At a time of rising inequality across Europe, the European Investment Bank and the World Economic Forum have jointly sounded the alarm bell and called for social inclusion to become an organic part of EU economic policy.
“Inclusion can no longer be treated as an afterthought. It is not a luxury. It is a catalyst for growth,” EIB Vice President Andrew McDowell told journalists on Tuesday (21 March), presenting a report which EIB and WEF prepared jointly, with the contribution of Bruegel, a Brussels-based think tank.
“What we see on the ground at the EU bank, is that there is a win-win space where we can promote both inclusion and competitiveness at the same time,” he added, stressing that there are ways to scale up and positively impact on the economic recovery, which remains sluggish.
Very high levels of unemployment in many European countries persist and pose a threat to long-term growth, especially as young people continue to struggle to find work with a jobless rate at almost 20% on average for the EU-28. Real wages are still below pre-crisis levels for many EU workers.
At the same time, productivity growth has been on a steady decline from more than 5% in 1975 to under 0.7% in 2015.
Europe compared to other global economic areas is also not investing enough. For years it has been helped by the massive monetary stimulus provided by the European Central Bank that has kept the economic engine going, but this is not sustainable for the future.
The hiccups of structural reforms have not solved the serious gaps in terms of digital technologies, smart infrastructure education and innovation to boost competitiveness, hence the urgency to change the modus operandi and create a distributive mechanism that would tackle the deficit of economic opportunities.
Inclusive growth became a dominant topic at this year’s World Economic Forum (17-20 January). WEF’s latest report, launched in Davos, highlighted growing inequality as the top global risk for 2017 and noted technology’s role in this divide.
The EIB and the WEF insisted in their recommendations on accelerating the roll-out of new technologies through public-private partnerships, while investing in smart transport infrastructures and leveraging non-traditional sources of financing for small businesses, such as giving them better access to venture capital.
“It’s about rethinking our economic model and moving away from treating growth and inclusion as two separate processes,” said Richard Samans, a member of the managing board of the World Economic Forum.
As it is not an easy task to reconcile inclusion and competitiveness, the study identifies a number of initiatives, showcased as role models.
Spread dynamism and entrepreneurship
The Austrian Pilotfabrik für Industries 4.0 in Seestadt Aspern is seen as a way to spread a culture of entrepreneurship. In the pilot factory, SMEs learn about emerging technologies and adapt or develop them further to modernise their production processes, also through the development of new prototypes of new products.
“A partnership between the public and private joined by academic and civil society can bring this about,” said WEF’s Samans.
He argued that such PPPs’ initiatives inject new dynamism into the economic system. Such dynamism makes it easier to diffuse technology and create new economic models, he added.
The EIB, with a balance sheet of around €570 billion, has a long-standing history of financing investment projects that address systemic market failures or financial frictions. But it was only with the European Fund for Strategic Investments (EFSI) that the bank was able to finance high-risk projects.
Europe does not suffer from lack of ideas, but structural weaknesses and a fear of engaging in innovative ventures hamper the deployment of new technologies. “The key is for European stakeholders to come together to accelerate, and more importantly, to scale and spread existing initiatives,” the report reads.
“We need a change of mindset,” Samans stressed, as leveraging technology to achieve higher growth will require leaders and societies to get fit in order to anticipate and manage social repercussions.
European Investment Bank: World Economic Forum, EIB urge EU Finance Ministers to make Inclusive Growth top priority
European Investment Bank: The Beyond the Equity-Efficiency Trade-Off: Practical Ideas for Inclusive Growth and Competitiveness in Europe