Europe’s opportunity to be competitive by nature

As the EU wrestles with a series of immediate and acute competitive pressures, it is crucial that it does this with a clear focus on the best long-term strategic way to address its competitiveness, resilience and security challenges. It has already demonstrated an ability to adopt a stronger sovereign stance on its own defence, digital and industrial interests, even if progress on those and other elements of the Draghi and Letta reports is too often frustrated by national preferences and politics rather than a genuinely unified European approach.

We now find ourselves in a new era of disruption, uncertainty and strategic competition between powers, a world away from the more stable and predictable rules-based multilateral order on which so many of the EU’s successes have been built. Against this backdrop, the need for bold new approaches is clearer than ever.

Building on Europe’s distinctive strengths

One such approach would start not by focusing on well-known weaknesses but by building on the EU’s strengths and seeking to solve its weaknesses through them. Many of these strengths also require the EU to act as a single bloc to demonstrate them, but even so, the EU’s distinctive model of multi-level governance and approach to the social market economy and liberal democracy retains both significant merit and strong appeal.

Many like-minded ‘middle powers’ indeed look to the EU to lead a renewal of these principles when they are under threat elsewhere. This should give the EU confidence that its strategic response should not be to become ‘more American’ or ‘more Chinese’ but to forge a distinctive path and seek to compete on its own terms rather than those of its rivals.

What this implies is that the EU should be clear about its own terms for the competition in which it is engaged, terms which should reflect its own interests but also its values, distinct from the US and Chinese models, each of which presents clear and unacceptable disadvantages from a European perspective.

As a highly significant recent JRC report argues, the balance between the three imperatives of capitalism, sustainability and democracy, the ‘sweet spot’ where they are all optimised rather than traded off against each other, is where the EU’s model and true strength lies.

If the EU is to succeed in this new strategic competition, its understanding of competitiveness must reflect this balance rather than remain rooted in a previous political-economic paradigm. The EU’s approach to sustainability is, in this perspective, an undervalued competitive asset and, far from being an obstacle to its success, lies at its heart.

A landmark new European Environment Agency report, Competitive by Nature, set out comprehensively how, with respect to its long-term ability to compete economically and remain sovereign, secure, resilient and prosperous, Europe has an opportunity to build on its leadership in understanding the value of the natural environment and incorporate it into its model of sustainable development. Many of the tools and approaches needed to put this into practice are already available.

It identifies a series of ‘no-regret’ options for the EU to pursue with its ‘competitive by nature’ approach in mind, including scaling the circular economy and resource efficiency to reduce material and energy dependence; investing in nature-based climate adaptation and resilient infrastructure; developing European capabilities in computing, AI, and ‘next-generation’ biotech; strengthening skills, education, and social fairness; supporting social cohesion and public trust through a smart and coherent regulatory environment; and maintaining an active role in global environmental and social sustainability standard-setting and relevant multilateral institutions.

In a context where disruption is increasingly becoming the norm, a sustainability lens – one that views long-term resilience, risk management, circular resource use, social cohesion, and environmental integrity as investments in competitiveness rather than constraints upon it – becomes particularly relevant. Against this backdrop, the report examines how Europe’s socio-economic model – a distinctive combination of market integration, democratic governance, social frameworks, and environmental standards – may itself constitute a source of resilience and long-term competitiveness, a conclusion strikingly consistent with that of the JRC report.

What should competitiveness mean?

What both reports point to is the need for a new framework to measure and assess competitive performance. It is a remarkable fact, but there is no agreed EU definition and measure of competitiveness, with different interpretations and analyses used even within the same institution. Most definitions default to narrowly focused measures of labour productivity or innovation without a wider public purpose than GDP growth. Some focus on creating level playing fields without accounting for government intervention elsewhere and the EU’s own security or resilience needs.

The case for reform and greater clarity is made by experts from liberal, free-market backgrounds as well as less orthodox perspectives, and is being debated in the EU institutions in the context of the European Competitiveness Fund and the Industrial Accelerator Act. CISL and others have proposed such definitions and frameworks for a new approach to resilient and competitive sustainability, and this debate is a positive sign of an appetite for change.

The EU can embark on this with confidence, not complacency, drawing on the growing body of evidence that suggests that within such a lens, the EU’s competitive performance is actually stronger than more narrowly focused measures indicate. Not only are social and health outcomes often superior, but the EU has many best-in-class companies and examples from individual countries, excellent infrastructure, and industrial clusters in key cleantech and related innovations – as long as it can act ‘European’ in areas of finance, investment and industrial strategy to scale these.

The challenge is one of scale, but the strategy for achieving it can be distinctly European, beyond Draghi.

Within such a new competitive framework, a specific focus on resource productivity and an integrated measure of it with labour productivity would reflect both the critical role material resources play in the new economy, while also helping to shape international understanding, planning and policy on resource productivity. These are the terms on which the EU should compete on the global stage.

The opportunity for the EU to lead and be ‘competitive by nature’ is here and now, and its distinctive model means it is well placed to seize it.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.