MEMO/01/183
Brussels, 17 May 2001
Pedro Solbes comments on "Growth and the new
economy" at the OECD Ministerial Council meeting
in Paris – 17 May 2001
Commissioner Solbes participated today in the Ministerial Council meeting of the
Ministers of Economy and Finance on “Growth and the new economy”
The main points of his intervention were:
The Commission congratulates the OECD Secretariat for having made very useful
progress on exploring the sources of economic growth. This project is bound to
influence empirical studies and policy efforts in the years to come.
New technologies have played, and continue to play, an important role in shaping
economic activity. But despite what some people have been saying in recent years,
fundamental economic laws do not appear to have been substantially changed.
Consumer demand, business confidence, and employment still account for much of
economic activity.
By the end of the decade, up to two-thirds of the difference in GDP per head
between the two regions was due to a lower employment rate and fewer hours
worked in Europe. Nevertheless, the upshot of the 90s is that potential growth
increased in both regions. But to fulfil the European potential would have required a
better use of human resources. Therefore, it is important to insist on a
comprehensive strategy including macroeconomic stability and labour market
reforms.
A major factor behind the potential growth increase was Information and
Communication Technologies. The combined effects of ICT capital deepening and
technical progress in ICT industries added about 0.7 percentage point to annual
output growth in Europe in the latter half of the 1990s. The total impact of ICT in the
US, from 1995 onwards was 1.4 percentage points.
Even if ICT factors are still adding this much to output growth - a question I will return
to shortly - their aggregate impact is counteracted by corporate downsizing and
declining confidence. That is true, especially, in the US. In keeping with this, the
Commission’s Spring forecast attributes most of this year’s 0.6%-point drop in EU
GDP-growth to a sharp decline in the external component and, linked to that, falling
investment in anticipation of slower growth.
However, new technologies have come to stay-despite the cyclical swings in the
economy. And we know that they accelerate the rate of productivity and raise the
long-term growth potential. Hence, the recent developments in the US is no reson to
abondon or postpone plans for further utilisation and development of new ICT in
Europe.
While the aggregate effects of ICT spending are fairly conspicuous, the gestation
period is more drawn-out for complementary, yet more intangible investments.
Thus, before a firm can expect the synergies from ICT usage to kick in, it must
succeed in acquiring management capabilities, good worker skills, the right
equipment and all of its business processes must be synchronised. In the aggregate,
the putting together of this jigsaw puzzle of capabilities illustrates how critical it is that
firms have access to the right resources when they need them.
In Europe, we have responded to this challenge by co-ordinating a comprehensive
strategy for success in the Knowledge based Economy. Over and above a stable
macroeconomic policy-mix and structural reforms that facilitate job creation and
boost competition, this strategy puts in place policy initiatives that are very much in
line with the recommendations in the “Ministerial Paper on Growth”.
The eEurope Action Plan is supposed to bring cheaper and faster Internet access
and heighten citizens’ “digital literacy”. The Strategy for Jobs in the Information
Society is designed to make sure that Europe develops the right ICT skills. The Risk
Capital Action Plan aims at infusing more dynamism in risk capital markets. And, the
strategy for a European Research Area facilitates cross-border networking in
research. Finally, let us not forget that January 1st will see the introduction of euro
notes and coins, which in itself should tie Europe closer together. With these
developments under way, Europe is, in my opinion, ready to seize the opportunities
offered by the “New Economy”.
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