to provide signifi-      have to be substantially higher than .at pre-
cant and viable thrusts , compatible with         sent to ensure that the Community will
CAP reform and not dependent on opera-            become a major producer of such products
ting subsidies , to new energy/fuel and           thereby reaping the output and employ-
industrial outlets     for agricultural raw       ment advantages while at the same time
materials. The important role of biotech-         remaining a key player in the related
nology in these sectors is likely to be to        research area.
maintain employment by stimulating its
productivity as well as to       create highly      7. Factors favouring growth,
skilled labour demand.                                  competitiveness and
                                                        employment in the Community
The following are two valid indicators of
the potential of biotechnology: the pace of       The sectors with the greatest potential for
international innovative activity and the
                                    value-
                                                  the applications of biotechnology are
evidence of growth in output and                  amongst the most vigorous and competitive
added in products derived through biotech-        sectors in the Community with a long
nology. Measuring innovative activity by          record of sustained growth , productivity
patents filed for relevant products in the         increase , and highly competitive trade per-
 USA, the Community and Japan show that            formance.
 patents filed have increased from I 100 per
 annum in the early 1980s to 3350 per              The Community firms in         these sectors
 annum in 1990. In 1980 the Community              (chemicals , pharmaceuticals     agricultural
 was in a leading position , by 1990 the USA       processing) are leading firms at a global
 was filing 50% more patents than the Com-         level with important capabilities in the
 munity. European Patent Office (EPO) stat-        domain of innovation.
 istics reveal a similar evolution: between
 1980 and 1991 biotechnology patents filed         Among other factors favouring investment
 with the EPO increased by a factor of 10          in biotechnology in the Community are the
 the most being filed by US-based com-             strong science base and infrastructure , the
 panies.                                           availability of skilled labour, and the high
                                                   quality of process engineering and produc-
 Current global indicators          growth
                                of the             tion facilities.
 prospects of the biotechnology industry are
 the following: in the USA the industry              8. Unfavourable factors
 based on modern biotechnology had a turn-
 over of over usn 8 billion in 1992 , a            The key factors that may jeopardize a signif-
 growth rate of 28% with employment                icant expansion       of biotechnological
                                                   applications in the Community are the fol-
 growing at 13%. It is estimated on the basis
 of the observed rates of diffusion of bio-        lowing:

                                                                                             101
 S. 6/93
 (i) In a domain where the technology tra.             order to properly address these con-
     jectory is crucially dependent on basic           cerns. Supporting actions such as those
      science, the public research and develop-        under the Biotech programme and the
      ment expenditure in the Community lags           creation of a group of advisers to look
      behind. For the 1993 fmancial year               at ethical issues have been undertaken.
      publicly financed US biotechnology
      research and development expendi-
      tures are set to exceed USD 4 billion;        9. Conclusionsand
      in Japan in 1991 they exceeded USD                recommendations
      900 million whereas the Community'
      and Member States expenditures              The potential . of biotechnology to drarnati-
      totalled around USD 600 roillion. The       cally impact on competitiveness is greatest
      fourth research and development             in certain sectors of the Community chemi-
      framework programme             proposes    cals , pharmaceuticals , process equipments
      ECU 650      million in    biotechnology    and appliances , agriculture and agricultural
      over five years. Member States have         processing. These sectors contribute impor-
      also programmes devoted to R&D in           tantly to value-added and employrnent. The
      biotechnology.                              observed international growth in output of
(ii) Privately fmanced research and develop-      between 30 and 40% in the most vigorous of
     ment on biotechnology in the Com-            the biotechnology dependent sectors and
                                                  the associated labour- intensive service acti-
     munity has not compensated for the
     shortfall in public funding; on the con-     vities (e.g. research , health care) has the
                                                  capacity to provide a valuable stimulus to
      trary, available indicators identify a
      delocalization      an investment out-      employment growth.
      flow,   largely net ,   from Community
      companies rnainly towards the USA           The means to achieve a fuller realization of
      and Japan of USD 2. 2 billion since         the Community s    inherent strength in bio-
      I 984. In the most vigorous sector of       technology are to be found in    overcoming
      biotechnology, biopharmaceuticals , in      existing constraints by creating appropriate
      1990 67% of patents were        held by     channels for biotechnology policy develop-
      US-based companies and only 15% by          ment and coordination and by acting on
      Community-based companies. There            the following recommendations.
      exists the risk that the Community will
      be a leading future rnarket for biophar-    (a) Given the importance of regulations for
      maceuticals but not a leading future
                                                      a stable and predictable environment
      producer. There is an evident feedback          for industry and given        that they
      between technology diffusion and pri-           influence localization factors such as
      vate investment.                                field trials and scientific experimenta-
(ill) Regulation concerning      the safety of        tion , the Community should be open to
      applications of the new biotechnology           review its regulatory framework with a
      is necessary to ensure harmonization            view to ensuring that advances in scien-
      safety, and public acceptance. How-             tific knowledge   are constantly taken
      ever, the current horizontal approach is        into account and that regulatory over-
      unfavourably perceived by scientists            sight is based on potential risks. A
      and industry as introducing constraints         greater recourse, where appropriate , to
      on basic and applied research and its           mutual recognition, is warranted to
      diffusion and hence having unfavour-            stimulate research activities across
      able effects on EC competitiveness.             Member States. Furthermore, if the
                                                      Community is to avoid becoming
(iv) Technology hostility and social inertia          simply a market rather than a producer
     in respect of biotechnology have been            of biotechnology- derived products then
     more pronounced in the Community                 it is vital that Community regulations
     in general than in the USA or Japan. It          are harmonized with international prac-
      has become clear that these issues              tice. The development of standards will
      should be examined in greater detail in         supplement regulatory efforts.

102                                                                                     S. 6/93
(b) The Commission intends to make full          (e) Member States should provide
   use of the possibilities which exist in the      additional incentives to       improve further
   present regulatory framework on flexi-           the investment climate for biotechnology
   bility and simplification of procedures          and to facilitate the transfer of applied
   as well as for technical adaptation. To          research and development           to the
   sustain a high level of environmental            market place. These might include fiscal
   protection and to underpin public                incentives respecting the existiBg Com-
   acceptance, it is important to reinforce         munity guidelines that have a bearing
   and pool the scientific support for regu-         on biotechnology innovation and
   lations. An advisory scientific body at           investment.
   Community level for biotechnology dif-
                                                 (1) The commercialization        of biotech-
   fusion drawing on the scientific exper.
   tise within . and at the disposal   of the        nology will in certain areas require spe.
   existing committees at national and               cific actions aimed at further enhancing
                                                     pnblic understanding of the technology.
   Community level. An advisory body at
   Community level      scientific com-              Member States should encourage
   mittee for biotechnology     diffusion            interest groups to make objective infor-
   could playa crucial role in intensifying          mation available and to encourage dia
   scientific collaboration and in pro-              logue.
   viding the needed support for a har-
                                                 (g) It is necessary to clarify further value
   monized approach of the development
   of risk assessments underlying product            laden issues in relation to some applica-
   approval. This body could also advise             tions of biotechnology. In view of this
   on the development of a further Com.              the Commission will reinforce the role
                                                     of the Group of Advisers on Ethical
   munity strategy for biotechnology.
                                                      Implications of Biotechnology and
                                                     other groups which examine in partic-
(c) Since the Community is not matching              ular ethical questions related to biomed-
    efforts elsewhere in research and devel-         ical research.
    opment expenditure, it needs to com-
    pensate for this through focusing on the
    most vigorous biotechnology research         C. The audiovisual                sector
    and development domains and increased
    coordination between the Community
    and Member States in order to avoid            10. Introduction
    duplication encourage collaborative
    research and improve efficiency of           The audiovisual sector which covers pro-
    expenditure on research and develop-         gramme production and distribution (' soft-
    ment.                                        ware ), to which equipment manufacturing
                                                 ('hardware ) can be added , has an econ.
(d) The small and               medium-sized     omic importance that is oftenunderesti-
                                                 mated as compared to its unquestionable
    research-oriented firms play an impor-       cultural significance.
    tant role in biotechnology diffusion and
    the growth of this sector would substan-     The sector has an estimated current global
    tially benefit from the creation of a net-   market value , considering both its compo-
    work of existing and new biotechnology       nents , of ECU 257 billion. 1 The software
    science parks in the Community linking       sector represents 54% of the overall market
    together academic institutions , research    value. 2 One of the main characteristics of
    laboratories and SMEs. This would            the sector is that it is undergoing        both a
    create the possibilities for, on the one     technological and regulatory          transforma-
    hand , greater educational investment in     tion that will considerably affect       its future
    molecular biology and biohardware
                                                 growth and development.
    and, on the other hand,       the involve-
    ment of venture capital and other fman-
    cial institutions. The Structural Funds        Source:QMSYC      1993 report

    could also play an important role.             Source:   OMSYC 1993 report.


 S. 6/93                                                                                        103
  11. Europe - Growth           forecasts            Though there is a lack of reliable statistics
          and employment                             on employment within the sector it has
                                                     been estimated        that at least 1.   ' million
The European market has been among the               people are earning their living in the EC
fastest growing in the world with a current          audiovisual services (i.e. in the software
market growth rate of 6% a year in real              sector). 3 Itis clear from the vigorous
terms ,   that is being    sustained even in         demand-s~de growth trend , accentuated by
today s recessionary climate. The USA has            teclmologlcal developments in the audio.
penefit~d II?-ost from growth in Europe              visual software sector in Eu~ope, and from
mcreaslng Its sales of programming in                the ~ature and ~tructure of the employment
Europe from USD 330 million in 1984 to               that It can provIde, that there is remarkable
USD 3. 6 billion in 1992. In 1991 , 77% of           potential for job creation in this        sector.

American exports         of audiovisual pro-         Recent estimates point to the doubling in
grammes went to Europe , of which nearly             the medium term of the share of household
60% to the       Community, this being the           expenditure given over to audiovisual soft-
second largest US industrial           sector in     ware products. In line with the increased
export terms ,while the European Union               growth predicted for the sector on the con-
annual deficit with the USA in audiovisual           ?ition that the growt~ is transl~ted into jobs
trade amounts to about USD 3. 5 billion.             ill Europe and not illtO financial transfers
                                                     from Europe to other parts of the world
                                                     job creation could be of the order of tw~
Some impressive growth figures that flow
                                                     million by the year 2000 , if current con-
from rece~t studies clearly show that by the
end of thIS century the demand for audio-            di!ions prevail. Furthermore,       bearing in
visual products will double in Europe                mmd !hat, if proper resources are deployed
expendIture on both audiovisual hardware             there IS a dear potential for an increase in
and software growing from ECU 23 to                  our share of the market , it is not unrealistic
                                                     to estimate that the audiovisual services
ECU 45 billion.
                                                     sector could provide jobs , directly or indi-
                                                     rectly, to four million people.
Such growth will accelerate under the
im1?act ?f new . transmission teclmologies
which WIll multiply and diversify the vec-
t?rs for .
         distribution (satellite TV, pay- per-         12. Conclusions
VIew , vIdeo on demand , interactive TV
etc.). The number of TV channels is
expected to increase from the present 117 to
500 by the year 2000 with an increase of TV          It is vital that the predicted growth in the
broadcast hours from 650000 to 3250000               European audiovisual market be translated
over the same period. Moreover, encrypted            into jobs in Europe? Given the intrinsic
programming hours are predicted to                   nature of audiovisual products (i. e. that they
illcrease by a factor of     30 , which implies      need to be amortized on large domestic
fundamentally different (and greater)                markets) concerted national policies and
revenue flows.                                       policies at Community level are needed to
                                                     achieve this objective. The aim must be to
                   sector has a highly labour-       esta~lish a J~rowt~-e!llployment relationship
!he a~diovisual                                      t~at IS posItIve WIthin the European audio-
mtenslve structure. Staff costs make up 47%
of typical film budget and on average 15%            vIsual sector and to prevent increasing
                                                     re~our~es from being diverted to job cre.
of TV channels ' operating costs (i. e. not
counting the personnel involved in pro-
                                                     atlOn ill other parts of the world , with
ducing the programmes which may be                   Europe becoming a          passive consumer of
                                                     other countries '     audiovisual products and
bought in or      made in-house). The sector
intrinsically provides many high- level ' grey-      with both its           economy   and culture
matter' jobs , like technicians performers           dep~nding on          others. This thinking is
script-writers , directors , and s ~ on. It is thu   behind the Community' s firm stance in the
potentially less vulnerable to competition
from low labour cost markets.                         Source:   Eurostat

104                                                                                           S. 6/93
GAIT negotiations and behind the policy         and contribute to guaranteeing not only the
instruments that have been developed since      survival but also the growth of a viable
the Rhodes European Council in 1988.            audiovisual software industry in Europe
Moreover, a Green Paper on audiovisual          into the year 2000. The stakes are high. The
policy will be presented by the Commission      audiovisual sector is no longer a marginal
during the first semester of 1994 setting out   one in economic or employment terms. On
suggestions On how existing policy instru.      the contrary, it will be one of the major ser-
ments in this field may be developed and        vice sectors in the 2lst century and should
refined in order to maximize their impact       be given corresponding attention.




                                                                                            105
  S. 6/93
Chapter 6

The Community,           .an open and            links worldwide. Direct investment by
                                                 Europe in other countries accounts for over
reliable partner                                 one third of foreign direct         investment
                                                 worldwide. The Community has strong
                                                 links to preferential partners , but these do
Summary                                          not dominate trade: Community exports to
                                                 EFT A, Eastern Europe, the Mediterranean
World economic relations are no longer           basin and ACP countries together account
limited to international trade in goods and      for only just over 40% of total exports.
services. In the world economy, the Com-
munity and all major partners are interde-       Underlying this . static picture, the structure
pendent: Community policies must reflect         of the world economy is undergoing rapid
and build on this reality.                       change. The post-war picture of inter-
                                                 country trade , increasingly accompanied by
The Community must keep up its efforts to        international investment and with very
bring the Uruguay Round to a swift conclu-       large companies the privileged players ,     is
sion covering all the problems now out.          less and less reliable. Trade        in goods
standing and paving the way for the transi-      increasingly means interfirm trade in semi-
tion to a world trade organization.              manufactures. The development of infor-
                                                 matics networks makes it possible for com-
In the context of the liberalization of global   panies to cooperate more flexibly than by
trade and economic relations ,    the integra-
                                                 joint venture or franchise alone.
tion of Central and Eastern Europe and the
former Soviet Union into          the world      This means that the key factors         shaping
economy will contribute to the strength-         business behaviour will be different. Already,
ening of growth in these countries and the       import duties are generally less important
world in general. Similarly, the Community       for exporters than domestic regulations
should for the same reasons support the          (tax, safety, consumer protection). There is
smooth and gradual integration of the            less and less scope for a nation State or an
developing countries in the world economy.       economic community to improve life for its
                                                 businessmen by acting alone. Nor, even
The perspective of accession for the associ-     internationally, can trade policy action be
ated countries confirmed by the Copen-           taken without looking at        possible policy
hagen Summit lays the foundation for the         linkages (trade/exchange rates trade/
development of a Europe-wide zone of             environment, trade/security, trade/human
open markets and economic cooperation            rights) which were hardly addressed         10
which will stimulate growth in the associ-       years ago.
ates and give a strong stimulus to Com-
munity exports and therefore growth. This        Integration in the global economy none the
process of integration will contribute to ren-   less depends on a solid set of trade relations.
dering European enterprises in West and          The analysis of competitiveness has already
East more competitive on world markets.          demonstrated that extra- Community
                                                 exports of traded goods are too frequently
  1. Diagnosis                                   concentrated in sectors where long-term
                                                 prospects are for low     demand. Nor are
The Community economy is a global                Community exporters sufficiently focused
economy. The Community accounts for              on the Asia- Pacific region ,   which has the
one fifth of total world trade in goods;         highest medium-    term growth potential.
million jobs in Europe depend directly on        Community exports to some Asian markets
export of goods. Tradable services account       have increased dramatically, underlining
for one quarter of overall goods and ser-        the mutual advantages of free trade. But we
vices exports. Nor are trade figures alone a     need to be more broadly present and to
good reflection of Community economic            pursue further market-opening worldwide.

106                                                                                     S. 6/93
Nominal exchange-rate fluctuations may           Economic Area and the progressive integra-
increase business uncertainty on third           tion of the economies of Central and Eas-
country markets and are a proper      subject    tern European.
for Community activity (see recommenda-          Some Member States call for international
tion (h) below) but do not seem to drive the     economic cooperation to be stepped up sig-
underlying trend in Community competi-
                                                 nificantly, notably in the G7 framework.
tiveness.
Perceptions of unfair trade abound. Some          3. Europe in the world economy
relate totraditional problems (dumping,          Open markets with free competition is one
subsidy, unilateralism), and some to the
                                                 of the objectives of the Treaty on European
problem of free- riding in new areas of inter-
national policy coordination (social or
                                                 Union. It has a profound interest in pro-
                                                 moting open markets, both inside and out-
environmental dumping, international             side the Community. Open markets . are a
impact of anti-competitive practices). There
remains , too , a sense that market-opening is
                                                 key element for international competitive-
lagging behind economic growth                   ness. Within the Community they facilitate
                                          and
export performance in many, newly indus-
                                                 the international division of labour and the
                                                 assignment of    resources where they are
trialized countries.
                                                 most efficient. They also    enable Com-
                                                 munity industry to purchase goods and ser-
  2. Member States ' views                       vices (for intermediate or final consump-
Several Member States         contributions      tion) or raise capital in the best available

underscore the benefits of an open market        conditions worldwide.
economy and free competition as advo-            In the changing world economy,       Europe
cated in the Union Treaty. This would            itself is changing rapidly, presenting dan.
enable the Community to turn its competi-        gers but also great opportunities    for the
tive advantages to good account        in the
                                                 European Community.
framework of the international division of
labour. Maintaining an open economy              The successful     conclusion of   accession
facilitates the allocation of resources to the   negotiations with four of the EFT A coun-
places where they are most productive and        tries will lead to the creation of an even
consequently, specialization in products         more powerful industrial and trading Com-
and services with a high added.value and         munity.
greater competitiveness. In the      view of
some Member States these arguments also           Recent changes in Eastern Europe and the
hold good for products originating in coun-      former Soviet Union have major implica.
tries with low wage costs as their develop-      tions for the    Community, creating     new
ment , coupled with an opening.up of their       opportunities to expand the overall volume of
markets , offers new opportunities for Euro-     trade in the region and challenging the
 pean industry.                                   Community, and Community business ,       to

                                                  play an active role in supporting these
 All Member States consider the conclusion        countries in their progress towards full
 of the     Uruguay Round in the very near        market economies so that they achieve their
 future to be necessary       for the world       full potential. The European Council
 economy.      Several point to the need in       meeting in Copenhagen laid down the
 future negotiations to take account of cer-      parameters for developing future relations.
 tain factors which have a bearing on trade
 such as the environment , competition con-       The integration of the associated countries
 ditions and monetary aspects. There is no        of Central and Eastern Europe with      the
 unanimity, however , on the inclusion in         Community resulting from the decisions of
 trade negotiations of social aspects or on       the Copenhagen Summit will further rein-
 the use and shape of trade policy instru-        force the Continent's trading capacity and
 ments.                                           its competitiveness on world markets.

 Most of the contributions highlight the ben-     In the longer term, similar benefits and
 efits to be derived     from the European        challenges for the Community can be

                                                                                           107
 S. 6/93
expected from contributing actively to a         tion of market access , and to develop the
smooth and      gradual integration    of the    economic relationship in areas       such as
developing countries       into the world        industrial cooperation       in order
economy.                                         maximize the benefits accruing to the Com-
                                                 munity and the associates from progressive
  4.Strategy                                     economic integration.

An open and comprehensive framework              However, the       creation of   new market
for trade and economic relations under           opportunities in highly indebted countries
internationally agreed rules , enforced multi.   will depend on the effective alleviation of
laterally, with strong coordination of           the debt burden which strongly constrains
policy-making in all areas beyond those          these countries ' capacity to import. The
      is the only recipe for maximizing
rules ,                                          Community will work jointly with other
growth in an interdependent   world. But that    partners in order to find a lasting and satis-
recipe will only work if the Community           factory solution to the debt problem.
economy regains a long-term       competitive
position on world markets.                          5.    Recommendations
The push for competitiveness and the
search for a strong position in the global       (a) Reform the open market rules of
market depends on a long-term vision: 20             the world economy
years , not two.
                                                 The Uruguay Round is an overdue first
The open ' trade ' system must be improved       push towards the objective of strengthening
and extended     to meet the    challenge of     GAIT rules and extending them to reflect
global economic interdependence. In order        today s wider and more complex set of
to regain public confidence , it must be seen    international economic relationships. We
to respond to current concerns.                  must reach a   successful conclusion to the
The Community must be seen to take full          Round this year. Prospects for a favourable
advantage of      that system. Community         deal will not improve with time. Without a
institutions must respond more quickly to        Uruguay Round agreement, the open trade
threats and opportunities. Community busi-       system will come under sharp protectionist
ness must work harder at developing strong       pressures: current Community trade flows
links to foreign firms and consumers.            as well as prospects for further growth will
                                                 suffer.
We must avoid setting up international
trade as either a panacea or a scapegoat for     In the remainder of this year and beyond
current ills. Strong export growth can ease      the Community s priorities are clear:
necessary internal restructuring, but no
action on the external front alone , however     (i) Market-opening      in both goods and
drastic, could resolve the current unemploy-             services
ment problem.
                                                 The latest negotiations have produced pro-
Community priorities must reflect structural     gress in sectors where the Community is
change in world markets, both the long-term      competitive   at least among major
prospects of fast-growing regions such as        developed countries  , and have laid the basis
Asia and the immense opportunities created       for further progress among all GAIT par-
by adjustment in Central and Eastern             ticipants.
Europe and the Commonwealth of Inde-
pendent States (CIS).                            Negotiations for accession to     GAIT by
                                                 countries such as China and Russia will
These latter opportunities must he seized as     provide opportunities to secure clear com-
they represent not only large future markets     mitments to continued market-opening.
but also will present opportunities to Com-
munity companies to improve their compe-         The Community must make a positive con-
titiveness on world markets. It will be nec-     tribution in order to unlock all these bene-
essary to push forward with the liberaliza.      fits.

108                                                                                    S. 6/93
Even if the Uruguay Round is concluded              (iv) More harmonious roles
successfully, it is still based on a one-track
approach to   trade liberalization , dealing        Special sectoral deals create intersectoral
only with governmental obstacles to trade.          distortions which hamper economic growth
It is important that multilateral rules are         in Europe. The Community is fighting in
developed for the elimination of private            the Uruguay Round for an overall agree-
conduct and structures which constitute             ment that enables      rules for textiles and
obstacles to trade. Such obstacles are ade-         clothing, agriculture and other sectors sub-
quately dealt with in the          Community        ject to GAIT recognized or covert trade
through an active competition policy. How.          restrictions , to be returned progressively to
ever, the competition policies of its major         normal disciplines. The process can only be
trading partners are not geared similarly to        gradual , must bind all participants and
the trade impeding effects of such private          must be set in the context       of an   overall
obstacles. Multilateral rules in this area          strengthening of GAIT rules as well as
should therefore re-establish a level playing       the recognition of Community policies in
field for Community companies and pro-              the spheres affected. On this basis , it will be
vide them with important additional trade           beneficial to Community producers as well
opportunities.                                      as to the economy as a whole.

(ii) Rules for a global economy                     (v) Stronger roles


In a global economy, the range of         policy    This is a necessary corollary to other action
areas where foreign decisions will affect           referred to above. Dumping and export
Community companies is widening rapidly,            subsidy remain threats to fair competition.
while the scope for unilateral Community            GAIT   rules for preventing unfair competi-
action to secure competitiveness gains at the       tion must be strengthened. Safeguard action
expense of other economies is weakening.            must also be made more effective and
The strategy for all policy areas should be         transparent, so that the Community can , as
to seek common action with partners to              GAIT foresees , take temporary action to
meet Community          objectives. This will        allow industrial restructuring. Wherever
require early action in a       series of fields:    possible, this action should be based on
some ,    such as   intellectual property rules      cooperative understanding with all involved
and investment, are covered in the Round             rather than unilateral action.
and others, such as environment and multi-
 lateral rules , which establish a level playing     (b) Streamline Community
 field.                                                   decision-making

 (in) A robust      framework                        Trade policy should be shifted towards the
                                                     citizen (transparency, assessment of con-
 This is essential to guarantee prompt action        sumer interest) and towards greater Com-
 on outstanding issues. GAIT is too loose a          mission autonomy (subject to CFI control
 body to respond with the speed now essen-           by the European Court). This will increase
 tial in the face of new challenges , to inte-       the confidence of Community producers
 grate the range of policies that now interact       that necessary decisions can be taken
 or to secure full compliance with increas-          rapidly. But this will require not only legal
 ingly complex multilateral rules. The trade         powers but greatly increased Commission
 impact of environment protection is       one       resources , and    better cooperation from
 such issue which will have to be tackled            national administrations (e. statistical
 immediately after the Round: the European           offices and customs). Key areas for
 Community wants to see a permanent                  resource increases include anti- dumping/
 environment committee in the new multilat-          anti-subsidy/safeguard action , the new
 eral trade organization. A strengthened             policy instrument, the international dimen-
 organization to manage the multilateral             sion of competition     policy, and action to
 system is the essential guarantee that a Uru-       prevent circumvention or fraudulent use of
                                                     quotas under the Multifibre Agreement.
 guay Round result will be of lasting value.
                                                                                                  109
 S. 6/93
(c) Promote Community business                   wise), the officials involved should be con-
    strategies for the post-Round                scious of the scope for creating new forms
      world                                      of industrial cooperation or new markets
                                                 for Community products.
Uruguay Round market-opening measures
will be implemented progressively. But it is     The globalization of the economy raises the
not too early to focus debate On optimal         question of the adequacy of the current
strategies to   generate Community gains         instruments of commercial policy. We
(profit, market-share, new investments and       should now be developing more positive
business relationships) from the post-           tools of business and intergovernmental
Round world market. This should look             cooperation.
beyond the likely impact effect on world
business confidence and anticipate the           (d) Develop the relationship with
adjustment necessary to take account of              Eastern Europe and the former
new competitive situations in Community               Soviet Union
markets as well as .overseas.
                                                 The Europe Agreements concluded with
There is no need for Community duplica-          Poland , Hungary, the Czech and Slovak
tion of Member State export promotion            Republics, Bulgaria and Romania commit
efforts. But at Community level , more effort    the parties to the creation of broadly based
is needed to produce Community-wide              political and economic cooperation on the
business organizations , and to develop          basis ofa free trade area. In Copenhagen
Community organizations expert in                the European Council decided to accelerate
regional rather than simply national export      the timetable for removing barriers to trade
markets. Asia is a high priority for action in   on the Community side , recognizing that
this regard. Positive developments in Latin      greater market access was an essential sup-
America (the setting-up of NAFTA, Mer-           port for the process of economic reform in
cosur, etc.) open up increasing possibilities    these countries.
for action in this region as well.
                                                 In addition to the     framework for future
The framework exists in embryo in the cur-       trading relations ,   which has been estab-
rent web of bilateral agreements , and will      lished , it is necessary to develop a broad and
be reinforced as those countries align them-     dynamic economic relationship, by encour-
selves ever more closely on multilateral         aging business and economic cooperation
open market principles. The Community is         between Western and Eastern Europe and
both leading the cooperative effort of the       by providing a framework for cooperation
G24 and developing, through T ACIS and           including the application of common com.
PHARE , its own instruments.                     petition rules in the wider European area.
                                                 One of the benefits of closer economic
Broader business investment in these mar-        cooperation should be to reduce trade fric-
kets , whether bilaterally or in joint efforts   tions by easing adjustment and minimizing
with Asian or US business , is the element       recourse to trade defence instruments.
that must now be encouraged. Closer econ-
omic integration of this sort would accel-       The Community is currently        negotiating
erate the pace of reform to the East and         partnership and cooperation       agreements
reduce the examples of friction that inevit-     with Russia and a number of other newly
ably result in   sectors suffering structural    independent States ,   and defining the rules
overcapacity.                                    which will govern        the future trading
                                                 relationship and which will form a key ele-
We should improve coordination        between    ment of these agreements. The Community
export promotion and other policies in order     has indicated its willingness     to envisage
to increase export opportunities , particu-      establishing a free trade area with Russia in
larly at the cutting edge of technological       the future.
development. As policy cooperation
becomes more     extensive (for example on       Finally, the Community must pursue the
environment or    biotechnology under the        process of multilateral opening and integra-
Community/Japan Declaration ,        or other-   tion among T ACIS and PHARE partici-

110                                                                                     S. 6/93
pants and support appropriate regional            These geo-strategic developrnents on
cooperation so that the old model of hub.         Europe s southern flank are bound to have
and-spoke preferences can be avoided.             a positive impact on the European employ-
                                                  ment situation, thanks to the economic
In order for the formercentrally planned          dynamics that    will be generated in the
economies of Europe to be able to imple.          Mediterranean basin.
ment market-oriented reforms successfully,
the Community will need to adopt an inno-         For this potential to becorne a reality the
vative approach that       besides market-
                                                  Community must contribute actively to the
opening and fmancial support, includes the        process of economic and social transforma-
necessary transfer of skills. Cooperation be-     tion which has already      started in these
tween Community enterprises and newly pri~        countries , towards more open , regionally
vatized firms can playa key role in this          integrated and efficient economies.
regard.

(e) Anchor the southern                           (f) Improve competitiveness
    Mediterranean region into the
    European economy                              Trade and econornic policies cannot sub-
                                                  stitute for the development by business both
The Mediterranean    neighbours      from         of saleable products and of the means to
Morocco to Turkey, represent the southern         deliver them to world markets on time and
part of the European Union s futureecon-          at the cost and quality needed. As to social
omic and social environment. With a               costs , the fear of so-called social dumping
rapidly growing population of some 200            would be misplaced if it related to a belief
million people at present, these countries        that in certain countries the level of social
represent as important an export market           protection is kept artificially low in order to
potential as Eastern Europe.                      gain a competitive advantage elsewhere.
                                                  We should not accept too simple a picture
It is of vital political and economic import-     of high-wage industrial countries and low-
ance for the European Union to develop            wage developing countries. Differences in
this relationship into a closer economic          worker wages alone can be misleading. It is
symbiosis.                                        true that modern technology spreads much
                                                  faster . and more easily than in the past to
The first steps towards a possible Euro-          different areas of the world. But       poorer
Mediterranean free trade area have already        education , lower skill levels , lower levels of
been made: free trade agreement with Israel       capital investment overall and inadequate
(1989), customs union to be completed with        infrastructure can all offset the possible
Turkey by 1995 and Cyprus ,        association
                                                  advantage to be derived from low wages.
 agreement to be negotiated with Morocco
 in 1994, later with Tunisia and possibly
 with other countries of the region.               This is not to say that the Community has
                                                   no difficulty in competing      with   labour-
 It is also expected that the successful out-      abundant countries. But European competi~
 come of the peace      negotiations in the        tiveness is falling not principally because of
 Middle East and the process of economic           the impact of international social cost dif-
 liberalization which is under way will boost      ferentials in some sectors, but because we
 the intraregional trade.                          ourselves suffer structural distortions in
                                                   Europe. In developing countries , moreela-
 All these developments should , during the        borate social protection becomes a gener-
 coming decade , lead to a substantial             ally held political    objective as national
 increase in entrepreneurial activity in the       income rises to a level where those objec-
 Mediterranean countries , marked by more          tives are attainable. In the long run , a major
 direct investment,    more    joint ventures      part of the solution will consist in helping
 more agreements      of production    sharing,    these countries to set up the conditions nec.
 and , in general ,   a much   higher level of     essary for the development of domestic
 industrial and trading interaction.               demand and rise in the standard of living.

 S. 6/93
The search for greater competitiveness both       (g) Pursue a balanced policy on
by trade and other policies does not imply             preferential agreements
that social protection should be       under-
mined in Europe or ignored abroad. We             As worldwide levels of protection fall , the
are rightly proud of our record in this           importance of trade preferences diminishes
respect, which compares with the best in the      except in the case of     newcomers to the
world, and we are right to remain com-            world market-economy            open trading
mitted to establishing European-wide stan-        system.
dards for social protection wherever appro-
                                                  Preferences remain an important signal of
priate.                                           the Community' s political commitment to
                                                  one or other of its neighbours or partners,
The Community and its Member States can           but should be made compatible with the
take every opportunity to      raise with the     health and stability of the multilateral
countries concerned the need to bring for-
ward their own legal changes. We can              system. Nor should special bilateral econ.
                                                  omic relationships be limited to trade pref-
encourage this by positive measures , for
instance by providing legal advice or tech.
                                                  erences: economic integration cannot be
                                                  achieved only through reduction of tariffs
nical cooperation where required. These are       and non-tariff   barriers ,   however. It also
legitimate objectives ofdevelopment aid
and economic cooperation. But trade policy
                                                  requires the elimination of      distortions of
                                                  competition resulting from anti-competitive
is not an instrument for the achievement of       behaviour or State aid.
those objectives.
                                                  (h) Delocalization
We rightly object to unilateral action by
others to impose on Europe their view of          Increased direct investment is good for
how the world should be run. The interna-         jobs ,   for reducing trade imbalances and
tional organizations responsible for multi-       trade frictions , for developing Europe s cul-
lateral rules must themselves judge Com-          tural understanding .of other countries, and
munity compliance with these rules. The           for the projection of Europe identity
same principle must apply to judging              among its trading partners. It is most useful
others ' compliance.                              as a stimulus to the world economy where
                                                  trade barriers are low , so that increased
There are three fronts on which to act:           international investment should go hand in
                                                  hand with efforts towards further market-
 (i) Inform better the current Community          opening, in particular in the newly indus-
      debates on social dumping, explaining       trialized countries.
      why the Community wants multilateral
      rule-making and should not allow indi-      There are no Community restrictions on
      vidual countries to set up as the unilat-   foreign investment, although some Member
      eral judge of others ' domestic laws or     States continue to vet investment in certain
      of others ' compliance with interna-        sectors. We encourage investment , but also
      tional agreements;                          encourage inward investors to         integrate
                                                  fully in the European economy. We do not
 (ii) Develop a positive Community econ-          want so-called ' screwdriver' operations , nor
      omic cooperation   policy to increase       are they likely to be an attractive formula in
      social standards worldwide but without      the long term for European- based       opera-
      introducing unilateral trade discrimi-      tions , since we have high labour costs and a
      nation as a lever;                          screwdriver operation depends on low
                                                  labour costs. For us ,    the future lies in
(iii) Prepare for the discussions that will be    inward investment which is fully integrated
      necessary, in the International Labour      in the local economy, with research , devel-
      Organization and elsewhere , after the      opment, marketing and management func-
      Uruguay Round, of how best to               tions located in Europe alongside manufac-
      strengthen compliance with current          turing, sales and service. This indeed is the
      and future agreements in the field of       trend , not least because there has been a
      social policy.                              sharp rise in mergers and acquisitions as a

112                                                                                      S. 6/93
proportion of overall foreign investment in       the rest of the world to be back on the
Europe.                                           course towards EMu.
Little by little, foreign investment in Europe    (j) The international dimension of
has come to be      accepted by European              competition policy
citizens as the first step in closer . cooper.
ation between sectors in Europe and their         Competition policy in most countries has
counterparts in key markets overseas. The         traditionally been seen as a purely national
same is not yet true of European outward          prerogative. The Community was the first
investment which has been criticized for          to practise a policy which tried to deal with
over 30 years as a means of ' exporting jobs      the impact that distortions of competition
The argument maintains         that outward       had on trade. Originally only applied
investment simply deprives Europe of              within the Community, this approach has
value-added activities, increases our             been gradually extended to trade with the
imports and decreases our exports. This is        Community s main trading partners in
not a correct analysis. Over 80% of Com-          Europe as well. Thus, competition policy
munity overseas investment goes to other          has played a major role in furthering inter-
members of the OECD. Less than 10% goes           national trade and, in particular, the possi-
to the newlyindustrialized Asian countries        bilities of our companies to export to other
and Latin America. In some parts of the           markets , hitherto closed by anti-competitive
Community, the level of investment in low-        practices , State aids or public monopolies.
salary countries is even lower: 4% of over-       Not all the Community' s main trading part-
seas French investment , for example , a
                                                  ners have followed a similar approach of
figure that has changed very little over time.    applying their competition policies to open
Industrialists who invest outside Europe          their markets to imports, however. Such
tend to do so to supply markets other than        policies are lacking in particular in a
their own , reimporting barely 10% of their       number of countries in East and South- East
total intracompany purchases from the low-        Asia , whose markets are closed not so
salary countries where they have invested.        much by tariffs and non-tariff barriers , but
                                                  mainly by anti-competitive practices. The
 (i) Work multilaterally to minimize               Keiretsu ' in Japan and the closed distribu.
     exchange-rate fluctuations                   tion systems in several countries are but two
 Coupled to macroeconomic imbalances
                                                  important examples of this phenomenon.
 and the resulting current account problems        It should be a Community priority to seek
 of major trading countries , exchange-rate        to establish rules governing these competi.
 fluctuations increase prevailing levels of        tion problems. Ideally such rules should be
 uncertainty and increase trade friction , thus    multilaterally agreed , in order to give them
 reducing business confidence and delaying         the broadest coverage possible. As indicate-
 recovery.                                         dabove, the present GAIT Round does not
                                                   deal with the issue , even though certain
 This is a problem which cannot be tackled         codes (in particular the TRIPS and Services
 by the Community in isolation but requires        Codes) include provisions on restrictive
   multilateral solution in which there is
                                                   business practices. The Multilateral Trade
 better coordination between the macroecon-        Organization created as part of the
 omic and structural policies of major inter-
 national economies and            not  only       Round' s package , should cover competition
                                                   policy issues    as part of its immediate
 exchange-rate targeting. The    Community
                                                   agenda , focusing especially on restrictive
 can encourage this by building on its own         business practices and cartels. The aim
 internal policy coordination of economic          should certainly be to agree on minimum
 policy through regular surveillance.              substantive rules , but more importantly to
 Recent developments within Europe have            lay down procedures to ensure enforcement
 not made action on this front any less            of these rules by each of the contracting
 urgent. Community interests will only be          parties. For it is only through their enforce.
                                                   ment in individual cases that the positive
 given proper weight in world discussion of        market opening effects can be achieved.
 exchange-rate issues when we are seen
                                                                                             113
 S. 6/93
The right of recourse       to   GAIT panels       States of America in order to limit such
should be strengthened , as should the effec-      conflicts through a process of consultation
tiveness of their adjudicatiplls. Achieving        cooperation and coordination.
effective rules of this kind will be difficult
and time consuming but it is high time that        If the agreement, which is presently being
the process began.                                 reviewed by the Court of Justice, is upheld
                                                   it can form a model for other negotiations.
In the short term , therefore, the first step is   Discussions to this end were already held
to seek agreement on a system of mutual            with the Canadian authorities and other
consultation and cooperation with competi-         candidates could follow. As one of their
tive authorities elsewhere in order to fore-       main objectives is to limit conflicts in cases
stall potential conflict. The Commission has       of enforcement, such agreements can only
concluded an administrative agreement              be concluded       with authorities which
with the antitrust authorities of the United       actively enforce their competition rules.




114                                                                                      S. 6/93
III -   EMPLOYMENT
Chapter 7

                                                        place of education and training in the fabric
Adaptation of education and                             of society and their links with all economic
vocational training systems                             and social activity which must be re-exam-
                                                        ined. In a society based far more on the pro-
                                                         duction, transfer and sharing of knowledge
 1. Training         the catalyst of a                   than on trade in goods, access to theoretical
     changing society                                    and practical knowledge must necessarily
                                                        playa major role.
There can be no doubt that education and
training, in addition to their fundamental              These adaptation measures will inevitably
task of promoting the development of the                have to be implemented progressively, and
individual and the values of citizenship,               their effects will be felt only with the pas-
have a key role to              stimulating
                           play in                      sing of time. Nevertheless , by the extension
growth and restoring competitiveness and a              of a certain number of steps taken by the
socially acceptable level of employment in              Member States and the Community in
the Community. However, it is essential to              recent years , well- planned education and
                                                        training measures should still produce posi-
grasp the nature , extent and limits of this
role. Given the economic and social prob-               tive results in         three    areas:         combating unem-
lems they are      facing today, which are              ployment by      training young people and
cyclical in certain cases and essentially and           retraining staff made unemployed by rises in
more profoundly structural in others,      our          productivity as a result of technological pro-

societies are making many pressing and                  gress; boosting growth by strengthening the
sometimes contradictory demands on educa-                competitiveness of businesses; developing a
tion and training systems.   Education and              form of growth which produces more employ-
training are expected to solve the problems             ment    by improved matching of general and
of the competitiveness of businesses , the              specific skills to changes on the markets

employment crisis and the tragedy of social             and to social needs.                In order to determine
exclusion and marginality - in a word , they            with accuracy the shape and content of the
are expected to help society to overcome its            measures needed, it is essential to diagnose
present difficulties and to control the pro-            the current state of education and training
fo':lnd changes which it is currently under-            in the Community.
gOing.
                                                           2. Opinion of the                         Member States
Certain of these demands and expectations                                                                    Member States
are fully justified. Moreover all other                 The contributions                 of the

things being equal , it is the countries with           highlight the dual role played by the system
the highest levels of general education and
                                                        of vocational training:
training (for example , Germany or Japan)                (i) training is an             instrument of active labour
which are the least affected by the problems                   market policy;            it adapts vocational skills
of competitiveness and employment. How-                        to market needs and is therefore a key
ever , education and training should not be                    element in making the labour market
seen as the sole solution to the most urgent                   more flexible; the training system plays
questions.       It is  only within certain limits             a major role in combating unemploy-
and        in combination with measures in other               ment , making it easier for young people
 areas      (industrial and trade policies , research          to enter the labour market and promote
policy etc. that they can help to solve                        the re-employment of the long.tenn
 immediate problems.        There is no doubt that             unemployed;
they could playa significant part in the
 emergence of a new development model                    (ii) investment in human resources is neces-
 in the Community in the coming years.                         sary in order to                   increase       competitive-
 However, European systems of education                        ness,   and especially in order to make it
 and training will be able to do this only if                  easier to assimilate and spread new
 they are suited to the task. Indeed , it is the               technologies.

                                                                                                                         117
 S. 6/93
As far as labour market policies are con-                 munity programmes for giving a European
cerned,        the contributions of the        Member     dimension to training.
States all point to the need to promote            con-
tinuing      training in various forms (sandwich             3.   The diagnosis
and supplementary training, systems of                    The most important thing to remember is
rotation and training leave); several
Member States believe that priority should                that the situation differs greatly from one
be given to         preventive measures        for low-
                                                          Member State to another. In some of them
skilled people whose jobs are more likely to              the standard of basic education is satisfac-
be under threat and to measures for inte-                 tory while the quality of vocational training
grating the unemployed and young people                   is inadequate; in others, it is the continuing
into the labour market.                                   training element which is weak and the
                                                          basic training which is strong; then again
The Member States agree on the need for                   continuing training may be well-organized
greater involvement of the private sector                 but initial training deficient.
education and/or vocational training sys-
tems and in drawing up                    education and   A diagnosis of the current situation in the
training policies in order to take account of             Community in this area provides a mixed
market needs and local conditions. This                   picture of weaknesses and a certain number
                                                          of strengths.
could be done , for example , byencoura-
ging businesses to become involved in edu-
cation and training systems and to integrate              fa) Weaknesses
continuing training into their strategic                  The major weaknesses of the education and
plans.                                                    training systems can be found in the most
The following suggestions have been made                  frequently voiced criticisms by industry,
for specific improvements to training sys-                parents , social analysts etc. The first is the
tems:                                                     relatively low level of training in the  Com-
                                                          munity, and especially the fact that too many
 (i) the transition from the education                    young people leave school without essential
          system to the world of work should be           basic training. In the Community, the pro-
          eased by increasingly practical orienta-        portion of people of normal school- leaving
          tion of training and by ensuring that           age who leave the education system with a
          students have achieved               a higher   secondary qualification is 42%, against 75%
          minimum level before they leave the             in the United States of America and 90% in
          education system;                               Japan. The proportion of young people in
                                                          any age bracket who are in higher educa-
(ii) education could be rationalized by                   tion in the Community is , on average , 30%
          providing a shorter period of general           as compared to 70% in the USA and 50% in
          education which is better tailored to           Japan.
          market needs and by promoting voca-
          tional training as an alternative          to   There is a direct connection between this
          university ;                                    problem and the problem of       the failure of
                                                          education, which is a particularly important
(iii) there is a need to improve coordina-                and increasingly widespread factor of margi.
       tion of the measures implemented by                nalization and economic and social exclusion
          the various authorities and bodies with         In the Community, 25 to 30% of young
          responsibilities in the areas of training       people, who are the victims of failure, leave
          and the labour market.                          the education system without the prepara-

Under the Treaty on European Union , the
                                                          tion they need to become properly inte-
Community is to concentrate on promoting                  grated into working life. Many of them join
                                                          the ranks of the young long-term unem-
cooperation between Member States and                     ployed.
on supporting national strategies for
improving the            results and quality        of    As shown by the initially surprising combi-
training, establishing an open education                  nation of a high rate of unemployment and
area in the Community by greater recogni-                 a lack of skills in various areas , the second
tion of qualifications , and developing Com-              area of weakness is the persistently inade-


118                                                                                             S. 6/93
quate development of systems and types of                   Accordingly, in recent years there have
continuing training, the inequality          of access      been a number of             important qualitative and
to this kind of training, the limited possi-                quantitative steps forward   in most Member
bilities in this area for people employed in                States: a general improvement in the popu-
SMEs etc. These weaknesses have produced                    lation s level of training; an increase in the
the second    substantial group of unem-                    level of school enrolment; the recovery or
ployed people against a background of ever                  development of investment in education;
increasing strides in knowledge and an ever                 an increase in the number of teaching staff
shorter life for technologies and types of                  etc.    Reforms of university systems and educa-
work organization.                                          tion policies and structures        some of them
                                                            major              have been       devised and
While the problem of the suitability of skills              implemented, the effects of which should be
concerns primarily low- and intermediate-                   felt throughout the 1990s: growing involve-
    skills, there is also a real lack of skills in
level                                                       ment of the private sector; decentralization
a number of areas related to the applications               of the management of education               systems;
of science and technology and the interaction               an increase in local and regional initiatives.
between them and society:             information tech.
nologies; applications of biotechnologies;                  These measures have been accompanied by
applications of regulations on the environ-                 changes in attitudes which have led to
ment; combinations of technical and man-                    rapprochement        (not always without its risks)
agement skills, etc.                                        between education systems and industry,
                                                            with the representatives of education sys.
With a university system faced      as it has               tems showing increasing awareness of the
been since the beginning of the     1970s                   need to provide training which prepares
with the challenge of absorbing a growing                   students for the world of work, and the rep-
number of students while maintaining the                    resentatives of              industry realizing   the
quality of its teaching, and the marginaliza-               importance of general education , in addi-
tion of - and increasing disaffection with                  tion to purely vocational knowledge, given
      vocational education              mostthe             the development of new forms of     work
developed systems                of education and            organization and the decentralization of
training in the Member States of the Com-                    responsibilities.
munity are , to put it another way, becoming
subject to ever increasing constraints. They                 The Member States and the Community
 are weighed . downby a combination of new                   should now adapt the European system of
expectations (improving the level of initial                 education and training by building on the
training and the ability of individuals to                   measures referred to above and continuing
adapt to occupational and social changes                     and bolstering the efforts already made.
throughout their lives) and old tasks (socia-
 lizing people and imparting to them the                           4. Elements of a reform of
 basic values of citizenship).
                                                                      education and vocational
 In addition to these features , which .are pre-
                                                                      training systems
 sent in varying but significant degrees in all
 Member States of the Community, there are                    (a) General objectives and broad lines
 a number of         weaknesses at the       specifically
 European level: the lack of a genuine Euro-                 The main principle of the various types of
 pean market in skills and oceupations; the                  measures to be taken snould be to develop
 lack of mutual transparency and the limited                 human resources                throughout people
  recognition of qualifications and skills                   working lives , starting with basic education
 Community level; the lack of a genuine Euro-                and working through initial training to .con-
 pean area for open and distance learning.                   tinuing training. By giving general currency
                                                             to best practice in the various Member
  (b) Positive aspects                                       States at these different stages , we will suc-
                                                              ceed in developing an education and
 Nevertheless , there are also positive points                training system of the              quality we are
 and encouraging developments.                                seeking.

  S. 6/93                                                                                                      119
In order to combat unemployment among                  nent recomposition and redevelopment of
young people with nO skills,          the objective    knowledge and know-       The establish-
                                                                                       how.

should be to develop systems and formulas              ment of more flexible and more open sys-
which    provide sound adequate basic training         tems of training and the development of
and establish the link between school educa-           individuals ' ability to adapt will become
tion and working life. The basic skills which          increasingly important, both for businesses,
are essential for integration into society and         so that they can make better use of the tech-
working life include a mastery of basic                nological innovations they develop or
knowledge (linguistic, scientific and other            acquire, and for individuals , a considerable
knowledge) and skills of a           technological     proportion of   whom may well have to
and social nature, that is to say the ability to       change their line of work four or five times
develop and act in a complex and highly                during their lives.
technological environment , characterized,
in particular, by the importance of informa-           Education and training systems will have
tion technologies; the ability to communi.             an important role to play in this process of
                                                       adaptation. There is an evident shortage in
cate, make contacts and organize etc. These
skills include, in particular, the funda-
                                                       the Community of certain highly-skilled
mental ability to acquire new knowledge                technical personnel , such as people who are
and new skills ~    to learn how to learn              capable of maintaining flexible manufac-
                   People s careers will
throughout ones life.
                                                       turing systems or handling                 systems for
develop on the basis of the progressive                monitoring emissions of pollutants in firms.
extension of skills.                                   In many high-tech disciplines , Europe
                                                       cannot yet call on the requisite manpower
                                                       to do top- levelresearch. This problem can
In order to ensure a smoother and more
effective transition from education to                 be overcome by a joint effort on the part of
working life formulas of apprenticeship and            specialized training and higher education
in-service training in businesses which allow          establishments.       Cooperation between univer.
people to gain skills in the world of work                                         is another basic
                                                       sities and the business world

should be developed              and systematized.     way of transmitting knowledge , a vector for
Alongside the               normal apprenticeship      innovation and a way of increasing produc-
schemes ,      considerable      effort should be      tivity in developing and potentially job-cre-
                                                       ating sectors.
devoted to         developing     initial vocational
training in special training centres as a              Universities must also be given the
possible alternative to university. Shorter            resources they need to play their particular
and more         practically oriented forms            role in developing lifelong learning and
training  should be encouraged , but students          continuing training. In                association with
should still be provided with enough gen-              public and private partners at national and
eral knowledge to ensure a sufficient degree           regional level , they can promote lifelong
of adaptability and to avoid excessivespe-             education for example by measures for
cialization.                                                             , retraining primary and
                                                       training instructors
                                                       secondary school     teachers     retraining
In their efforts to devise and implement               middle and senior management , etc.
education and training measures which are
able to stimulate growth and employment                In order for these measures to be as effec-
the Community and the Member States                    tive as possible, it is necessary to          anticipate
must also take account of the fact that 80%            skill needs correctly and in good time

of the European labour force of the year               identifying the developing areas and the
2000 is already on the labour market. All              new economic and social functions to be
measures must therefore necessarily be                 fulfilled , as well as the skills required for
based on the   concept of developing, genera.          them. Even if real-time adjustment is not
lizing and systematizing lifelong learning and         possible (since a certain period of adapta.
continuing training. This means that educa.            tion is inevitable), the organization of as
tion and training systems must be reworked             much research as is necessary in this area
in order to take account of the need                   and the introduction of observation instru-
which is already growing and is set to grow            ments and of mechanisms for transferring
even more in the future for the perma-                 the information collected to the education


120                                                                                                    S. 6/93
system should make it possible to minimize                  (b) The specific               means
the gap between required and available
skills.                                                     (i) Action at Member-State level or
In order to ensure the success of               this pro-       concerted action
cess of adapting the system of education                    By concerted action at European level
and training and to implement                   the mea-    possibly even in a Community framework
sures set out above, it will not just be a ques-            and with the aid of Community instru-
tion of increasing the level of public funding              ments , Member States should use the
assigned to this area nor                   will the same   instruments which they control in an effort
increase be appropriate in all cases.
                                     The task               to achieve the goals set out above. A key
is rather to reorganize educational resources               aspect should be the              development of genuine
in association with the employment ser-                      training policies ' with the involvement of the
vices.                                                      public authorities, businesses .and the social
Generally speaking,           the private sector, and       partners.        In order to ensure sufficient trans-
businesses in particular, should become more
                                                            parency at European level and to make it
involved in the work of vocational training                 possible for Member States to draw On the
systems.      In order to facilitate this process           experience gained in other Member States
appropriate incentives (of a fiscal and legal               and to adapt their measures to those con.
nature) should be developed. The     training               ducted elsewhere ,            the policies and strategies
dimension should be integrated into the                     implemented should lead to               the regular pub-
                                                                                                                       docu-
strategic plans of               Provision
                              businesses.                    lication       and large-scale distribution of

should also be made for a significant pro-                   ments setting out objectives and providing
portion of the funding allocated for the                     descriptions and assessments.
compensation for the unemployed to be                        Particular attention should be paid to the
reallocated for training measures. In order                  continuing training of staff in SMEs which
to ensure optimum overall use of funding,
                                                             account for a significant proportion of bus
 is essential to improve the coordination bet-               nesses in the Community and represent a
 ween public and             private training      oppor-
                                                             potential for innovation which is by no
 tunities.                                                   means negligible. There can be no doubt
 The public authorities , apart from their role              that  regional and local authorities   have a
 of providing incentives and setting the gen-                particular role to play in this area by setting
 eral framework for the measures would be                    up mechanisms for promoting local forms
 responsible for setting guidelines  and giving              of partnership in the area of continuing
 clear      instructions on the objectives to be             training and the retraining of workers.
 achieved at the various levels.
                                                             The  fiscal instruments
                                                                                     available to Member
 Moreover ,        the systems of education and              States (the lowering of social contributions
 above all             vocationaltraining, have              for businesses which organize training mea-
 developed over the                past two decades                    should also be used , since they
                                                             sures etc.)
 against the background of life dominated                    place fewer restrictions on public budgets
 by work. Given the steady rises in produc-                  than does direct funding.                  Systems of com-
 tivity and the concern to distribute work                   pensation for unemployment should be modi-
 more equitably              but at a rate and in a          fied and formulas developed for    reallocating
 manner which are not yet known there                        part of this funding for training measures
 will probably be a further reduction of                      particular for the long- term unemployed
 working time and a readjustment of the bal-                  and for young people                 entering the labour
 ance between working time and training                       market without skills.
 time. New possibilities are emerging for
  linking    new   patterns of working time with the          It is important to set up             generalized and ver-
                                 these possibilities          satile systems of ' training              credits '   ('training
  development of training;

 should be explored and exploited. Experi-                     vouchers')        which all young people would
 ments in this area , based notably on agree-                 receive and could spend relatively                       freely

  ments between the various parties in busi-                  throughout their working lives in order to
  nesses, should be multiplied , assessed and                 obtain new knowledge and to update their
  where appropriate , generalized.                            skills. Such systems already exist in certain

                                                                                                                           121
  S. 6/93
Member States ,           but are limited in their   In an extension            of     existing programmes
scope and target             population. Formulas    and regulations , and against the backdrop
which are more ambitious and of broader              of the implementation of the guidelines for
scope should be examined and developed               future education and training programmes
on the basis of the models which are best            the first objective should beto develop still
adapted to the various national cultures:            further the European dimension of education:
statutory entitlement to ' training leave' with      to improve the quality of training and to
financial assistance from the State; incor-          foster innovation                  in education by
poration of the right to training in collective      increasing exchanges of experience and
agreements , etc. In this context possible           information on good practices and devel-
ways of linking these formulas with measures         oping joint projects; to establish a genuine
for increasing flexibility in the conditions         European area of - and market in skills
applicable to employment and for         sharing     and training by increasing the transparency,
working time       should be studied and tested.     and improving the mutual recognition , of
                                                     qualifications and skills; to promote Euro-
On the basis ofa partnership between univer-         pean-level mobility among teachers , stu-
sities, public authorities and businesses, sys-      dents and other people undergoing
tems of initial and continuing training should       training, that is to say physical mobility and
be set up in the areas corresponding to the          the ' virtual' mobility made possible by the
technological and . social skills required for       new technologies of communication; to
developing functions and occupations                 develop common databases and knowledge
(multidisciplinary types of training; training
for work in an environment which makes
                                                     on skills needs; to conduct comparative
intensive use of information technologies;
                                                     research on methodologies used and
                                                     policies implemented; to improve the inter.
compound technical and management                    operability of systems of distance learning
skills , etc.). One pivotal aspect should be the     and to increase the level of standardization
development of       training by the new techno-
logies more particularly information tech-
                                                     of the new decentralized multi-media
                                                     training tools ,    etc.
nologies , with a view to enhancing the
quality and diversity of basic education and         In association with the measures taken at
training and introducing modular and                 Community level in the areas of social and
interactive elements.                                employment policy, and in concert with the
                                                     Member States, the Community should        set
By extending and emulating the measures              in place a political framework for the medium
implemented in certain Member States , the           and long-term measures for linking the sys-
countries of the Community should also               tems of continuing training and training cre-
adopt the provisions needed to        increase the   dits with measures for increasing             flexibility
flexibility of the various parts of education        and reducing working time.
 systems and the level of decentralization of
 management of education systems:      within        Generally speaking, the Community should
certain limits , and account being taken of          set firmly and clearly            the essential require-
the risks of increasing inequalities in educa.       ments and the long-term            objectives for   mea-
tion and eroding its humanist and cultural           sures and policies in this area            in order to
vocation , it is also desirable to give greater      make it easier to develop a new model for
choice to students and to stimulate competi-         growth, competitiveness . and employment
tion between establishments of higher edu-           in which education and training playa key
cation.                                              role and to ensure   essential equality of
                                                     opportunity and the coherent development
(ii) Community action                                of the three dimensions of the European
                                                     system of education and training (educa-
The Community could and should take a                tion , training and culture). One way of
certain number of specific steps to support          sending an important signal and creating
and complement all these measures. These             added awareness in this area would be to
steps can be bracketed together in           three   announce and organise a ' European Year
main groups.                                         of Education ' (perhaps in 1995).


122                                                                                                 S. 6/93
Chapter 8

Turning growth into jobs                           employment creation ,    without putting the
                                                   burden of change on those already in a
                                                   weak position in the labour market.
  1. Introduction                                  All Member States       are suffering serious
                                                   short-term unemployment problems. The
The Community will need both sustained             scale of these problems should not divert
economic growth and a more employment              the Community from the longer-term tasks
intensive pattern of growth if it is to meet its   however. An end to recession will not bring
employment and unemployment objectives.            an end to employment difficulties. Short-
This will require changes in economic and          term concerns should be balanced against
social policies and changes in the employ-         the longer-term imperatives of expanding
ment environment as expressed in the struc-        employment opportunities and of ensuring
ture of labour market, taxation and social         that economic and social progress march in
security incentives. This implies          new     step.
relationships and new methods ofparticipa.         The approach and proposals outlined in
tion between all those         effecting, and      this chapter support the medium.term
affected by, the changes that are required.        strategy of ' moving towards the 21st century
                                                   In order to achieve these objectives , and
Producing more jobs from whatever rates
of economic growth the Community can
                                                   pursue the   appropriate mix in terms of
achieve requires a new solidarity - between        policy and delivery, it will be essential to
those with work and those without, as well         engage the active participation of the widest
as between those who earn their income             possible range of economic         and social
from work and those who earn their                 actors at all   levels. ' Bottom-up'   initiatives

income from investments.                           need to be encouraged as much as possible.
                                                   The social partners especially have a sub-
At the same time, the Community needs to           stantial responsibility and opportunity to
improve its long-term competitiveness and          work together in new ways to find      new solu-
avoid overreacting to short-term changes in        tions , including at European level , through
price competitiveness  resulting from the          the machinery set up under the terms of the
vagaries of exchange-rate movements.               Social Protocol.
means both investing in people and devel-
oping an active policy of encouraging new            2. Member States ' views
economic activity and employment growth in
domestic and internationally        competitive    All the Member States agree in their contri-
sectors.                                           butions albeit with certain nuances - on
                                                   why unemployment is so high in the Com-
This chapter recognizes the need for more          munity, their diagnosis being that unem-
efficient labour market and associated             ployment and the inadequate level of job
                recognizes that the market
policies. It also                                  creation are due principally to structural
alone cannot solve the employment , unem-          factors, exacerbated by the effects of the
ployment and associated social problems            current recession.
faced by the Community. There is a need to
                                                   There is unanimous agreement on the fact
take full account of the real costs of unem-
                                                   that labour markets do not work efficiently,
ployment for both societies and economies in
developing fiscal as well as labour market         with a lack of flexibility - more particu-
and social policies.                               larly in terms of the organization of
                                                   working time , pay and mobility - and an
This means significant changes , but it does       inadequate match of labour supply to the
not simply mean a deregulation of Europe           needs of the market, especially as regards
labour markets. Rather, it implies a remod-        workforce skills and qualifications. This rig-
elled, rational and simplified system of regu-     idity is the root cause of what are relatively
lation and incentives which will promote           high labour costs , which have risen at a

S. 6/93                                                                                           123
much greater rate in the Community than           tion contract, and gearing careers more
amoung our principal trading partners. As         closely to the individual , or facilitating
a result, firms are liable to make any neces-     forms of progressive retirement. As regards
sary business adjustments by manipulating         the distribution of working time , there are
the labour factor, the tendency being for         suggestions on calculating working time on
human labour to be substituted by more            an annual basis and on reducing working
capital-intensive factors.                        hours in a period of recession. Obstacles to
                                                  mobility (whether sectoral , geographical or
Social protection schemes have - in part at       in- house)   should also be   eliminated. This
least - had a negative impact on employ-          increased flexibility should be reflected in
ment in that they have, in the main , tended      collective bargaining rules and systems , to
to protect people already in work, making         make them more appropriate to the specific
their situation more secure and consoli.          situation of local markets and undertakings.
dating certain advantages. They have in
effect proved to be an obstacle to the            As regards ways of reducing labour costs
recruitment of job-seekers or of new              suggestions are made for gearing levels of
entrants to the labour market. A number of        pay to company performance and produc-
Member States make reference here to a            tivity as a way of encouraging the recruit-
dual standard of treatment working to the         ment of young people, and as an alternative
detriment of the jobless.                         to laying people off in a period of recession.
                                                  A number of Member States make a plea
Mention is also made of other factors             for pay restraint  to reflect economic cir-
which militate against jobs , such as the high    cumstances at a local , sectoral or more gen-
level of non-wage costs , particularly in the     erallevel , as a means of enhancing compe-
form of statutory levies and charges , and        titiveness and containing inflation , and to
insufficient motivation to work due to inap-      boost jobs. However some Member States
propriate social protection systems and           caution that pay restraint should not result
employment services. Certain Member               in demand contracting over-much.
States also cite competition from low-wage
countries as a contributory factor to the loss    Most of the Member States make reference
of jobs , particularly in labour-intensive   or   to this subject in their contributions , sugges-
unskilled sectors.                                ting various means of cutting social welfare
                                                  contributions , more particularly by concen-
Together with the broad agreement among           trating such cuts on unskilled jobs. Among
the Member States on their diganosis of the       the suggestions made for compensating for
situation , there is also a wide measure of       this loss of income , there are proposals for
agreement on what remedies should be              taxing polluting activities or products
adopted. There can certainly be no miracle        energy or scarce natural resources, or
cure, but there is a need for a thoroughgoing     encouraging private insurance schemes. The
reform of the labour market, with the intro-      idea of introducing a ' green tax ' receives a
duction of greater flexibility in the organiz-    varied response , with some of the Member
ation of work and the distribution of             States having reservations about the effect
working time ,    reduced labour costs , a        of such taxes on international competitive-
higher level of skills , and pro-active labour    ness.
policies. There is also a good degree of con-
vergence on the need to maintain        social    To create more jobs for young people, there
protection systems. Finally, reference is also    is a suggestion to introduce greater      flexi.
made to giving priority to combating unem-        bility with regard to the minimum wage
ployment among young people and long-             reduced social welfare contributions         or
term unemployment, as well as social              other contract terms , for example by intro-
exclusion.                                        ducing flexible forms of apprenticeship,
                                                  training or practices.
The introduction of more flexibility should
centre on the way work is organized,       for    The ideas put forward on pro-active labour
example by removing obstacles which make          policies centre on three main aspects. Some
it more difficult or costly to employ part-       of the ideas concern the employment ser-
time workers or workers on a fixed- dura-         vices, for example enhancing and refining

124                                                                                       S. 6/93
the role of employment agencies and crea-         working age in employment. One conse-
ting a better match between labour market         quence was that, of the 10 million extra jobs
supply and demand, by way of closer               created in this period , only three million
liaison with undertakings and with local          were taken by the registered unemployed
markets , or by the establishment of private      with the remainder taken by new entrants
employment agencies. Most of the Member           to the labour market.
States believe that substantial employment
prospects could be opened up by devel-            (b) Low rate of employment
oping labour- intensive service activities (for   Europe s employment rate - the proportion
instance, by introducing a greater degree of      of its population of working age that is in
liberalization), and by introducing new acti-     work - is the lowest of any industrialized
vities, for example in the social and cultural    part of the world. Moreover, it has fallen
fields , and in terms of health, the environ-     over the past two decades                 from some-
ment and the quality of life in general.          what above 60% to somewhat    below. In
Finally, many of the Member States call for       contrast, the employment rates in Japan
an examination of social protection systems       and Scandinavia have remained consis-
to ensure    that they actually     encourage
                                                  tently above 70%,          and that of the United
people to work , for benefits to be more          States of America - which started in 1970
closely geared to the specific market situa-      at a similar level to the Community ~ has
tion , and for expenditure to be targeted
more accurately to concentrate the effort on      grown throughout two decades to reach its
                                                  present level of 70%.
those in real need.
                                                  Divergences in          employment-creation per.
Many of the Member States suggest the             formance between the Community and
introduction of a form of cost/benefit anal-      other developed economies , and between
ysis for Community legislative proposals in       Member States , are much greater than
the social field.                                 would be implied by differences in econ-
                                       needed     omic performance. Between 1970 and 1992
Finally, as regards the instruments
to implement these major reforms, the             the   US   economy grew in real terms by 70%
Member States stress the need for social          - somewhat         less than Community growth
                                                                                      USA   rose
consensus and for a cooperative attitude on       of 81%. Yet employment in the


the part of all the parties concerned , with      by 49% , compared with only 9% in the Com-
some of them proposing a search for con.          munity. In Japan , where the economy grew
                                                  by 173% from its 1970 level , employment
sensus at Community level.
                                                  grew by 25%.

  3. Scale and nature of the problem              In most European countries the proceeds of
                                                  economic growth have mainly         been
 (a) High recorded and hidden                     absorbed by those who remained in employ-
     unemployment                                 ment, and there is a large pool of unem.
                                                  ployed who have been excluded.
 Over the past three years , recorded unem-
 ployment in the Community        has risen        The Spanish economy is the most striking
 sharply. It now stands at almost 16 million       example. Between 1970                 and 1992 , the
 people or around 10.5% of the registered          Spanish economy grew by I 03%. But in
 workforce. All Member States have         been    1992 , employment was actually 0.3% less
 affected, although levels of unemployment         than it had been in I 970. Other EC econ-
 vary considerably between them.                   omies also show relatively low employment
                                                   growth compared with output. Over the
 It follows a period when      unemployment        1970-92 period , the total growth in output
 had been falling with    increased and stable     and employment was ,                respectively: Ger-
 economic growth. However, even after four         many, 70% and 11%; France , 77% and 6%;
 to five years of steady economic growth at        Italy, 85% and 18%;            UK   51% and 3%.
 the end of the 1980s ,   when unemployment
 reached its lowest level for a decade , it was    While employment rates in the Community
 still at 12 million or over 8% of the labour      are broadly related to levels of development
 force, and with only 60% of people of             with southern States having rates                   of


                                                                                                      125
 S. 6/93
                                                                                                     -"-'-'"'
                                                                                                        ::::;,
                                                                                                   . :::::~'




employment of around 50 to 55% - there           the volume of work rose by 7% and the
is nevertheless a great deal of variation b~     number of people employed by 12%. In the
tween economies at similar levels of economic    Netherlands , more than half of the rise in
development. Thus the Netherlands has a          employment of 30% seems to be attribut-
much higher rate of employment than Bel-         able to the fall in average working time.
gium , and Portugal a much higher rate than
comparable southern economies.

(c) Changes in hours of work                     Graph J.. Contribution in hours worked to the
When examining changes in working hours,         growth of numbers employed 1983-
and considering the potential of job cre-
ation in the Community, it is important to
draw a distinction between the volume of                                                           0 ::".. :;" 25

work and the number of people in employ-                                                                  ~~::"' 20

ment. A number of Member States have, to
date , succeeded better than others in trans-
lating a given volume of work into jobs
both by reducing normal working hours by             NL E P D UK L                 DK B            F GR      IRL
a variety of means and by increasing the
number of part-time jobs.
                                                 1he/a1:t that average weekly hours o/work/en between J983 and J99J in
The Netherlands has gone much further in         an Member States, except the UK, means that the available work was
this direction than other countries. In 1991     shared among more people.

those in employment worked an average of
only 33 hours a week as compared with 39
hours a week in the Community as a whole.
In Denmark, the figure was similarly low at      The experience of the recent  past is very
under 35 hours a week. In both cases , these     relevant for future job-creation prospects
figures reflect the relatively high proportion   and for the debate on distribution of work
of people working part-time instead of full.     and income. In a real sense, such redistribu-
time - 33% in the Netherlands and 23% in         tion occurred over the                    1980s in many
Denmark, higher than anywhere else in the        Member States , though only in the Nether-
Community.                                       lands and perhaps Denmark was it a
Between 1983 and 1991 ,   the longest period
                                                                 labour market policy.
                                                 deliberate part of
                                                 However, the issue is complex and job-cre-
for which comparable data are available          ation potential is dependent on a number
the average hours worked per person per          of social , fiscal and regulatory factors. Also
week declined by only 3% in the Com-
                                                 not all countries are well placed to do so
munity as a whole - by just over one hour.       especially when their levels of income per
In the Netherlands , by contrast, the reduc-
                                                 head are lower - and therefore the income
tion was 13% - equivalent to each person         available to be shared along with work is
working an average of five hours a week          correspondingly less.
less in 1991 than only eight years earlier.
The reduction in hours worked in the Com-
munity over the 1980s is not substantial in
most countries apart from the Netherlands.       (d) Difficulties facing              particular groups
However, it seems that in northern Member        The unemployment rates of young people
States , except for the UK, it had an affect     (those under 25) are double those of adults.
On the labour market over this period. The       They range, however, from less than 10% in
volume of work undertaken, in terms of the       Germany and Luxembourg to 20 to 30% in
total number of hours worked , went up by        much of the South of the Community and
only around 2% in Denmark and Belgium            in France and Ireland.
but , because of the reduction in average
hours worked, the number of people in            The incidence               of unemployment among
employment increased by 8%. In Germany,          women in the labour                 force in the           Com-

126                                                                                                      S. 6/93
munity is significantly higher than among         Graph        2: The cost of unemployment in the
men. In May 1993 , the unemployment rate          Member States
for women averaged over 12% whereas for
men it was around 9%.
Long-term unemployment has become                 50 """""""
                                                                                                          0 ~=_._'"'
endemic in the Community. Over half the
unemployed have been unemployed for
more than one year. It is a particular
problem for young people in the South ~
where they account for 50% of the long-
term unemployed. In the North, for men in
particular, it is often more concentrated
among unskilled middle-aged workers , who         Expenditure on unemployment benefits and foregone revenue from
                                                  income tax and sodaJ contributions      is signijiCOJlt in most Member States.
have lost their jobs through flfro closures.      For the Community as a whole. the cost of the two elements         is estimated

In  these areas, youth unemployment               at ECU 210 billion in   1993 - almost 4% if Community GDP. The true
                                                  costs are even higher than this because if lower indirect taxes and all the
accounts for only 15 to 25% of the total.         social costs associated with unemployment.



  4. Costs and causes of
     unemployment
The economic and social costs of this unem-
ployment are enormous. They include not
only the direct expenditure on providing          Slow growth has not only meant low rates
social security support for the unemployed        of employment creation , however. It has
but also the loss of tax revenue which the        also inhibited the process of structural econ-
unemployed would payout of income if              omic adjustment. Before 1973 ,                          the creation
they were working; the increased burden on        of new jobs in growth sectors was large
social services; rising poverty, crime and ill-   enough to absorb those losing their jobs in
health; and the increasing levels of educa-       agriculture and declining industries , and
tional underachievement.                          unemployment for the most part remained
Graph 2 illustrates the direct costs of unem-     below 2 to 3% .
ployment in each of the Member States.
These costs comprise the amounts paid out         Since 1973 ,          job creation in growth sectors
in unemployment benefits and the income           has been much slower. The shift in employ-
lost, i. e. the amounts that would be received    ment has been much more painful due to the
from taxes and social contributions were          shortage of alternative employment oppor-
those unemployed people in employment.            tunities , the limited possibilities for com-
                                                  panies to shift labour from declining to
In Germany, for example , the figures sug-        expanding activities and the significant
gest that unemployment will cost the gov-         impact of new technologies in replacing
ernment ECU 40 billion in 1993 - ECU              labour, particularly in terms of manual and
billion from benefit payments and ECU 21          low-skill occupations.
billion from foregone income. The esti-
mates suggest         that
                         unemployment
                                                  Even if manufacturing employment began
throughout the Community will cost gov-
ernments in excess of ECU 200 billion in          to increase again during. the period of fast
1993 ,   which equates to the GDP of Bel.         growth at the end of the 1980s , the secular
gium. These costs , it should be noted , do       tendency has been for employment in
not take account of the wider social costs        goods-producing industries , including agri-
mentioned above.                                  culture, to decline. Employment in service-
                                                  producing industries has increased, thereby
Part of the present    unemployment in the        partially offsetting losses elsewhere in the
Community is a legacy of the depressed rate       economy. There . are signs that growth in
of economic growth and       rigidities in the    service industries will no longer be possible
labour market.                                    on the levels previously achieved. To begin

S. 6/93                                                                                                                    127
with , services now represent such a large              Demographic changes are , however
share in all developed economies that                   bringing pressure on social security
income arising from productivity gains in               budgets ;
goods.producing industries will not be suf-        (iii) a shift in consumer and political pref-
ficiently large to fmance employment gains
                                                        erences away from the public provision
elsewhere in the economy.                               of goods and services towards more
Further income gains will now largely have              private provision has brought a reduc-
to come from productivity gains within the              tion in publicsector activities , and
service sector itself. Such gains are indeed            hence employment , in many areas of
possible and are likely to arise from a com-            the economy, including areas of poten-
bination of the successful application of               tial employment growth.
information technologies and new organiz-
ation methods, and from competitive press-           5. The consequences of change
ures on those service    industries subject to
                                                   The overall effect of these various economic
international competition or those which
                                                   and social factors has been to:
represent a significant input to other firms.

A corollary to substantial    restructuring in
                                                    (i) increase the pace of change needed in
                                                        economic and labour market structures
the service sector is that unemployment is
                                                        in order to maintain the Community
also likely to affect those with a higher level
                                                        competitive economic performance
of educational attainment and not just the
poorly qualified , unskilled part of the                and thereby maintain employment and
                                                        real income levels;
labour force. In turn , this will create further
challenges to containing unemployment.             (ii) alter the composition     of the Com-
At the same time, Member State economies                munity s labour force in ways that
and labour markets have been slow to cope               require major changes in labour market
with other structural changes. These have               organization , as well as in supporting
included the effects of the continued indus-            activities     from training to child-
trialization of the less developed parts of the         care;
world with the eventual relocation of acti-        (iii) limit the ability of governments to inter-
vities. They also include the effects of Com-            vene directly in the employment-cre-
munity integration with , on the one hand                 ation process and oblige them to rely
the completion of       the internal    market          more on creating the right market con-
leading to rationalization , restructuring and          ditions and providing appropriate
relocation and , on the other hand, the pro-            incentives as a means of promoting
gressive convergence of richer and poorer               employment.
Member States. All this means that the
labour market too will have to adapt to              6. The need for new policy
changed circumstances.                                  responses
Social and demographic changes have also           In the face of    persistently high levels of
been significant:                                  unemployment in the Community, and
 (i) the progressive decline in the import-        clear evidence of its growing structural
    ance of traditional households (hus-           dimensions , some observers have advo-
      band , wife and children) as the main        cated wholesale labour market deregulation
      economic and social unit in society,             especially of employment protection
      and the increasing participation of          legislation and wage determination
      women in the labour market;                  the only way of bringing its labour markets
                                                   into equilibrium.
(ii) demographic changes with declining
     birth-rates leading to an ageing popu-        Most Member States have gone somewhat
      lation. While this has not,      as yet      in this direction      with an emphasis on
      resulted in an ageing working popula-        encouraging wage moderation ,        increasing
      tion   since the effect is offset by the     external labour market flexibility, and
      increasing participation of younger          reducing the growth of social security
      women - it will do so post-2000.             expenditure. Many enterprises have fol-

128                                                                                        S. 6/93
lowed the same route -        with   the emphasis       of two-tierlabour markets      those with
on increasing internal flexibility and                  secure permanent jobs and those with inse-
reducing fixed labour costs.                            cure temporary jobs.
At the same time , government actions have              Pressure to increase labour market flexi-
reflected wider concerns - such as the need             bility without countervailing actions has
to maintain social and industrial peace, and            moreover often reduced, rather than
to avoid     creating further poverty among             increased, the incentives for fmns and indi-
those groups already in the weakest posi-               viduals to invest in much needed training and
tion on the labour market.                              retraining, as has the lack of      taxation
                                                        encouragement to training.
The arguments are not just social or pol-
itical. Evidencethat income distributions               Also , the range of special measures and
have worsened in certain Member States                  incentives which help reintegrate the long-
provides grounds for caution. The Com-                  term unemployed , young people , women
munity cannot hope to address the conse-                heads of household and returners , the han-
quences of  the international relocation of             dicapped or disadvantaged groups in the
many jobs through wage-price competition                labour market have become so numerous
and that many problems of price competi-                and complex that they overcomplicate the
tiveness are due more to the vagaries of                recruitment decisions of firms.
exchange-rate movements. This argues for
long-term, strategic responses rather than              Failure to address these fundamental issues
short-term ones.                                        in developing responses is at the heart of the
                                                        Community' s labour market difficulties. It is
However, where most of the Member                       important to find a better balance between
States ' responses have converged is that               combating unemployment and job creation
actions have generally been . aimed more at             and to ensure we do not only         rely on
reducing unemployment than at increasing                market forces to resolve the highly complex
employment. This has been reflected in the              problems of achieving higher economic and
large number of employment and training                 employment performance. It is also impor-
schemes created for the unemployed , and                tant that we acknowledge that all of these
in specific incentives to encourage the                 factors together with the ineffective gearing
recruitment of target groups. Unfortunately,              , and interaction between , labour market
little has been done to adapt the wider legal           and other policies have inhibited the growth
and financial environment and regimes                   of more effective labour markets.
which provide the main incentives in the
labour market - to the new economic and                   7. Proposals for action: Broad
social realities , or to modify the institutional            objectives
structures which surround them.
                                                        While the Commission considers that some
In broad terms , the way in which taxes , and           further reform of labour market regulation is
social contributions , are raised seems to              called for this has to be accompanied by
take little or no account of their potential            other tasks , namely to:
effects on the level of employment ,       still less

of the potential        effects they may have in         (i) raise levels ofemployment and not just
for example            discouraging firms from               lower levels of unemployment;
offering jobs to less skilled and lower paid             (ii) focus not on the workings of the labour
workers.
                                                              market , narrowly defined , but on the
Also , many national fiscal systems are                       broader employment environment
poorly adapted to present and developing                     paying particular attention to the
employment needs, and disincentives and                      effects of financial deterrents to
administrative obstacles to flexible or vari-                employment creation embodied in tax-
able patterns of work abound.                                ation and related fiscal systems;

Attempts to reduce levels       of   job protection     (iii) increase the Community' s investment in
in order to introduce        more flexibility into             human resources, on which long-term
labour markets have often led to the growth                    competitiveness ultimately depends.

S. 6/93                                                                                            129
That a higher rate of employment can be          (ii) to improve access         to the   labour
achieved for a given level of economic               market ,   especially in   less developed
activity is amply demonstrated, not only by          regions and among disadvantaged
examples from outside the Community                  social groups. In particular, this means
USA, Japan and Scandinavia         but also          addressing youth employment prob-
by those within. Denmark has among the               lems; combating long-term      uneDlploy-
highest rates in the world.                          ment and labour market exclusion; and
                                                     promoting and improving our efforts
The diversity of results demonstrates that           towards equal opportunities between
there are multiple routes to follow. The             women and men. In this regard , public
challenge for the Community is to achieve            employment services , together with
high employment results in ways which are            private agencies , would have a vital
compatible with its general economic and             role to play in adopting a more proac-
social goals and criteria.                           tive approach to job placement;

Fundamental economic and social changes          (iii) to raise the stock of human capital in
are required , however , if income and                 ways that ensure that Community
                                                     competitiveness is optimized. Partic-
employment opportunities are to be distrib-
                                                     ular attention is given to continuous
uted more widely among those who wish or
need to work. This is not based on a static          training and upgrading skills, basic and
vision of job and wealth creation. The               introductory training and new tech-
objective must be continually to increase            nology skills;
the stock of jobs and wealth by increasing       (iv) to anticipate and accelerate the develop-
competitiveness and value-added. How-                ment of new jobs and new activities, par-
ever, the manner in which this process gets          ticularly labour- intensive ones. This
translated into new and additional employ-           includes exploiting the potential of
ment opportunities is not preordained. Dif-          SMEs and developing new jobs in the
ferent societies can and do make political           environmental industries and services
and social choices which give different                  notably, the care sector and the
results. If Europe is to set itself a goal of        audiovisual , arts , cultural and tourism
reducing unemployment , which in turn                industries.
requires maximizing employment oppor-
tunities - due   to the presence of hidden
                                                   8. Specific actions
unemployment -    then it will require a gen-
eral reform of the systems of incentives which   (a) Labour costs and job creation
affect employment    in the labour market.
Indeed, there is no real alternative if a con-   There is evidence that there may be a mis-
tinued disenfranchisement of a significant       match between productivity and wage costs
minority of its citizens is to be avoided.       in the low skill part of the market.

There will have to be four interdependent
                                                 Existing collective bargaining and related
targets:                                         taxation and labour cost arrangements have
                                                 the effect of causing gains from economic
 (i) to identify the changes which are           growth to be absorbed mainly by those
      taking place in the labour market
                                                 already in employment, rather than creating
      especially concerning part-time and        more jobs. To change this would mean
                                                 seeking political and social partner agree-
      flexible work and to achieve a wider
      distribution of jobs and income. This      ment on:
      includes changing the pattern and level    (i) keeping hourly wage increases below
      of working time to reflect new work            the growth of productivity;
      organization and job needs; adapting
      the incidence of taxation in ways that     (ii) accompanying measures to ensure , by a
      encourage more employment;          and         variety of different instruments , that
      improving the adaptability of the               economic growth is better translated
      labour market by adjusting the regula-         into new jobs and a reduction of unem.
      tory framework;                                ployment.

130                                                                                      S. 6/93
(b)     Flexibility and job creation                        non-wage employers '                    costs neutral or
                                                            progressive, rather than regressive as
Member States should seek to remove                         they generally are at the moment (see
obstacles to already changing trends , pref.                Graph 3), in order to encourage the
erences and demands           of   employees and            provision of more jobs for the        rela-
employers regarding patterns and hours of                   tively less skilled by reducing their cost
working, which will increase the number of                  to employers (this approach concerns
jobs' for given levels of output. This cannot               the adjustment and targeting of taxa-
be pursued by a top- down , mandatory                       tion incidence , not the level of revenue
approach seeking to legislate for a shorter                 raised overall);
working week. It should rather be pursued
by a range of appropriate means which
could include:
 (i) adjusting the legal    framework so that
        those who are willing, and often keen
        to work shorter hours do not suffer loss     Graph   3: Employer s social contributions at
        of social protection and poorer con-         different wage levels
        ditions of service;
                                                     Index (Contribution at average wage = 100)
 (ii) negotiating the balance of social pro-
        tection between part- time and full-time     200                                                                        200
        workers so as to avoid major disconti-       180                                                 0 ,.,~.._.             180
                                                     180                                                                        160
        nuities, and in order to make the deci.      140                                                                        140
        sions of       both    employees and         120
                                                     100
                                                                                                                                120
                                                                                                                                100
        employers about preferred working
     patterns more neutral;
(Hi) minimizing artificial financial incen-
     tives for those of above-average
     incomes to work above-average hours;
                                                     In most Member States. employers ' social contributions are regressive
(iv) encouraging the national cyclical               they are at a lower rate on high wages than on low wages. The only excep-
                                                     tions are Belgium and Portugal where the rate is the same at all wage
        trends towards a shorter working week        levels and the UK where the rate increases as wages rise (but only
        per employee , where appropriate             slightly), In all other countries. apart from Denmark. although the rate is
                                                     the same at haffthe average wage as at the average it is lower for those
        while increasing utilization of capital      on three times the average wage. In Denmark. contributions are highly
                                                                                              of wages as opposed to over 20%
        equipment and ensuring competitive-          regressive but the rate is very low (1
                                                     most other Member States).
        ness;
  (v) developing measures which provide
      incentives to filling the new employ-
         ment opportunities by people from the
        unemployed register, for example
        through types of job rotation schemes         (ii) lowering the relative cost of labour with
                                                              respect to the other production factors
       such as that initiated in Denmark;
                                                              (capital              energy and non-energy
 (vi) reductions in annualized hours and                      inputs), for             example by reducing the
         favourable examination of career                     employers ' social security contribu-
         training, parental and sabbatical   leave            tions and increasing revenue through
         breaks.                                              other means so as to neutralize the
                                                              effects on the social protection of wor-
  (c) Taxation and       incentives: Low-skill                kers;
      job creation
 Member States should seek to address the            (Hi) improving the prospects of labour
 present disincentives    to employing less               market entry for the least competitive
 skilled workers by a range of possible mea-              by restructuring national government
 sures , including:                                           income support                     schemes in ways
      (i) adjusting   taxation systems as they                which enable income from work to be
         affect employers , notably by making                 topped up with income from social


 S. 6/93                                                                                                                        131
      security, by developing integrated taxa-       . an  important part of SME develop-
      tion and income support systems with              ment and the generation of new jobs
      appropriate safeguards. The job gener-            concerns the best uses and develop-
      ation potential of such measures might            ment of women s    work in ways that
      be maximized         by   their operation         improve job      creation and fight
      through a single government agency;               inequality between women and men.
                                                        Women full integration in the
(iv) re-examining the ways in which the                 labour market is expected to create
      present interplay of taxation, regula-
                                                        jobs in the provision of  services and
      tion and related structures could be              goods not yet integrated in the market
      adapted to enable a widening of the               and currently being provided by
      concept of work, incorporating all                either unpaid women s labour or
      forms of paid or partially paid work              paid informal women s labour;
      within . a common framework encom-
      passing the social economy, inter-          (ii) In terms of new jobs and activities more
      mediate employment enterprises and               generally, measures could include
      the informal economy, thereby enab-              those which:
      ling the re-entry into the formal labour
      market of many citizens who have to             CD promote the development of new
      work at the margins.                               employment opportunities through
                                                         the use of public-private partner-
(d) SMEs, new activities and job                         ships at all levels , and notably in
    creation                                             potential growth areas       such as
                                                         environment energy, transport
Member States should address existing bar-               leisure , arts , sport and the care
riers to maximizing the job-creation potential           sector;
of SMEs and areas of new employment
growth and activity by a range of measures            . encourage , while respecting existing
aimed at anticipating and accelerating SME               competition policy, specific sectors
and new jobs growth.                                     such as the audiovisual industries,
                                                         which could have a strong impact in
(i) In terms of SMEs , these could include               terms of inward investment ,   export
      measures to:                                       revenue , and diverse types and
        facilitate and maximize participation            levels of employment in a growing
        of SMEs in the common internal                   media/leisure market. Pump"
        market by strengthening their compe-             priming finance can be important
        titiveness regarding such issues as              particularly where high potential
        their access to finance , to informa-            profit is balanced by high risk;
        tion sources , to the results of
        research and development, and to              CD exploit fully the   employment poten-
        training, including support through              tial represented by the environment
        the new European Social           Fund
                                                         sector. This covers not only the
        Objective 4;                                     clean-up activity needed to deal
                                                         with the legacies of the past, but the
      CD identify   and review those financial           new monitoring, standard-setting
        fiscal, administrative and legal con-            and maintenance areas which now
        straints which fall disproportionately           offer a challenge and opportunity to
        on small and medium-sized firms in               employment in science and tech-
        order to avoid such measures inhib-              nology. Public expenditure     associ-
        iting the growth of employment.                  ated with EC programmes could
        Small businesses are important as                contribute strongly to job  creation
        creators of new jobs but they have               related to supply of equipment , con-
        the least capacity to pass on costs              struction and contracting services
        because they have         little market          in particular in Objective I regions.
        power and the highest cost of coping             This could average ECU 2.5 billion
        with regulation , due to a lack of spe-          per annum 1993- 2000 , which by the
        cialist staff;                                   end of the century could have cre-

132                                                                                    S. 6/93
           ated 100 000 permanent jobs and                   and their capacity to exploit the new
           200000 jobs related to supply of                  technologies throughout appropriate
          equipment, construction and con-                   work experience;
          tracting services in these areas;
     . encourage growth in the employ-                  (iv) extend the scope and range of
       ment- intensive areas of the care                     existing apprenticeship       schemes
           sector and of the provision of house-             and/or other forms of linked work
           hold services.     It is necessary                and training, in active     cooperation
           enhance the perceived value , and                 with the social partners;
           therefore encourage increased skills
           in sectors;
                                                         (v) improve the coordinated provision of
     . in support of all the above                            guidance and placement services , no-
       strengthen the role of local economic                 tably at local level , to provide syste-

           and employment development                        matic advice to young people on
                                                             career and job opportunities;
           through the decentralizing of public
           agency and government decision-
           making and expenditure ,       and sup-
                                                         (vi) encourage universities and other
           port this by Community-wide inter-                higher education institutions to colla-
           area cooperation designed to                      borate more intensively with industry
           transfer know-how and experience;                 and commerce, especially with a view
           finally, progress on all of those
                                                             to ensuring the transfer of innovation
           fronts is dependent on ensuring                   and technological breakthroughs
                                                             through continuing training schemes
           that , at all levels , the social partners
           are encouraged        to develop new              to firms      especially small and
           models of workplace relationships in              medium-sized;
           order to improve   flexibility, and
           keep pace with the changing struc-           (vii) examine ways of      introducing tax
           tures of production , in both large               incentives for firms and individuals to
           and small firms.                                  invest in their continuing training, as
                                                              an expression of public policy com-
(e) Raising the stock of human capital                       mitment to the development of life-
The inadequacy of present education and
                                                             long learning opportunities for
                                                              adults;
training systems in meeting the challenge of
long-term competitiveness should
addressed by developing a range of mea-                 (viii) the social partners should be encour-
sures ,   in the context of national structures               aged to set up collective agreements
to:                                                           including at European level , to extend
                                                              access to, and participation in,   conti-
   (i) establish a Community-wide guar-                       nuing training as an essential means
       antee that no young persons can be                     of improving the motivation and
          unemployed under the age of 18: they                quality of the workforce as a whole.
          should be guaranteed a place in the                 The setting-up     of company- based
          education and training system or in a               training plans , linked to company
          linked work and training placement;                 business plans , should be widely
  (ii) set progressive targets up to the year                 encouraged , drawing appropriately
       2000 for the elimination of basic illit-               on the possibilities opened up by the
          eracy, and lack of other basic skills               new Objective     4 of the   European
          on the part of school- Ieavers;                     Social Fund. A strong emphasis
                                                              should be placed on anticipative
 (iii) raise the status      of initial vocational            training within companies so as to
          education and training,                and          plan ahead for restructuring, and also
          encourage the development of the                    new ways of mastering technological
          entrepreneurial skills of young people              change. The dangers of an      excessive

S. 6/93                                                                                            133
      emphasis on automation producing a             agencies (often voluntary sector,       local
      culture of no skills ' and job deplace-        and regional government) which          have
      ment should be avoided , and experi-           demonstrated their ability to playa  strong
      ments involving the development of             role in    providing     effective stepping
      human-centred technologies should              stones to the forma1labour market;
      be given priority and appropriate            . within this ,   examining ways in which the
      encouragement.
                                                      social economy      can be encouraged
                                                     through tax exemptions , public/private
(f) Targeting specific groups                        partnerships , part work and part income
Member States have to ensure that                    support models , to engage unemployed
additional jobs are most effectively made            people, voluntarily, in actions which close
available to those in a disadvantaged posi-          the gap between people wishing to work
tionin the labour  market. This was not              and unmet social needs;
achieved in the employment growth period
of the second half of the 1980s , and the            strengthening equal opportunities policies
Community now faces the danger of not                for women and men in employment by:
only a dual labour market but also a dual
society. In order to address this threat to            (i) eliminating any potentially discrimi-
                                                           natory fiscal and social protection
social cohesion , Member States are asked                  policies which can discourage
firstly, to have regard to the reintegration               women s equal participation in the
potential of the proposals outlined earlier                formal labour market;
in terms of the     job-creation potential of
changes in labour costs , flexibility, taxation       (ii) improving existing     career oppor-
and incentives ,   and,   secondly, to consider            tunities for women , thereby genera-
improving specific integration and reinte-                 ting demand for support and tech-
gration measures in ways which could                       nical assistance services such as
include:                                                   child- care and vocational training;
   strengthening efforts to integrate or rein-        (iii) ensuring that taxation and social
   tegrate the long-term unemployed and                     security systems reflect the fact that
   unemployed young people, by providing                  women and men may well act as indi-
   clearer stepping stones to the formal                   viduals in seeking employment and
   labour market, and to find worthwhile                   reconciling family and working life.
   alternatives to inactivity. This would
   include the introduction of minimum stan-       Within all the above efforts aimed at disad-
   dards for Member States on those mea-           vantaged groups         it is important to
   sures for which Community support is            strengthen and focus the role of employment
   sought. Such standards could include:           services. Public employment services should
                                                   be encouraged to sharpen the guidance and
   coherent links with the labour market;          placement services offered to the unem-
   minimum training/qualification         stan-
                                                   ployed, targeting more effectively the indi-
   dards;                                          viduals concerned at local level. The provi-
                                                   sion of these services should be dovetailed
   independent counselling;                        with related but often separate vocational
                                                   guidance units and monitored on a regular
   adequate post-activity placement;               basis.
   equitable remuneration;                         They should also be encouraged to establish
   full range of ' soft infrastructure ' support   coordinated jobs needs audits at local level
   (child-care , literacy, etc.                    distilling the potential range of employment
                                                   opportunities which exist but are unmet
. providing    stronger support in terms of        and making available such information in
   resources and devolved responsibilities         more imaginative ways. The results of these
   encouraging links to the private sector         audits could be disseminated widely
   and to employment services , to the wide        through appropriate national machinery as
   range of intermediate labour market             well as via EURES at European level.

134                                                                                        S. 6/93
                                                 creation, by helping to accumulate work
                                                 experience and training or serve as a kind
Youthstart                                       of probationary period. Also , many people
                                                 wish to work under such arrangements. It
In order to respond more effectively to           , however, essential that such instruments
the problems facing young people in the          offer a path towards     permanent jobs rather
labour market, Member States will be
                                                 than replacing them.
invited to cooperate in establishing a
youth guarantee scheme throughout the
Union , to be known as Youthstart.                 9.   Conclusions
Under this scheme , Member States
should progressively take the necessary          Reducing unemployment necessarily
steps to ensure the availability of access       requires increased employment opportunities
to a recognized form of education or             on an unprecedented scale. Pro-active labour
training, including apprenticeships or           market policies will be central to such a
other forms of linked work and training,         strategy and will require a radical new look
to all young people under the . age of 18.       at the whole range of available instruments
Assistance to Member States        to   fulfil   which can influence          the employment
such an aim is available under the terms         environment, whether these be regulatory,
of Objective 3 of the    European Social         fiscal or social security incentives. The vast
Fund. Special efforts should be targeted         bulk of these measures will be for indi-
by Member States at those young people           vidual Member States to decide upon in
leaving school with no diploma or basic          responding to their diverse national situa-
qualifications.                                  tions.
 In the framework of Youthstart, oppor-
 tunities should be provided to interested       However, the Community can and must
 young people to take part in voluntary          play an important supporting role by:
 transnational exchanges , involving work
 experience and training      in    another       (i) providing a forum where a common
 Member State. Voluntary organizations                broad framework strategy can
 and the social partners should be associ-              agreed , and by
 ated with such arrangements. Young
 people would be encouraged to develop           (ii) underpinning national measures with
 their vocational , personal, entrepreuneu-           complementary Community action
 rial and linguistic skills through gaining             whether in the form of financial sup-
 experience in projects involving environ-              port through the European Social Fund
 ment protection , urban regeneration or                (which represents 13% of all Member
 restoration of the cultural heritage. Sup-             States ' expenditure on active labour
 port for innovative transnational action               market policies at present) or through
 to underpin Youthstart will be provided                networking and other measures
 under the ' Innovation '   section of the              designed to ensure the transfer of good
 European Social Fund, drawing also on                  practice and experience.
 the experience to date of the     PETRA
 programme.                                      The overall objective should be to
                                                 encourage the development of national
                                                 labour markets towards a Community
There is also   a need to encourage good         labour market. This could produce a more
practice in temporary job agency activity.       skilled , flexible, mobile, linguistically able
Empirical evidence suggests that temporary       and culturally sophisticated workforce, able
work, as actively operated in a number of        to exploit Europe s inherited advantages in
Member States , can lead to permanent job        the developing world markets.




S. 6/93                                                                                     135
Chapter 9

Statutory charges on labour                               competitiveness and employment. For a firm
                                                          this structure partly determines recruitment
      coordinated Community strategy for                  and investment decisions because it alters
rekindling growth and overcoming a struc-                 the costs          of the factors of production
tural crisis cannot disregard the weight and              (labour,       capital           energy, other scarce
structure of statutory charges l through                  resources). Particularly where demand is
which the equivalent of 40% of Community                  hesitant, statutory charges which immedi-
GDP is channelled.                                        ately increase production costs are felt more
                                                          keenly than those imposed on products sold
Between 1970 and 1991 statutory charges                   or on profits.
rose in the Community from 34 to 40% of
GDP. Over the same period they remained
stable in the United States of America,              at   Table      1.. Changes in statutory charges
slightly below 30%. In Japan , statutory
charges have increased appreciably since                                                                (as%ofGDP)
1980 but in 1991 stood at 31% of GDP, i.                     Country                1970       1980       1991
the same level as in the USA and a quarter
lower than the average level recorded in the                                        36.1       43.       43.
European Union.                                                                     40.5       44.       47.1
                                                                                    35.        40.       40.
Within the European Union there are varia-
tions between Member States. In a number                                                       30.       39.
of countries the overall level of statutory                                                    25.       34.41
charges is close to , or in excess of, 45% of                                       35.1       4I.l      42.
GDP. Such is the case in Denmark, the                     IRL                       31.6       33.       36.4
Netherlands , Belgium and France. The                                               25.        29.       39.
United Kingdom , by contrast, has sta-
                                                                                    30.        45.4      47.
bilized its statutory charges since 1980 at a
level that is markedly lower than the Com-                                          37.4       44.3      46.3
munity average.                                                                                29.       35.
                                                                                    37.        34.       34.
The growing significance            statutory
                                        of
                                                          EUR 10                    34.4       37.3      39.
charges raises the question of whether such
an increase , which is part the result . of the           EUR 12                                         39.
slowdown in economic growth over the
                                                          USA                       29.        29.3      29.
past 20 years compared with the previous
period , is not itself becoming a cause of that           lAP                       19.        25.4      30.
slowdown in growth. This explains the                     , 1990.

determination of governments in most                      , Task Force estimates.
Member States to stabilize or reduce statu-               Source:OECD.

tory charges as a proportion of GDP. But
such policies         for stabilizing statutory
charges presuppose a long- term effort to                 An analysis must therefore be made of
control public expenditure and have fre-                  whether the structures              of the tax systems
quently run foul of the priority need to                  which vary very widely          from one
reduce excessive public deficits.                         Member State to another, could not grad-
                                                          ually be adapted to make them less prejudi-
It is also on account of their structure that             cial to labour. This would involve reducing
statutory charges have an impact on growth                non-wage labour costs                i.e. the statutory
                                                          charges (taxes .and. ~Qqf!!.~ecurity contribu-
I The sum of taxes and obligatory social secury contri-   tions of employers and employees) imposed
 butions.                                                 on labour. To be more effective, this reduc-

136                                                                                                      S. 6/93
tion in the     statutory charges which are    charges as a whole. Since 1970 these charges
pushing up the cost of labour would have to    on labour have increased in the Com-
be coordinated with active employment          munity by 40% in real terms , twice as
policies. It could form part of efforts to     rapidly as. in the USA
rekindle growth by restoring confidence        In a number of Member States charges on
(revival of demand), by stepping up invest-    labour are equivalent to more than 25%
ment - particularly non-physical invest.       and , in some cases , almost 30% of GDP
ment (training, research)           and by
                                               (the Netherlands , Belgium , Denmark, Ger-
improving the use of equipment through a       many and France).
rearrangement of working hours.
In order to maintain a high level of social
                                                        2: Statutory charges on labour
protection and to meet the need to reduce      Table

budget deficits , the easing of statutory                     (approximation used: personal
charges, which would amount to 1% to 2% of                    income taxes + social security
GDP, would largely be offset by a rise in                     contributions)
other charges. These would consist particu-
larly of charges on scarce natural resources
and on energy ~ in order to reinforce                                                 (as%ofGDPj
environmental protection - and , where
                                                                                      Change
appropriate , of taxes on consumption and         Country         1970         1991
                                                                                      1970-
investment income.
                                                                  19.          29.5
Both for alleviating the charges on labour                        21.2         27.3
and for offsetting that through other tax                         18.          25,
bases , each Member State would adopt
measures that would be appropriate to its                         10.1         16.       6.4
own situation and consistent with the                              8.2         20.4     12.
smooth functioning of the single market.                          16.          25.4      8.5
                                               IRL                 8.3         17.       9.5
  1. Views of the Member States                                                23.      10.
                                                                  12.
Most Member States refer to this topic in                         16.          25.
their contributions. They advocate a reduc-                       22.          29.
                                   which
tion in social security contributions ,
                                                                               16.
would be achieved in various ways but par.
                                                                  16.          16.
ticularly by concentrating those reductions
on unskilled jobs. The suggestions put for-    EUR12              16.          23.
ward for offsetting the loss of revenue
include the possibility of taxing polluting    USA                15.          19.4      3.5
activities or products ,energy or scarce       JAP                             17.
natural resources , and promoting private
                                               Source:OECD.
insurance schemes. The possible introduc-
tion of ' green taxes ' is not viewed uni-
formly, however              since    some     In the United Kingdom charges on labour
Member States have reservations about the      have stabilized since 1980 at a level appreci.
impact of such taxes on international com-     ably lower than the Community average
petitiveness.                                  and comparable with the current level in
                                               Japan.
  2. Current structures and impact             If these tax and social security charges are
     on employment                             expressed as a proportion not of GDP but
 fa) Charges on labour
                                               of total labour costs, they account             on
                                               average for more than 40% of overall labour
Charges directly imposed on labour are         costs in the Community. This level is much
equivalent to 23.5% of Community GDP           higher than in Japan (20%) and the USA
 e. more than half the figure for statutory    (30%).

S. 6/93                                                                                        137
(b) Diversity of charges                                       (c) Impact on employment
In some Member States ,             the charges on             The high level of non-wage labour costs is
labour consist primarily of income tax , with                  prejudicial to employment, exerting a dis-
social security contributions playing only a                   suasive influence: it encourages the sub-
minor or very minor role: such is the case                     stitution of capital for labour and promotes
in Denmark, the United Kingdom and Ire-                        the parallel economy; it particularly affects
land.                                                          employment in SMEs; finally, it leads to
                                                               relocation of investment or activities.
Other Member States , by contrast, have
very high social security contributions and                    Faced with inadequate demand, firms
a relatively low level of income tax. This is                  attempt flfSt and foremost to reduce their
particularly the case in France and Greece.                    costs by laying off workers , labour being
                                                               the adjustment variable. The rise in unem-
Finally, on average          in the Community,                 ployment pushes up contributions and
two thirds of  compulsory social security                      reduces the number of contributors; labour
contributions are borne by employers and                       costs increase, and so forth; and a kind of
one third       byemployees. In some                           vicious circle is established. A firm which
Member States , however, such as Belgium                       by laying off workers , reduces its own costs
and France , the employers ' share is higher                   also passes on the cost of unemployment to
accounting for some three quarters of total                    other firms in industries which cannot lay
social security contributions; in the Nether.                  off workers as easily, and they too see their
lands , by contrast , employers social                         situation deteriorate.
security contributions account for less than
half of total social security contributions.                   Highly labour-intensive fmns, whose labour
                                                               costs and social security budgets are rela-
                                                               tively high, are then in turn compelled to
Table     3: Structure of statutory charges                    layoff workers , to relocate Or to resort to
             by major category (1991)                          the underground economy, either directly
                                                               or through subcontracting.

                                              (as    of GDP)   The size of the underground economy
                                                               varies from country to country and
 Country     Indirect I Direct 1                    Total      according to the methods used to estimate
                                    secunty
                                   1 Soci~                      , but is probably equivalent to between 5%
                                                               and over 20% of GNP. If the real figure
                                                               were 10%,  this would represent a loss of the
                                                               order of 5% of GO P in statutory charges. In
                                                               terms of jobs , the loss is even greater since,
                                                               to the extent that these activities are carried
                                                               out by those falsely registered as unem-
                                                               ployed, they are an obstacle to bringing
IRL                                                            down unemployment.
                                                                  reduction in the charges on labour
                                                               accompanied by tighter controls against
                                                               fraud, would be likely, if not to reincor-
                                                               porate some of those activities into the
                                                               normal economy, at       least to slow their
                                                               growth.
EUR 12
                                                               (d) Special case of SMEs
USA
                                                               Although 70% of private sector jobs are cre-
lAP                                                            ated in SMEs , it is these firms which are
Task Force estimates.                                          worst affected by administrative complexity
I Includes capital taxes.                                      and the high level of charges on labour:
Source: Eurostatand GECD.
                                                               flfStly, it would seem that, in the case of

138                                                                                                   S. 6/93
small firms , it is the high level   of charges     (b) Implementation
rather than net wages that triggers a psycho-
logical reaction against the idea of                The objective being to reduce labour costs
recruiting labour; secondly, however justi-         the reduction could differ from one
fied they may be,       controls ,   forms and      Member State to another depending on the
checks have to be multiplied by the number          extent to which it is applied to employers
of administrative departments involved and          social security contributions and/or
are viewed as an additional labour cost.            employees '   social security contributions
This extra burden seems all the more                and/or to taxes levied directly on wages.
onerous when it has to be borne by
someone not familiar with such matters and          Social security contributions themselves are
when it relates to only a small number of           sometimes divided up according to the
jobs.                                               various objectives involved: family, health
                                                    old age, unemployment.
Several types of tax measure could ,      there-
fore , assist SMEs:                                 In these cases , the reduction could relate
                                                    primarily to   contributions which finance
    administrative tasks could be simplified:       expenditure normally pertaining to national
    the creation , for all statutory charges , of   solidarity: family allowances , the minimum
    a single department with which to corre-        old-age pension , serious illnesses , or long-
    spond would be an improvement;                  term unemployment. In the case of schemes
                                                    in which the benefits are more directly
- SMEs that were not limited companies              related to the contributions (e. g. retirement
    could opt for taxation      at the relevant     pensions), it is for each Member State to
    rate of corporation tax and not, as now         determine the respective proportions of
    in accordance with income-tax scales;           compulsory and voluntary contributions to
                                                    be paid under insurance schemes or savings
    external financing could be promoted            arrangements.
    by eliminating double taxation of ven-
    ture-capital companies;                         Furthermore, the reduction of        statutory
    the survival of SMEs could be assured           charges on labour       should apply as a
                                                    priority to the lowest earnings. This would
    by preventing taxes levied on transfers
    of businesses        ~   particularly cross-
                                                    make it possible to limit the budgetary cost
                                                    of the measure per job saved or created
    fronter transfers- from jeopardizing            while responding to the scale of unemploy-
    their existence.
                                                    ment among the least skilled workers.
        3 Guidelines for reducing labour
    costs                                           The flexibility of work should       also be
                                                    encouraged
 (a) Objective
                                                    Experience in some Member States suggests
In order to help maintain employment and            that more flexible organization of work
create new jobs without reducing wage               would stimulate job creation. The promo-
levels , therefore, steps must be taken to          tion of more flexible working arrangements
reduce non-wage costs , particularly for less       could be backed up by reductions in the
skilled labour. Unemployment is particu-            statutory charges currently imposed on such
larly high among       unskilled workers. Fur-      arrangements.
thermore , in most Member States non-wage
costs bear relatively more heavily on those         With regard to services , whether market ser-
in low- paid employment.                            vices or otherwise, which are in contact
                                                    with the public , an adjustment of working
The Member States should set themselves             time accompanied by tax incentives would
the target of reducing non-wage labour costs        make it possible to increase employment
by an amount equivalent to         1% to 2% of      use equipment more intensively          (longer
GDP; this figure could vary according to            opening hours), and meet a demand (more
the tax structures in the Member States.            practical opening hours ,   longer free time).



 S. 6/93                                                                                        139
The reductions could also be specially             Of course, a detailed study should be made
targeted on the creation of new jobs and the       of the effects and the combination of these
recruitment of young people.                       different possibilities.
But it is dear that if measures to bring
                                                   (a) Environmental taxes
down statutory charges substantially are to
be effective, they must be simple. While it        Environmental taxes , charged for example
may appear desirable to make certain tax           on the use of limited natural resources and
advantages conditional upon the taking of          energy, may be envisaged.
action consistent with the objectives of
active employment policies , it is important       The CO2/energy tax proposed by the Com-
to avoid schemes which cannot work well            mission in 1992 could     raise an amount of
because of their complexity.                       revenue equivalent to some l% of GDP; the
                                                   other possibilities include taxes on polluting
(c) Effect on employment                           or energy- intensive equipment, some of
                                                   which would have the advantage ofinterna-
The results of several econometric models          lizing costs for the environment. In all these
(see annexed table) confirm that reductions        cases predictability and tax neutrality
in social security charges offset by an            should be assured so as not to handicap
increase in other charges produce a signifi-       industries exposed to international competi-
cant positive effect on employment. The            tion , and appropriate tax incentives should
most favourable results are observed when          be studied.
the reduction in employers ' social security
contributions is targeted on categories of         An increase    in excise duties on energy
workers with a low level of skills and if a        products may also form part of. a policy of
tax on CO2 energy is introduced rather than        environmental protection enjoying fairly
V AT being increased. On a           favourable    broad popular support. One option to be
hypothesis , these models show that if             set alongside the introduction of a tax on
employers ' social security contributions are      CO2 would be to extend the existing excise
reduced by l% of GDP, the unemployment             duties charged on mineral oils to other
rate falls by 2.   5% over four years.             energy products (natural gas , coal , electri-
                                                   city), which are also responsible for
  4. Possible compensatory                         environmental damage.
     measures                                      According to various . studies ,   carried out

In view of the need to keep budget deficits        both by the Commission departments and
as small as possible , compensatory mea-
                                                   in a number of Member States , a transfer of
sures should be introduced to offset the
                                                   social security charges worth some I % of
reductions in statutory charges designed to        GDP to a CO2/energy tax in the region of
reduce labour costs.                               USD lOa barrel would have beneficial
                                                   effects not only on the environment but
The reduction in social       security contribu-   also on the use of CO2.
tions could be partly financed by the contri-
butions of persons for which jobs had been         (b) Taxes on consumption
created , by the reduction in unemployment
benefits resulting from an increase in             An increase in excise duties on tobacco and
employment , and by tighter .control of            alcohol provides a source of additional
public expenditure to make it more effi-           budget revenue and a means of preventing
cient.                                             widespread social problems , and can help
                                                   the social security budgets to make savings
But in most cases , compensatory measures in       (by reducing the need to treat cancer and
the form of taxation will be necessary to          alcoholism).
ensure the tax neutrality of the reductions
made. From the various possibilities , mea-        Since VAT has very little influence on inter-
sures should be chosen which do not have           national competitiveness   (it can
an adverse effect on the competitiveness of        deducted on exportation) the idea of
Community industry.                                social VAT has been mooted.

140                                                                                      S. 6/93
It is considered in some quarters that VAT        A tax on the income from financial capital
could be raised to offset the reduction in        which the Commission has been advocating
social security charges. In theory, the           since 1989 would also have the advantage of
increase in VAT accompanied by a reduc-           making it more attractive to .channel sav-
tion in       social security   charges could     ings into productive investment and the cre-
enhance business      competitiveness in the      ation of businesses.
Community. Moreover, the           system of
minimum rates in force in the Community             5.   Conclusion
authorizes Member States to raise their
rates of VAT. Nevertheless , any increase in      A substantial reduction in non-wage labour
VAT and therefore in prices is bound to           costs (between 1 and 2 percentage points of
inhibit consumption and may have econ-            GDP) particularly for the least-skilled wor-
omic drawbacks. The question therefore            kers , would playa key part in effectiv~ly
deserves thorough examination in each             combating unemployment and promotmg
case. In addition, within the Community, it       job creation.
would be necessary to ensure that disor-
derly increases in VAT, in particular in t~e      This easing of the burden of      statutory
countries where the standard rate of VAT          charges , which would be introduced as part
already high , did not. create distor:tions of    of active employment policies , would have
competition or     call into questiOn the         to be offset by tax measures so as not to
approximation of rates carried out for the        swell budget deficits.
entry into force of the single market. If the
Member States wish VAT to be increased , it       Given the diversity of tax systems (taxes
would be better to consider making the            and social security contributions) in the
change at Community level ,       in particular
                                                  European Union , it is impossible to identify
by raising the common minimum rate of             a single method for shifting some .of the
15%. For, if the approximation of rates           statutory charges on labour onto other fac-
embarked upon in recent years in the Com-         tors of production or onto consumption.
munity were to be abandoned ,       the estab-
                                                  However, possible" compensatory tax mea-
lishment in 1997 of the definitive    VAT         sures include environmental taxes (taxation
arrangements (payment of      VAT in the          of CO2 and excise duties on energy), excise
country of origin) would be threatened.           duties on consumer products that are
(e) Other taxes                                   damaging t~ health , taxation of . intere~t
                                                  income apphcable to all Commumty reSI-
Ofthe other possibilities , it is necessary to    dents and , where appropriate and subject to
mention measures concerning the taxation          certain conditions , an increase in VAT.
of capital.

Without standing in the way of investment         In order to ensure that these changes to the
this would mean altering the structure of         structures of statutory charges lead to
statutory charges on the different factors of     coordinated recovery of the        European
production (labour,    capital , scarce natural   economies ,     the   Member States must be
resources) so     .as to favour employment        aware of the importance of joint consulta-
instead of discouraging it.                       tions and cooperation in this field




S. 6/93                                                                                     141
Table   4 ~ General hypothesis: Reduction in employers' social security contributions with com-
               pensation via other statutory charges

                                                    Models used
A) Elements of the model

                                         Quest                        Hermes                 Mimic


Countries concerned:          EC as a whole                  , D, F, I, NL, UK    Netherlands
Period:                       7 years                       9 years               10 years
Hypotheses:                   Generalized reduction Generalized reduction Generalized reduction
                              to 1% of GDP (average of 0,33% in 1993 to 1%        in
                                                                             contribution rate
                              reduction in rate of 10).     in 2001               from 17 8% to 15
                              Reduction limited to                                Reduction in  contribu-
                              low wages                                           tion rate from 17, 8%to
                                                                                    3% limited to annual
                                                                                  wages of up to HFL
                                                                                  20500

Compensatory measures         Increase in VAT CO2 tax                             VAT linked to energy
                              Increase in income tax                              consumption
                              CO2 of USD 10           per
                              barrel




B) Results of simulations in employment terms
a) Values in percentage points of unemployment rate
b) Extent of   new job creation: % difference relative to reference situation in 2001

                                        Quest (a)                     Mimic (a)          Hermes (b)



Reduction in social secu-
rity contributions and in-
crease in VAT

Reduction in social secu-
rity contributions and in-
crease in income tax

Reduction in social secu-
rity contributions and in-
troduction of CO2 tax

Differentiated reduction
III social security contri-
butions and introduction
of CO2 tax


142                                                                                                   S. 6/93
IV.   TOWARDS A NEW   DEVELOPMENT MODEL
Chapter 1 0
                                   develop-         nism has in addition led to a considerable
Thoughts on a new                                   loss in competitiveness on external markets
ment      model          for    the Com-            as sophisticated technology is increasingly
munity                                              being installed in low-wage countries.

10. 1. The structural          links   between      Many countries have tried to manage the
                                                    problem through a reduction in social
environment and employment                                              however with limited
                                                    security provisions ,
(a)   The inefficient use of resources in           success. The resulting increase in poverty
      the Community                                 and income disparities has led to social ten-
                                                    sions and a decay of the quality of life in
The current development model in the                many urban centres.
Community is leading to a sub-optimal
combination of two of its main resources            The ' underuse ' of labour resources has
i.e. labour and nature. The model is charac-        apparently not only a quantitative but also
terized by an insufficient use of labour            a qualitative nature. The organization of
resources and an excessive       use of natural     work in a standardized way, frequently in
resources , and results in a deterioration of       huge production units , has distanced the
the quality of life. The Community needs to         individual from the results of his work. The
analyse in which ways economic growth               resulting loss in motivation and creativity,
can be promoted in a sustainable way                compared to what can be observed in small
which   contributes to higherintensity of           businesses and farms, is therefore likely also
employment and lower intensity of energy            to have had an impact on the economic
and natural resources consumption.                  output as well as on the enjoyability of
                                                    many jobs. Some businesses have succes-
(i) The ' underuse'     of labour resources         fully managed to recuperate the lost human
                                                    capital by combining small , more or less
The use of labour resources has been per-           independent production units in an        effi.
sistently discouraged for several decades           cient and flexible way.
Although the growth in labour productivity
has been a major element contributing to a          (ii) The ' overuse' of environmental
continued increase in net income per head                resources
a critical point seems to have been reached.
On the one hand , the substitntion of labour        The ' underuse' of labour is combined with
by capital has been accompanied by a conti-         an ' overuse' of environmental and natural
nued increase in the use of energy and raw          resources. During the last two decades , and
                                                    in particular since 1973 , it has   become
material, leading to an over-exploitation of
                                                    increasingly clear that the latter resources
environmental resources.
                                                    are not available in unlimited amounts.
On the other hand ,       business strategies are   Because the market prices do not incor-
being driven by labour-saving considerations        porate sufficiently the limited availability of
to an extent ,    where the productivity gain at    those natural resources and the environ-
the business level seems to be increasingly         mental scarcities related to their consump.
neutralized by an increase of costs in the          tion , their overuse has become systematic.
sector. One of the clearest examples is             This situation cannot be maintained any
unemployment, whereby labour is pushed              longer for different reasons:
out of business but at the expense of an
increase in unemployment benefits.                    (i) the clean-up of past damage requires
                                                         mounting costs (e. g. polluted sites);
The financial requirements of those social
security arrangements increase the indirect          (ii) the reduced availability and quality of
labour costs further, intensifying the tend-             natural and environmental       resources
ency towards labour saving. This mecha-                  represents a burden to future genera-


S. 6/93                                                                                           145
      tions and a reduced capacity for long        and whether many traditional economic
      term economic prosperity;                    concepts (e. g.   GDP as traditionally       con-
                                                   ceived) may be losing their relevance for
(ill) extrapolating current industrial con-        future policy design.
      sumption and production patterns to
      the entire world would require about         (b) The request for a new 'sustainable
      10 times the existing resources , which
      illustrates the scope for possible distri-        development' model
      bution tensions at global level if cur-      The inadequate use of available resources
      rent tendencies are not curbed;                  too little labour,       too much     use of
(iv) some forms of pollution are                   environmental resources is clearly not in
      threatening not only local     ecological    line with the preferences of society as they
      systems but also the natural balance of      are revealed through the democratic
      the entire planet, e. g. climate change      system: people expect for themselves and
      owne layer, bio- diversity.                  for their children on the one hand more
                                                   jobs and a stable income , but on the other
These inefficiencies represent significant but     also a higher quality of life. The latter ele-
hidden welfare losses. As current economic         ment is reflected through an increasing
accounting does not reflect unpriced               demand for enjoyable jobs and environ.
resources such as the environment ,         only   mentally-friendly products and public
partial estimates are    available. It   is, for   goods.
example, generally      recognized that the
external cost of current transportation sys-       Any new policy will have to contain sub-
tems alone amount to at least 3 to 4% of           stantive answers on how to reduce pollution
GDP (environmental pollution , accidents           and how to improve the quality of life in a
traffic jams). The more research intensifies       broad sense. The former element concerns
and the more is known about these hidden           the reversing     of the currently negative
costs which someone ultimately has to bear         relationship between ' classical' economic
the more those estimates become a cause of         growth and more pollution. People no
concern.                                           longer see why the use of more packaging
                                                   or the presence of more printed advertising
Another inefficiency of the current develop-       material in their mail boxes contributes to
ment model concerns the external effects           higher economic growth figures , as
related to the use of fossil and nuclear           officially registered.
energy. Although intensified technological
progress is able to solve many problems , it       Improving the quality of life , on the other
is also true that energy can no longer be seen     hand , not only concerns habitats and
as an unlimited resource, particularly not if      nature protection , but also the amenity of
the external costs related to climate change       the landscape, better integration of new
acidification , health risks , nuclear waste       buildings and transport infrastructure       into
and risk are concerned. The relative posi-         historical urban centres ,    or the availability
tion of energy in the new development              of parks and other green zones in urban
model is therefore a key element to be con-        areas. In such a way, the quality of life of
sidered.                                           millions of people can be substantially
                                                   improved.
A more attentive look at the way the Com-
munity uses its labour and environmental           A more adequate policy should therefore be
resources leads to some fundamental weak-          able to offer society a better quality of life
nesses in the incentive structure of the EC's      with a lower consumption intensity and as
economy as a result of public intervention         a consequence with a reduced stress on
(e.g. fiscal treatment of labour costs , trans-    environmental resources. In this same con-
port infrastructure) as well as of       market    text, the creation of more challenging jobs
forces (environmental externalities). As a         is to be situated , as well as the valorization
consequence, it is open to question whether        of human capital         in local networks , fos-
an increasing part of the measured eCOn-           tering individual responsibility and social
Olnic growth figures does not deal with illu-      participation. The new development model
sionary instead of real economic progress          for the Community therefore       has to address


146                                                                                         S. 6/93
the inefficient use of available resources in a     The new integrated technology, of which
wide perspective, i. e. taking into consider-       very likely only the tip of the iceberg has
ation the overall quality of life of the citizen.             should result in a reduced need
                                                    been seen ,
                                                    for new environmental resources through:
Some of these questions have a Community
dimension. Indeed , the transition phase             (i) improved ' nature productivity' of
towards a more optimal economic model is                 products: e. g. increased energy effi-
easier to realize if several countries act               ciency, less raw material-intensive
together, as this minimizes costs and maxi-             products (lighter cars, etc.
mises results. Furthermore, many measures           (ii) a longer product lifetime: making
implicitly or explicitly concern sectoral               repair and control services more attrac-
policies as well as the steering of market              tive, which are labour-intensive acti-
forces within the internal market. This                 vities   par excellence;
potential new role for the Community is
now explicitly recognized by the Treaty as          (iii) more reuse and recycling: use the same
sustainable development has been incorpor-                raw materials or spare parts far more
ated as an overall Community objective.                   frequently;

(c) Clean technology is a key                       (iv) improved process technology: the pro-
                                                         duction processes (and not the         final
A major element of the new development                   consumers) generate the largest quan-
model will be to decouple future economic                tities of waste water , solid waste, etc.
prosperity from environmental pollution             The gradual implementation          of the new
and even to make the economic-ecological            clean technology will generate a continuous
relationship a positive instead of a negative
                                                    renewal of the capital stock of the Com-
one. The key for doing this will ultimately         munity and will need particular         training
lie in the creation of a new 'dean tech-            requirements for the newly- qualified engin-
nology' base.                                       eers and managers. The resulting integra-
There are already important examples                tion of clean technologies by industry will
which show that bringing          the environ.      become far more important than the cur-
mental resources explicitly into the produc-        rent clean-up activities such as waste and
tion function is able to         make such      a   waste water treatment ,    however important
decoupling possible. The German and                 they are for the immediate          future. The
Japanese economic growth figures for the            relative , and even the absolute , importance
last two decades although being the most            of those activities is expected to decline the
successful ones in the industrial world , were      more society comes closer to the sustainable
brought about with a negligible increase in         development model.
energy consumption somewhile before a               The new clean technology is likely also to
linear relationship was considered to be            generate apart from a substantially
common sense. The driving force behind              improved environment, considerable sec-
this basic change has been a high energy            ondary benefits for the Community:
price which , also contrary to the usual
expectations , did not hinder but rather             (i) in competitiveness terms ,     in a double
encouraged economic growth.                              perspective: the Community would
                                                         improve the overall strength of the
Although economic models tend to see                     economy through optimal use of its
technological achievements as exogenous , it             resources and the prevention of costly
should be recognized that these are essen-               clean-up operations ,      while a first.
tially the result of fundamental incentives              mover advantage can be exploited; the
originating from the public and private sec-             latter element is not to be underesti-
tors. Moreover, it should be clearly stated              mated as the new technology is not
that any technology is made by man and                   only a necessity in the industrial world
that in that respect continued investment in             but also in the NICs and LDCs;
human capital is critical. Solving the cur-
rent environmental problems is a major               (ii) in strategic terms: the enormous
challenge in the coming years.                           dependence of the Community on the

 S. 6/93                                                                                             147
      rest of the world for its imports of          omic information, a better understanding of
      energy and raw materials would be             the problems and solutions concerning the
      reduced and better managed; the sav-          use of natural resources and their relative
      ings made through avoided imports             importance will be obtained.
      could be used to encourage sustainable
      development, in particular by transfer-       The second        key   element concerns the
      ring clean technology to LDCs;                speeding up of the implementation of basic
                                                    research results into marketable innovations.
(iii) the Community would show interna-             To that end, a consistent set of pragmatic
      tionally how sustainable development          incentives is to be developed to economic
      can be translated into practice, would        agents considering investments related to
      diminish its excessive use of primary         the new products and production processes
      resources , and would thereby soften          including new and innovative forms of
      considerably future distribution prob.        work organization. This should create       a
      lems for scarce environmental and             virtuous ' circle of confidence with consu-
      natural resources at global level.            mers and investors concerning the societal
                                                    project of a sustainable economic future.
10. 2. Ways to facilitate the structural            (b) Policy instruments at macro~
        change                                           economic level
(a) The need for a strategic                        The set of incentives envisaged above con-
    microeconomic policy                            cerns a gradual and systematic review of
                                                    many policy instruments , of which several
The decoupling of economic prosperity               have a Community dimension. In this con-
from .environmental deterioration through           text, the following instruments merit partic-
the creation of a new clean technology base         ular attention:
is unlikely to happen without an active and
imaginative policy support. To that end              (i) Indirect taxes on pollution are a
existing policy instruments will have to be             powerful way to address hidden sub-
reoriented in so far as they     encourage the          sidies in so far as external costs are
inefficient use of resources in the Com-                generated at the expense of the society
munity. Particular attention will have to be            as a whole. Therefore , market prices
given to many regulations which have been               may have to be corrected to cover the
gradually developed during the last          few        environmental damage related to the
decades but which no longer serve          objec-       use of particular products , e. g. energy
tives which belong to the new sustainable               sources according to their CO2 content.
development model. On top of that , market
prices will have to internalize systematically      (ii) Fiscal regulations, and in particular tax
all the external costs that they generate to             deduction schemes , are a powerful way
society. Such a review should end up in                 of encouraging       sustainable economic
set of clear signals and incentives to all              activities (e. g.
                                                                      pre-market research On
economic agents and decision-makers.                    green innovations) but are currently
                                                        having, in many cases , .a negative
The first key element of a strategic micro-             environmental impact (e. g. generous
economic policy concerns a significant reo-             tax deduction schemes for the use of
rientation and encouragement          of basic          private cars        real estate taxation
research in areas of particular relevance to            favouring suburban development, etc.
the model of sustainable development
(renewable energy, recycling and new                (iii) The dynamics of the internal market can
materials, biotechnology, etc.). This reorien-            be steered to generate optimal resource
tation also concerns economic science and                 use in the Community: firstly, sound
in particular the so-called area of green                 competition on a level playing field
accounting, which is basically a systematic             gives a higher chance of generating the
analysis and estimation of all external                 necessary technological changes and
effects. In combining scientific and econ-              renewal of capital stock; secondly,

148                                                                                       S. 6/93
    public procurement regulation could               well as a diversification          of   supply
    be explicitly curbed towards sustain-             to wards en vironmen tally - fri en illy
    able objectives;   thirdly, the internal          energy sources. Important tools have
    relocation of   economic activities wil           been used in the past (e.g. Euratom)
    contribute to the most efficient exploi-          and need reorientation and streng-
    tation of environmental resources                 thening.
    inside the Community as well as to a
    reduction of the far too- high environ-       (ii) Transport: the huge welfare losses
    mental pressure in some areas. The                mentioned in the previous section will
    same argument applies,      of course , to        have to be eliminated thorough revi.
    the enlargement of the Community.                 sion of investment and planning in
                                                      transport infrastructure (in particular
(iv) International trade and cooperation              in urban   areas). Tax and subsidy
    policy: as environmental problems fre.            instruments commonly used in the past
    quently have transfrontier and global             could be substantially revised as well
    aspects , they lead to more intensive             as zoning and urban planning concep-
    international cooperation. In many                tions.
    cases , the involvement of Community
    ressources for dealing with foreign           (iii) Agriculture: the cunent review of the
    environmental problems are shown to                 CAP reform leads to a reduction of the
    be a cost-effective solution for environ.           general price support which is compen-
    mental problems inside the Com-                     sated for by direct financial support for
    munity (acidification pollution of                  farmers and accompanied by other
    rivers , reduction of CO2), This                   measures allowing for the remunera-
    equally true for structural problems in            tion of agricultural practices , favour-
    the area of growth and employment. In              able to the environment as well as by a
    both cases  , real and
                         sustainable solu-             fair remuneration of activities safe-
    tions have to take into consideration
                                                       guarding hydro- geological balances
    this international dimension , in partic-          (quality of drinking water,       avoidance
    ular concerning regions close to the               of soil erosion , etc. ) or improving the
    Community, e.g. Central and Eastern                amenity of the landscape. This tend-
    Europe , the CIS      and the Mediter.             ency should be reinforced gradually in
    ranean basin.                                      the years to come. In such a way, the
                                                       current imbalances in environmental
(c) Policy instruments at sectoral level               terms will increasingly be eliminated
Apart from the instruments which are to be             while a new basis is being laid for sus-
situated at the   macroeconomic level ,    the
                                                       tainable activities and an improved
                                                       quality of life in rural areas. In     this
Community also disposes to .some extent of
                                                       respect , it is also important to evaluate
instruments in particular .sectoral areas , the
                                                       economically as well as environmen-
importance of which is likely to grow the              tally, pilot projects being undertaken in
more the Community strives at the above-
mentioned new economic model. The fol-                 several Member States , concerning the
                                                       production of biofuels (biomasse
lowing sectors merit particular      attention
                                                       diester, bioethanol) particularly with a
and have been explicitly addressed in the
                                                       view to reaching environmentally-
fifth environmental action programme:                  friendly energy scenarios.
 (i) Energy: the way energy is consumed is
     at the centre of the new development         (iv) Industry: a new set of business- minded
     model. In parallel to the liberalization          environmental instruments is to be
     of the internal energy market for elec-           exploited and a start has already been
     tricity and gas , the Community will              made through eco-auditing, eco- Iabel-
     have to make    strategic choices which           ling, voluntary agreements liability
     until now have been sole Member                   schemes , etc. Some of those instru-
     State responsibilities. Those options in          ments will create new job oppor-
     particular concern a vigorous develop-            tuni!ies ,   particularly in   environmental
     ment of demand-side     management as             servIces

S. 6/93                                                                                          149
(d) Short term-policy                             new economic development model. In par-
      recommendations                             ticular in households , efficiency standards
                                                  in energy use can be substantially improved
If it is recognized that the current recession        indicators frequently indicate 40 to 50%
has a dimension beyond the business cycle              provided appropriate investments are
preparation for the long term project needs       being undertaken in the area of housing
to start now. This implies not only a syste-      (double/triple glazing, roof insulation ,   best
matic reorientation of public policy              available technologies (BAT) boilers). A
according to the lines sketched out above,        considerable amount of jobs can be created
but also the design of anti-cyclical policy       in this context ,provided sufficient incen-
measures which could at the same time COn-        tives are being developed.
tribute to the objectives of the sustainable
development model.                                Finally, if the double challenge of unem-
                                                  ployment/ environmental pollution is to be
      basic recommendation concerns the           addressed , a swap can be envisaged bet-
prevention of further environmental degra-        ween reducing        labour costs through
dation through the creation of an ' environ-      increased pollution charges. One particular
mental infrastructure . Notwithstanding the       concrete Commission proposal, which fits
gradual development of clean technology,          completely with the perspective of long
in the short and medium term clean-up acti-       term structural  change   concerns the
vities are likely to remain significant, and      carbon/energy tax: external costs related to
should even substantially grow in the             energy use are being addressed , while the
immediate future. It concerns a consider-         substantial revenue (approximately I % of
able backlog of investments in waste recy-        GDP) can be used as a first step to accom-
cling equipment (compare over-supply        of    modate high wage costs by employers.
waste paper), in waste incinerators (incor-
porating best available technology stan-          An important dimension      of the proposal
dards), in waste water treatment equipment.       concerns the        widely advocated shift
                                                  towards a more intensive use of indirect
Many of these activities concern construc-        taxation , as well as a widening and bal-
tion activities and are likely to mobilize a      ancing of the tax base on energy products.
significant number of jobs in the short term      In the Community these proposals enjoy
while the financing should be provided for        popular support: about 60 % of European
by levies and charges in conformity with          citizens are in favour of such a tax.
the ' polluter pays ' principle foreseen in the
Treaty. The public expenditure and the            10. 3. Conclusions
employment generating capacity can be the
more important insofar as the basic infra-        The nature of the structural change the
structure is still to be built,   for example,    Community is going through needs to be
water sewerage networks.                          recognized and adressed. It is important to
                                                  develop a societal project for a higher
The same employment-generating possi-             quality of life in the Community, which can
bility applies to the build-up of a higher        motivate people and hence can generate the
capacity in the field of collective transport-    required human energy:
ation systems       which    is  capable of
                                                  (a) The serious economic and social prob-
improving substantially the quality of life of
millions of     people living       in urban          lems the Community currently faces are
agglomerations.                                      the result of some fundamental ineffi-
                                                     ciencies: an ' underuse' of the quality
Queries also reveal that a    considerable           and quantity of the labour force , com.
demand and an explicit willingness to pay            bined with an ' overuse' of natural and
exists for the creation of enjoyable and             environmental resources. Both elements
environmentally friendly projects at the             are at the heart of the economic devel-
        , including the creation of parks
local level                                          opment model followed by the Com-
walking or jogging and cycling circuits.             munity during the past few decades.
The field of energy use has been indicated        (d) The basic challenge of a new economic
several times as one of the key areas of the         development model is to reverse the


150                                                                                       S. 6/93
   currently negative relationship between         organization , land use, urban planning,
   environmental conditions and the                etc. , were developed in a gradual way
   quality of life in general on    the one        and on an    ad hoc  basis , or in view of
   hand, and economic prosperity on the            long-term considerations which no
   other. In this respect , a widespread           longer fit the goal of sustainable devel-
   implementation of clean technology is a         opment. The same applies even more to
   key aspect. It is to be stressed that much      policies in the field of energy, transport
   scientific knowledge is already available       industry and agriculture, where several
   but is waiting for insertion     into the       choices, made in the 1950s and I 960s
   economic system.                                should be the subject of a review.

(c) The transition towards a new ' sustain-     (d) Any short-term policy recommendation
   able development' model requires the            to overcome      the current recession
   development of a consistent set of              should make a first step in the policy
   market incentives. The basic task will          reorientation mentioned above. More-
   consist of a systematic review of               over , in the same long-term perspective,
   existent macro and sectoral policies            considerable employment opportunities
   with as a basic guideline that market           can be created in environmental infra-
   prices have to incorporate all external         structure, energy efficiency improve-
   effects. Indeed , many policy decisions         ments , the creation of enjoyable natural
   in the field of taxation, subsidization         areas and the clean-up of polluted
   competition ,   infrastructure     labour       zones.




S. 6/93                                                                                   151
European Communities             Commission

Growth, competitiveness, employment - The challenges and ways forward into the 21st century (White
Paper)

Supplement 6/93          Bull. EC



Luxembourg: Office for Official Publications       of   the European Cornmunities

1993      151 pp. - 17.6x      25. 0   cm

ISBN 92.826-7000-7 (Parts A + B)

ISBN 92- 826-7071-6 (Part C)

ISBN 92-826-7065- 1 (Both volumes)

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