Businesses need speedy action to restore competitiveness

by Stefano Mallia, President of the EESC Employers' Group

As the dust settles on the last State of the Union address by European Commission President Ursula von der Leyen before the end of her mandate, one thing is clear: Competitiveness is back on the agenda after years of neglect. The Commission has finally realised that the Europe framed by our founding fathers must answer the new call of history.

This call features a successful industrial green and digital transition that allows EU companies to compete and lead in the world, and deliver prosperity at home and abroad. I agree with President von der Leyen, it’s time to make business easier in Europe. We need to do #Whateverittakes to allow European companies to do business. Asking Mario Draghi to prepare a report on the future of European competitiveness is indeed good news.

But it will take more than a report to regain a competitive edge. Europe's share of the global economy has been declining for quite some time - from 25% in 1990 to 15% in 2020 and in 2050 it is predicted to be less than 10%. We are falling behind on eight of ten transversal technologies, putting Europe at a clear disadvantage.

For instance, the top ten major companies investing in quantum computing are in the United States or China, not in Europe. In artificial intelligence (AI), investment by US corporations is six times that of their European counterparts.

From the top 10 countries which have published the most impactful AI research, we only find 2 EU member states, Germany in 4th and France in 8th place. Of the top 100 cited papers on AI, we find that in 2022, Germany was the source of 4 papers whilst France was the source of 2 such research papers. Compare this with 68 in the US and 27 in China.

Europe has a lot of catching up to do.

Speaking in the European Parliament, von der Leyen promised to launch an anti-subsidy investigation into electric vehicles coming from China. Of the estimated 10 million all-electric cars sold worldwide last year, 6 million were manufactured by Chinese producers. This is an industry where traditionally it was China that was looking towards us a leader in the field. Von der Leyen's promise is therefore a welcome step, but it's too little, too late.

Take the other competitive disadvantages: Europe has some of the most productive retailers but has no online retail platform to match the size of leading US and Chinese online retailers. Europe has strength in software, too, but is not leveraging its position to establish a world-leading business-to-business software company.

The reality is that compared to our competitors, EU businesses are burdened by significant administrative obstacles that hinder their ability to invest and effectively undergo the green and digital transition.

The announced legislative proposal towards reducing reporting obligations at the European level by 25% goes in the right direction, but will it be enough? My answer is that the incoming EU legislative pipeline is still loaded and companies have reached legislative saturation point. Also, the EU SME envoy directly reporting to von der Leyen is a welcome step, but we need to clarify exactly how that is going to accelerate change.

The latest economic data show that the EU economy is growing but slower than expected as the Commission revised its growth forecast for 2023 to 0,8% from the 1% projected in May, blaming weak consumption resulting from high and still increasing consumer prices.

These are facts. This implies that we need to accelerate more than said the reduction of fiscal and administrative burdens on companies.

Europe has become a champion of regulation which is hindering our indigenous enterprises whilst at the same time discouraging inward investment. Von der Leyen cited that the number of clean steel factories in the EU has grown from zero to 38. Yes, but just taking into account recently enacted legislation and legislation which is in the pipeline, the EU steel industry will have to deal with 148 new legislative initiatives, 89 of which come from the Green Deal. That's a Herculean task!

This trend is unmistakably mirrored in the reality that European companies underperform in comparison to their counterparts in other major regions: they are growing more slowly, creating lower returns, and investing less in R&D.

In the coming days, EU employers will ask for clarifications on many of the initiatives mentioned by President von der Leyen. Many are at the core of our work, such as the delivery of a competitiveness check by an independent board, the fast-track permitting on wind energy, the sectorial dialogues in view of supporting business models for transition, the Social Partners Summit at Val Duchesse, and last but not least the Draghi's report on competitiveness, which must also integrate a look at the Single Market, totally missing from von der Leyen's speech.

But considering this legislature will switch to campaign mode at the beginning of 2024 for the European elections, allow me to be a bit pessimistic, despite the positive tone of this landmark speech. Time is short.

To regain competitiveness we need political will, now. We urgently need to bridge the gap between rhetoric and reality. Time is not on our side.