Sir Donald Gordon Professor of Entrepreneurship and Innovation; Professor of Strategy and Entrepreneurship
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First constructed to defuse tensions following two world wars and help create a bigger and deeper marketplace, it was then refurbished as an aspirational club to which poorer southern European and former Soviet Bloc countries could belong. Its success automatically bred legitimacy in the eyes of its citizens. However, as the financial and economic crisis brings this machine for economic growth and convergence to a halt, more and more Europeans are starting to question whether we really need the EU. The south feels the pain of tough austerity measures and loss of sovereignty; the north is increasingly uneasy about subsidizing Europe’s “profligate brethren”, corrupt politicians, inefficient state apparatus, and unsustainable lifestyle. Its historical justification long faded, the EU project is facing an existential crisis.
Yet the current crisis is an opportunity in disguise. If the European leaders seize the chance, they can improve competitiveness and thereby living standards in the south and east, while increasing the legitimacy of the EU at the same time. For that, they must change the focus of their response. They need to move from a fiscally driven “prescribe and check” approach to a truly active, on-the-ground involvement primarily focused on fixing crumbling public administrations in southern and eastern countries. This bold approach, which would reimagine Europe as a governance union, could reignite support for the European project and give it the convincing narrative it currently lacks. The good news is that it is feasible, as long as the right pockets of expertise are tapped (in the World Bank, OECD or IMF, for example) and provided a permanent infrastructure is built in the EU. The core of our proposal is to focus on improving governance and reducing political influence, using and adapting the EU’s potentially impartial mechanisms to improve the public administration in countries facing structural and economic problems. The nations on Europe’s periphery can grow sustainably only if they significantly increase the ability of their economies – and ultimately their firms – to innovate, reduce the distorting role of the public sector through incumbent protection and needless bureaucracy, and improve the way their public sectors use their resources. Experience suggests that most competitiveness-focused reforms of this type are not actually that painful, except to some unusually vocal and well-connected incumbents. Few people in the south or east would resist a better support for entrepreneurs, improving the quality of their universities, redressing bureaucratic excesses or combatting social plagues such as tax evasion. In addition, these measures would very likely increase the willingness of the north to support and develop the rest of the continent.
However, a major practical obstacle to the effective implementation of such reforms is a weak public administration, further debilitated by political intervention and cronyism. Partly as a result of the crisis, political leaders with the necessary reform vision and drive are increasingly in evidence – even in countries like Italy or Greece. However, the environment in which they find themselves is usually unhelpful at best. Reformers cannot translate vision into outcomes alone. The actual implementation must be done at a lower level by a public administration that also has the will, as well as the technical and professional skills to do so. And here is the core of the problem. Such a public administration can rarely be found in Europe’s south or east. Yet, people there crave competent governments that would deliver efficient public services without wasting taxpayers’ money. An EU that was seen as the main champion delivering such changes would strongly increase its popularity and legitimacy.
The EU therefore needs to “hold a mirror” to the countries facing problems and relentlessly push for administrative reforms until economic conditions improve. For that, the EU administrative apparatus must move away from ad hoc solutions such as the Task Force operating in Greece and institute a permanent mechanism (and administrative unit) with a a clear mandate as well as accountability. It should get full-time staff with the right skills, focused on results and change management, and clearly tasked to instil better governance. Regulation-drafters must be replaced with change managers, and circulars with action plans. With such an infrastructure in place, the north can leverage its effective public administration and competitive advantages to develop the south and east, while emphasizing the benefits for the European population. In so doing, it can develop the narrative – and create the real value added – that Europe needs.
This shift would require a major rethink of tactics, structures and policies in the EU. In terms of tactics, rather than focusing on prescribing policies and, of late, micro-managing the administration (as the EU Task Force is doing in Greece), we must focus on identifying the structures that will transform public administration, and on helping to redesign incentives. We shouldn’t dictate to the south or manage it top-down; we should push for transparency and liberate the bottom-up forces longing for a more effective government and for better conditions for entrepreneurship and competition. We should also make sure we have the right people in place: Rather than mid-level European bureaucrats, we need change managers with experience in implementation, clear accountability, and an equally clear mandate. And we should have a permanent administrative unit to support all European countries facing difficulties.
Our view is that, before political unification gains legitimacy in the eyes of the European population, we should tackle the administrative issues within the current framework and make headway in fixing the governance and quality of public administration. This means that we should focus on efficiency rather than sovereignty. Instead of treating problems as if they were idiosyncratic in each country of the south (or the east) we should think about common pathologies and common solutions. We are fully aware of the difficulties of such a reform agenda, and of the resistance to change that is likely to emerge. As the adage goes, “if for business change is a prerequisite for survival, for public administration and politicians change is the quickest path to failure.” Administrations that have learnt to put their national apparatus above their national interests won’t lead the charge. Nor will politicians, increasingly focused on the immediate reactions of popular opinion and the press to their ideas. So we have to show politicians that the cure really will be better than the illness. We must educate the press, and cultivate the blogosphere to focus on the long-term impact of our policies. We must focus on the long-term viability of the European project; and this requires courage, and a vision we can articulate. Union based on governance will be our rallying cry.
Resistance to such a governance union will be fierce among some entrenched politicians, recalcitrant civil servants, and politically connected businesspeople, who will fight to preserve their benefits from the status quo. Indeed, they might prefer to see rising extremism and nationalism, since such movements are likely to reduce transparency, accountability, and competition. Still, we need to redesign the redesign effort. Achieving a governance union based on accountability, as opposed to legal formalismand mechanistic decision-making, is even more important than building a fiscal union on budgetary transfers. If we can manage that, the European population might start believing in the EU again, and Europe might finally get the opportunity to punch its considerable weight.
Michael G. Jacobides holds the Sir Donald Gordon Chair for Entrepreneurship & Innovation at London Business School. Martin Bruncko is a Senior Director and Head of Europe at the World Economic Forum.
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