INSEAD dean: Europe needs to ‘play collective’ in crisis

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Frank Brown, Dean of INSEAD business school, says Europe must get its act together if it wants to emerge stronger from the economic crisis. He spoke to EURACTIV ahead of this year’s European Business Summit (EBS).

Frank Brown is dean of INSEAD, a leading international business school with campuses in Europe, the Middle-East and Asia.

He spoke to EURACTIV's Frédéric Simon and Gary Finnegan.

To read a shortened version of this interview, please click here

Your are moderating the closing plenary at this year's European Business Summit on 1 July, entitled 'Europe and the world: Ready to lead?' Would you say that in the current economic situation, Europe is ready to lead?

Maybe the question is not whether Europe is ready to lead but whether the world is ready to accept European leadership and if not, what would it take for that to happen. In my view, a lot of it depends on how united Europe is or how united Europe can become. That would certainly drive credibility in a very good direction.

In Europe, national interests still tend to prevail over the EU interest. How would you describe the leadership challenge in Europe?

That's an issue not only with respect to governments in Europe but also with respect to companies. I can draw a parallel to my experience in running a global professional services firm. If you want to be successful, you have to get agreement among the members as to what is global and what is local, or what is national and what is federated, and really live by the responsibilities that you set up.

I think that has not been made clear in Europe. There have been some great attempts over the last several years and the 'Europe 2020' strategy is the latest. For Europe, it is really a matter of getting its act together as a collective in terms of some of the most important global issues, like pan-European economic development or pan-European innovation.

You just mentioned the 'Europe 2020' strategy. Do you believe that the main headline objectives of the strategy were the right ones?

It's a compendium of things we have been talking about even at the European Business Summit over the last several years. So yes, and I believe it is important to stick to those.

But the objectives haven't really changed that much. We know that the Lisbon Agenda has broadly failed to make the EU the most competitive economy in the world. Is the EU 2020 strategy fundamentally different in your view and does it really have a chance of succeeding this time?

My view is that the issues are probably going to stay relatively constant but the question is whether the will behind them is strong enough to succeed. I will give you a small example. Jean-Philippe Courtois of Microsoft and I have been pushing for several years to create clusters where innovation can succeed, and creating clusters which maybe can be pan-European. So, for example, if you want to create a technology cluster for Europe, locate it in one place and get support from the members of the community.

Everything that has been attempted has failed because of national interests opposed to pan-European interests. And so I think that the 'Europe 2020' strategy is another attempt to say 'let's get support behind a more collective approach to these critical issues'. But I think the issues have not fundamentally changed.

Do you think that the response from governments has been to embrace this or have they already begun to take apart some of the headline goals of the 2020 strategy?

It's a bit too early to answer but certainly the past response has been to publicly say 'yes, this is a great thing', but privately trying to replicate everything that works in their own country and pay lip service to the collective.

You mentioned innovation policy. Now that we have an innovation commissioner and that it is a key flagship programme in the 2020 strategy, do you think that we are actually going to see progress on innovation? Are we moving in the right direction with the proposed research and innovation strategy that is expected in September?

Yes, I think this is a very good move and I also think that there has been very good things happening vis-à-vis innovation, particularly in Germany and France, but also in other places.

One thing that national interests need to do is create less bureaucracy for business formation and to facilitate business formation and business growth. And I think France has done in particular a great job over the last couple of years. The real question is, how do we go from local initiatives to more federated initiatives across Europe that will create sustainable, scalable business growth, which is going to have the biggest impact on pulling Europe and making a contribution to pulling the rest of the world out of a pretty tough recession.

We talked about the need for collaborative work. There was a concrete case recently which was the Galileo joint undertaking, and you mentioned France and Germany. That was an illustration of how national interests continue to dominate when it comes to returns on investment and the principle of 'juste retour' on investments. What can be learned from that experience?

An example which is slightly better is EADS. I think these are all cases of there going to be a lot of experiences over a period of time before we get this right. I will hope that the leanings from cross-border collaborative initiatives – we're studying them here at INSEAD – will  permit to develop some do's and don'ts and get perfected every time.

What are those do’s and don’ts?

Again, I think it goes back to the basic fundamentals of who decides – what responsibilities are local and what responsibilities are global or cross-border – and live by it.

Leadership is another one. A two-headed monster will always kill itself at the end of the day. And I think strong identified leadership put in place for reasons of quality and not reasons of politics is critical.

The other thing that we have to remember is, although we love to bash Europe, we have to look at where we come from. 53 years is not much of a lifetime of a country or of a continent and I think tremendous progress has been made. The big test this year is for the euro and it seems we are passing that test. And I think building on that success is another thing that will hopefully solidify the need to do more and more, progressively, on a collaborative basis. We always have to balance it with looking at what actually has been achieved over a period of time.

Taking you back to innovation, you have a lot of expertise in management and organisational structures that you may want to share. Innovation policy used to be the domain of the enterprise directorate at the Commission. But it was the education directorate which ran the 2010 European year of innovation and now it is going to be the research commissioner who is in charge of the innovation strategy. From your point of view, which angle should innovation policy be driven from?

I think it has to be research which is really fundamental. But there also has to be a dose of good business sense in there in terms of identifying the likelihood of success and identifying sectors where new approaches are necessary, creating the right kind of incentive structure, etc. But I think fundamentally research is at the centre of innovation and it seems to me a very logical place to leave from.

The US seems to be coming out of this recession more quickly than most European countries. One of the reasons suggested for this might be a more entrepreneurial culture in the US. Do you agree with that or is it just one of those sayings that we have taken as a fact? What could we do to make Europe more entrepreneurial?

In this case, I don't agree with that, I would have said that about past recessions – US innovation has always driven the recovery. But if you look at what is happening in the US, it is really more the basic industries that are driving it and a lot of it is incentivised by government stimulation.

Take for example one of the biggest drivers of turnaround in the US: the automobile industry. Who would have thought it? You would have thought that completely new innovation like 'personal space packs' would be the main drivers for the turnaround as the next generation of transportation in the US but that's not it at all. There is certainly still a lot of innovation going on in the technology space but what I hear is that growth is not being led by Silicon Valley this time. So it's a little bit different.

I actually think that one of the reasons that the US turnaround may appear to be more significant is that the downturn in Europe was not as severe as it was in the US. So you are talking about a different base. That goes back to the fact that European economies are not as consumption-driven as the US economy is.

How much credit would you give to the whole 'green growth' mantra? Do you really think that green growth is going to get the world and more specifically Europe out of the recession faster?

I think it can contribute and I think it is contributing. But I don't think it's 'the' thing. Much more basic changes about the way people think about their business and the way people can conduct their business is at the heart.

But green is important. We did a study three years ago and this is the third year we are doing a study which is leading the discussion at the European Business Summit. One study we did in 2008 was all about greening the economy. And one of the findings of that study was that 80% of the 'green technologies' have been developed in Europe but 80% of those have been executed in the US, simply because of the more business-friendly approach and the accessibility of money, particularly venture money, which happen to be in the US.

Now, we haven't updated this study but my own sense is that we have made progresses in terms of closing that gap, in terms of creating some of the services that are necessary here in Europe to support entrepreneurs. I talked about the changes in the rules in France which facilitate the founding and development of new businesses. So I think there has been progresses made but I think that the green revolution is still more active here in Europe than it is in the US. In terms of execution, I think Europe has closed the gap a little bit over the last few years.

There is a lot of talk about the gains of moving to a green economy but much less about the pain. Have you looked into this at INSEAD?

Yes, we are looking at all angles of it through our social innovation centre. But my sense of it is that this is not necessarily a pain-oriented kind of thing. I don't think that down to the consumer level, people are noticing or being inconvenienced by initiatives in the direction of going to a more carbon-neutral environment. I don't get the sense that this is so painful at all to be honest.

Last year the emphasis was a lot on skills and enterprises were asking for a European Skills Pact. Has the situation got worse or better since then?

I'm surprised it hasn't got worse given the economy. I think it is stable or better to be honest. Most companies in Europe have continued to invest in education. I still would like to see more open borders, particularly throughout the geographic continent but not necessarily the unified continent.

I think mobility is a huge issue to tackle vis-à-vis the skills gap and I think that's the one we haven't made enough progress on. But in terms of focusing on the right skills and motivating the right skills, there has been a lot of progress.

As we are hopefully moving to a post-crisis period and start repaying public debt that have accumulated – are you concerned that if finance ministers start cutting education, we will really see the effects of the crisis 10-15 years down the line?

Well, that would be an enormous mistake and again I don't see it being down in many places at all. And that's encouraging. The support for education has to continue. I also still think we need to look more fundamentally at early education because the methodology used in most European countries is not necessarily the friendliest towards creating innovative minds.

Germany is very reluctant to have any sort of education objectives under the 'Europe 2020' strategy. What do you thing about that?

I don't think that it is necessarily negative vis-à-vis education. From an investment standpoint it is relatively stable and there is a continuing push for reform. I think it's OK – you know, you can't cover the entire waterfront in terms of every initiative. And I think if you focus on innovation, you are focusing on education.

Another of those 2020 targets which is under pressure because of public finances seems to be the 3% R&D target. What's your view on that?

I think that anything that is measured by an absolute percentage of spending is a risky venture because people tend to try to comply by throwing money at the problem. I would much rather measure impact than measure spend.

Are there models that you are aware of that would give these kinds of sophisticated measurement?

Well, we have a professor here named Jean-Claude Larréché who published a book about the momentum effect. Basically, what he looked at was impact with respect to marketing. And it is not about the absolute spending but about the impact of the spending, which he says creates momentum.

If you look at education for example and you want to create a more innovative society, you should look at the methodology and look at the way the professors, and particularly the younger-level schools, are being trained and their openness to students who have ideas of their own. And their openness to creating problems that have potentially at set of answers. Those are the things are going to drive innovation.

And again, I don't think it gets down to exactly how much you're spending as it gets down to what you are trying to achieve and what is it going to take to achieve that. It can in fact mean redirecting money that is already being spent.

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