Neglecting motivation, skills and digital literacy in work force risks losing Europe’s competitive advantage – Post originally published by Euro Insight, 18 November 2015.
The need to boost investment across Europe is undisputed and well documented. Since 2008, both private and public investment contracted: gross fixed-capital formation as a percentage of GDP fell from 22.2% in 2007 to 18.5% in 2013, and there are still no signs of recovery.
The public debt crisis in many peripheral countries made it impossible for certain member states to use public investment as a counter-cyclical tool. In other countries, where budgetary problems were less pressing, the fear of contagion and the political choice of sticking to fiscal consolidation prevented them from deploying expansionary measures. The latter, thanks to the internal market, would have partly sustained the economy of neighbors’ countries too. But that is another story.
The policy answer to the scarcity of investment in Europe materialized in the Juncker Plan, a flagship initiative that was pushed through with strong political will. It has been conceived and approved in only six months.
The plan’s most visible component is the European Fund for Strategic Investment (EFSI), which is going to reshape the way the European Investment Bank and national promotional banks arrange their financing.
What may not be clear to the public is that the Investment Plan for Europe goes well beyond the EFSI, which is the commission’s initiative to improve on the supply of financing. The EFSI is just one of the three pillars of the Commission’s master plan.
A second pillar will focus on the demand for financing, with the European Investment Advisory Hub (EIAH) providing technical assistance to improve on projects and the European Investment Project Portal to give global visibility to EU-based – and viable – investment opportunities.
It is with the third pillar that the Commission will find the biggest challenge, since its ambitious objective is to improve the investment environment. To do so, it will be necessary to remove non-financial and regulatory barriers and bring home improvements on the predictability of regulation which assures businesses about their future cash-flows.
But another pillar is missing. Human capital represents a competitive advantage of Europe in relation to its international competitors. One may say that human capital is the wealth of Europe. It is on know-how and quality that European competitiveness can prosper – unless we want to engage into a race to the bottom to pursue cost-price competition solely. Know-how and quality are not to be achieved with a workforce that falls short of motivation, resilience, digital literacy or is affected by increasing skills-obsolescence.
The emphasis on human capital is missing in the commission’s investment master plan. Human capital is one of the sectors eligible for the EFSI guarantee scheme, but at the moment there are no specific arrangements to secure sufficient funding for a human capital investment strategy.
Over the next few months, the commission is expected to provide guidance about how the EFSI and other EU structural and investment funds can work together; in this regard, it would be advisable to ease joint financing from EFSI and the European Social Fund to projects that are in line with SIP guidelines and objectives.
To make Europe a more investment-friendly environment, the deepening of the internal market is an essential feature. In this respect, other leading initiatives by the commission can contribute a great deal to the third pillar of the investment plan. The recent communication for “A Deeper and Fairer Single Market” goes in this direction by proposing the creation of single markets for capital and digital infrastructure.
The commission’s plan for a Capital Markets Union could substantially help the channeling of investment into companies by addressing the fragmentation of capital markets. By strengthening the link between capital and investment opportunities, European capital markets are likely to become more appealing for investors. The objective is to go beyond the traditional bank-centric European model so that both investors and companies will be offered more choices when seeking financing.
And the commission’s Digital Single Market initiative can also substantially change the investment climate around the digital economy. If a single market for telecoms will be achieved, increased economies of scale can boost investment in information and communications technology (ICT). The commission’s proposed Energy Union also moves in a similar direction.
To address the shortage in human capital investment, a policy instrument already exists. The Social Investment Package (SIP) launched by the commission in 2013, includes strategic guidelines and a comprehensive agenda on education, training and skills.
Nevertheless, it remains a series of non-binding documents with no sufficient budgetary means to drive human capital investment strategies in member states. Therefore, a crucial question remains open: How can investors believe in Europe if Europe does not invest in the development of its people?