Italian economist Mario Draghi’s detailed plan for the future of European competitiveness, presented last September, highlights a significant gap between the EU and the US. Since the 2000s, real disposable income in the US has nearly doubled compared to that in the EU, this is largely due to a stagnation in productivity growth within Europe. This growing disparity displays the urgent need for change.
The EU faces three main challenges that hinder its growth: first, regulatory constraint. European companies, particularly Small and Medium Enterprises (SMEs), face high costs due to regulations with over half of SMEs in Europe cite regulatory and administrative obstacles as their biggest burden. This regulatory environment clogs the innovation to commercialization pipeline.
Second, inefficient use of EU resources. This inefficiency is evident in the defence sector, where member states have yet to pool their resources effectively. In a world with increasing unstable geopolitical tensions, Europe’s dependence on external security could turn into a vulnerability.
And, to conclude, the EU often fails to collaborate effectively on critical issues, especially in innovation. This lack of unity prevents the EU from leveraging its collective strengths to advance its technological and economic interests.
To address these challenges Draghi proposed some solutions that supports the transition from invention to investment. This includes improving conditions for small businesses, reducing barriers for start-ups, and enhancing the innovation to commercialization pipeline. It is also crucial to enhance worker training, with technological shifts such as AI reshaping the job market, it is crucial to update and educate the workforce to prepare for the future. Moreover, using decarbonization as an opportunity to lower energy prices and enhance energy security would be an important step forward. By leading in clean technology, the EU can reduce its dependence on external energy sources and strengthen its position in the global market.
The report states that SMEs have a critical role in ensuring Europe remains competitive. At the heart of innovation and job creation, small and medium enterprises (SMEs) represent 99% of businesses in the EU. They are crucial to local, regional, and national industrial ecosystems across the continent. With their importance, Draghi focuses his solutions on unleashing the full potential SMEs can offer.
Last of all, Draghi makes an emphasis on the importance of promoting social inclusion. While the US has advanced due to its breakthrough in the technological sector, it has also experienced rising inequality. To avoid following the same road, The EU must promote an environment where everyone has a “equal chance of success”. To achieve a competitive future, Europe must accelerate innovation, improve resource utilization, and enhance social inclusion and collaboration. With the solutions Draghi proposes, the EU could close the competitiveness gap and strengthen its position on the global stage.
Click here to read the full report on The Future of European Competitiveness.
Source: INSME Secretariat
