How to Compete in Europe

LONDON – Interest in the European Union’s competitiveness did not begin with the euro crisis. Safeguarding Europe’s advanced position in the world economy was, after all, a key motivation behind the creation of the single market. Since then, interest in EU competitiveness has risen further, spurred in particular by the challenge posed by countries like China.

In order to ensure sustainable and inclusive economic growth in Europe, policymakers and the public must, above all, regard international trade as a mutually beneficial exchange of goods and services. Productivity growth and innovation are critical to reaping the benefits of this exchange, and, to ensure both, policies that cost European taxpayers nothing are at least as important as policies requiring public funds.

The first step is to stop viewing international trade as a zero-sum game that costs some countries as much as it benefits others. Obviously, companies within the same industry are in direct competition with each other, and gains in market share by one tend to come at the expense of competitors. So it follows that the payroll and earnings of a company will rise if it outperforms its competitors.

Unfortunately, many people believe that their country’s prosperity requires that it outperform other countries in the same way. This understanding of international competitiveness continues to motivate a wide range of policy initiatives, including industrial policies to create and defend “national champions” and support a variety of so-called strategic industries.