The Brown 'solution'

A few days ago HM Treasury published with very little fanfare a document on "Global Europe: full-employment Europe" by the Rt Hon. Gordon Brown, Chancellor of the Exchequer.

The document might not have set any houses on fire and one need not necessarily agree with all its conclusions and recommendations, but this was one of the few instances where, during a particular Presidency of the European Union, a key politician came forward with a blueprint on how to address the challenges and opportunities of globalisation, particularly those emanating from the Asian continent.

The main argument Mr Brown put forward was that globalisation does not merely pose a series of challenges, but is the most profound challenge for Europe, in the sense that it poses fundamental questions about traditional models of European development.

Although many are inclined to talk of European capital and European companies, in actual fact flows of capital are more global than European. The same can be said for the key companies in action, as well as for the main brands.

One important point, which even tiny Malta should bear in mind, is that the issue now is not just how Europe integrates as it grows from 15 to 25, but how all 25 - soon to be 27 - reach out to the rest of the world.

Certain individual member states might be performing relatively well, but Europe as a whole "is losing ground to competitors in five key areas: growth, labour market performance, skills, innovation and enterprise".

Mr Brown strongly resists the argument that technological change and globalisation must in themselves bring social fragmentation.

He argues that globalisation can be managed well or badly, fairly or unfairly, in the belief that through policies that combine flexibility and fairness, Europe's long-standing social value can be advanced alongside economic prosperity.

One important point that Maltese economists, manufacturers and decision makers must bear in mind is that, although 20 years ago just 10 per cent of manufactured goods came from developing and emerging countries, the challenge from China and India is now such that by 2020 the figure will be 50 per cent.

China's trade is currently doubling every three years and India has shown similar, dramatic growth in exports of services. I found one statistic cited by Mr Brown particularly quite interesting and telling at the same time:

China alone produces 70 per cent of photocopiers, 50 per cent of cameras, 40 per cent of microwave ovens and 25 per cent of textiles.

Today it is useless to talk of distances when considering trade opportunities. The rise of the e-mail and Internet processes has made communications across national borders virtually costless.

Advances in information and communication technology are not only reducing costs but also expanding the range of services - such as call- centres, computer programming and consultancy. What many may not know is that India is also a high-ranking importer of business and computing services, and some EU member states are already successfully exploiting new trade opportunities in services.

Although IT Minister Austin Gatt recently tried to imply that competition is strongest in low value added products, Mr Brown tends to differ.

He states in his policy document that competition is no longer simply in mass production manufacturing based on low skills, low technology and low wages, but increasingly right across the value chain.

With four million graduates a year from China's and India's universities, Asia is now competing on high-tech, high- skilled, high value-added goods.

With Chinese spending on R&D (research and development) doubling as a share of GDP between 1996-2003, we can expect this shift up the value chain to continue.

Those who think China and India will remain low-cost bases of production for many years are mistaken. As productivity grows in both China and India, so wages will increase, progressively closing the wage gap with Europe and America.

Europe is not only lagging behind these Asian tigers, but also the US itself. Even were one to ignore for a moment the new entrants, there is now a gap of more than 30 per cent in living standards between the EU 15 and the US. Where Europe continues to lead is in its traditional commitment to social cohesion, particularly by leading the world in tackling child poverty.

In Asia skill levels in emerging markets may be rising faster than in Europe, but one must bear in mind that they are doing so from a lower base. I cannot fathom Europe's apparent aversion to venture capital. Venture capital, which boils down to the support for risk-based entrepreneurship, is twice as large a part of the US economy than it is of the European economy.

While the Labour Party believes in the gradual phasing out of certain subsidies, so long as the periods are well drawn out and not imposed from above, I was shocked to hear Nationalist MEPs - particularly David Casa - singing the praises of EU subsidies during a recent Bondi Plus programme on TVM.

Protectionism might work in the short term but it cannot work in a global economy where production processes are increasingly spread across continents, and businesses and consumers depend on international trade and investment links.

Tertiary skills may be on the rise in Malta, but we can never have enough, particularly since Canada, the USA and Japan have higher tertiary skills attainment than any EU country.

Europe needs to get its priorities right. As Mr Brown pointed out, in 2013 Europe could be spending almost 55 per cent of its total budget either on protecting agriculture or supporting regional development in the richest member states.

Mr Brown's message is clear: with a new, outward-looking, global Europe we should see America, Asia and the rest of the world as partners, not rivals.

Leo Brincat is the Shadow Minister of Foreign Affairs and IT. E-mail: leo.brincat@gov.mt.