LONDON — In his speech to the European Parliament in Brussels on June 23, British Prime Minister Tony Blair set out in stark terms the main challenges facing Europe (and in different ways perhaps, the United States and Japan) from China and India.
“China and India in a few decades will be the world’s largest economies, each of them with populations three times that of the whole of the European Union. The idea of Europe, united and working together, is essential for our nations to be strong enough to keep our place in the world.
“More science graduates will be produced by India than by Europe. India will expand its biotechnology sector fivefold in the next five years. China has trebled its spending on research and development in the last five years. Of the top 20 universities in the world, only two are now in Europe.
“If European nations, faced with this immense challenge, decide to huddle together, hoping we can avoid globalization, shrink away from confronting the changes around us . . . then we risk failure. Failure on a grand, strategic scale. We are living through an era of profound upheaval and change. It is time to give ourselves a reality check.”
Blair’s warnings, coming shortly before the Group of Eight meetings in Scotland, were timely. The antiglobalization movement is led by King Canutes who think that they can stop the tides of change by willing them to stop. The world is full of conservatives who fear change and believe that they can protect forever their own selfish interests and their little world from anything that might upset the status quo. They may be able to do so for a limited time, but eventually they will find that the protectionist wall can no longer withstand outside pressure and that their inflexible societies are declining while the wider world passes them by.
Some have accused Blair of raising these issues as way of diverting attention from the British budget rebate, which, according to his accusers, was the reason for the recent failure to agree on a budget for the EU.
Whatever the merits or demerits of the British budget rebate, the accusers seem to have missed the real message. Blair was right to point out that it is nonsensical under present circumstances to spend 40 percent of the EU budget propping up farmers who represent a declining proportion of the European population. Priority needs to be given to measures to improve EU competitiveness and skills, and to reduce the appalling number of unemployed in Europe (some 20 million, the majority being French and Germans).
Blair declared that he did not want to dismantle the European social system, which has helped the less privileged, but he believes it needs modernizing and that the sclerotic labor laws that penalize employers seeking to expand employment in countries such as France and Germany need to be reformed.
Blair’s speech has been criticized by some for its lack of specific proposals, but this was not the time and place to spell out all that needs to be done. None of the measures needed will be easy to enforce or painless. The following are some of the issues that must be tackled.
* The Common Agricultural Policy has indeed been modified and export subsidies curbed. The food mountains and wine lakes are less full and even the wasteful sugar regime has at last been modified, but European agriculture is still overly subsidized. This penalizes European consumers and producers in developing countries.
Of course, Europe needs to maintain a healthy agricultural sector, but as agricultural population declines, this can be done at less cost to taxpayers and with less damage to more efficient agriculture elsewhere.
* The EU must press for an early and successful conclusion to the Doha round of trade negotiations under the auspices of the World Trade Organization. This will mean further reductions in tariffs and liberalization of nontariff barriers as well as reform of agriculture. There are already worrying signs of protectionism in Europe and the U.S., e.g., in relation to textiles from China. These tendencies need to be curbed if the world is to avoid a spiral of protectionism and countermeasures that would reduce world trade and economic growth.
* Increased liberalization of the trade in services is needed. This will require the EU to press ahead with its efforts to create a single market in services. These measures face strong opposition especially in France and Germany.
In the recent French referendum on the proposed European Constitution, opponents of the constitution raised the specter of France being invaded by a horde of Polish plumbers willing and able to undercut French plumbers. This was a chimera. Freedom of movement is an important element binding the union together and can bring cost of living and efficiency benefits to all member states.
* The EU needs to do more to promote a single market in energy and tackle abuses arising from subsidies to “national champions” and monopolistic practices.
* Investment in European infrastructure projects and research and development must be increased.
Many of the problems that Europe faces need to be tackled at the level of individual governments. Europe must recognize that issues such as labor laws, including pay and conditions, are not matters for the European Commission to regulate. Europe needs to deal only with matters that should be covered centrally. This principle applies a fortiori to improvements in education. The Europeans need to quickly recognize how and why they are falling behind.
Many of Blair’s comments are relevant to Japan. There are still too many politicians and officials in Japan who have yet to escape from their protectionist prejudices or are beholden to special-interest groups that demand that their concerns should be placed above the general good.
This is especially true of the agricultural lobbies that, by their protectionism, have forced Japanese consumers to pay high prices and thus reduced Japan’s ability to compete.
Tokyo University has a very high world reputation, but how many other Japanese universities are globally recognized institutes of higher education?
Japanese technology and science have achieved very high standards, but China and India are catching up fast. To keep ahead of the competition Japan needs to hone the skills of its people and do more to encourage individual initiative.
Japanese companies are well aware of the challenge from China, but have they recognized the implications of the changes taking place in India?