Meeting the growth targets

A report in the European Commission Innovation Technology publication stresses that implementing the Lisbon strategy will bless Europe with strong economic growth and high employment, and all this in a suitable environment, if the targets are met.

Both the Commission and the Council agree that delivery of these targets is faltering, so they are calling on a group of leading figures to evaluate progress and contribute to the way forward.

While the 2004 report from the Commission to the Spring European Council highlighted progress in many areas, its overall conclusion is that Member States must do more to meet their commitments to the Lisbon targets.

Jobs have been created; industrial sectors have been deregulated; the knowledge economy is becoming a reality; and sustainable development is being placed at the core of new policies - but not enough and not quickly enough, says the report.

The mid-term review of progress on the Lisbon strategy is due in spring 2005. With this in mind, this year's Spring European Council called for a high-level group to contribute to the review. Chaired by Wim Kok, the former Netherlands prime minister, the group is made up of 13 independent figures, representing most stakeholder groups.

It will make proposals on how to inject fresh stimulus into the Lisbon strategy and greatly improve the delivery of the targets. The Commission will take up these proposals in the mid-term review report.

While the group will consider the strategy overall, it is likely that they will pay particular attention to the bottlenecks and blockages to its progress. A key worry is that the commitment to raise investment in research to 3% of European GDP by 2010 will not be met.

The issue of improving private-sector investment in research was taken up at a recent informal Competitiveness Council, held in Ireland, where ministers, commissioners and representatives from industry and the sciences discussed the matter in great depth.

A background paper, prepared for that informal Council meeting, emphasises that policy-makers must not be distracted by the red herring of 'deindustrialisation' - the idea that Europe is losing high-skilled manufacturing jobs to other countries because of falling trade barriers and outsourcing.

While Europe is seeing a relative decline in manufacturing's contribution to GDP, this is mainly the result of desirable productivity gains in the manufacturing sector. The real level of manufacturing output has not fallen.

In the past, the productivity of European firms lagged behind that of the US, but today this gap has largely closed in manufacturing. Future productivity gains must come from research and innovation, and this is where Europe still trails behind the US.

The report identifies two reasons why US firms do more research. First the environment for research in Europe is not attractive to entrepreneurs because of a lack of skills, fewer tax incentives, and the quality of research - drawbacks that increasingly lead companies to outsource research abroad.

The second reason is the low level of competition within Europe where, because of entrenched barriers to competition that protect enterprises, there is little incentive through innovation. Companies can be profitable without investing in research and innovation, it has little pay-off for them, and so they see little need for it.

Therefore, concludes the report, the low level of private investment in European companies is not the main cause of poor productivity, but rather a symptom of wider problems of weaknesses in the research environment and a lack of competition.

Accepting that there are no quick fixes, the Competitiveness Council emphasised that the challenge is not to redesign the Lisbon agenda but to achieve speedier implementation and better execution.

A former Member of Parliament, Gwilym Roberts chaired many House of Commons Committees, covering business and consumer affairs, and served in the DTI.