The Death of Lisbon

Is eEurope dead? Should we really care?

Nearly five years ago in Lisbon a decision was made to turn the European Union (EU) into the most dynamic and competitive "knowledge-based economy" on the planet. This goal, the achievement of which is set for 2010, is to be accomplished without sacrificing "social cohesion". Subsequently, the so-called "Lisbon process" has led to a strategy focusing on legal frameworks for innovation, decreased regulation in appropriate sectors, and financial market reforms.

In addition to this, the Lisbon agenda calls for the development of the most crucial factor of all -- human capital. This is to be achieved through a substantial investment in promoting digital literacy, tertiary education, and the concept of "lifelong learning". The rationale for this aspect of the Lisbon agenda is that people are the key determinant of both growth and competitiveness; in a so-called "knowledge-based economy", therefore, this must be doubly true.

Yet late last year, at an EU summit held in Brussels, EU leaders appeared to pull away from Lisbon agenda. This was apparent as the two largest countries within the EU, France and Germany, are in favour of something watered down to protect social welfare state benefits and to make sure the environment is protected.

Not surprisingly, pro-business pundits lamented what they felt to be the burying of the free market reform aspects that made up most of the Lisbon agenda. Their main complaint was that during the entire two day conference it was hard to find one concrete pro-business measure that had been furthered to maximise growth, despite the fact that the scene was set for it by a long-awaited report on why the Lisbon process was apparently failing.

This report, delivered by the former Dutch prime minister, Wim Kok, criticised EU member states on the whole for having failed to reform and to explain the need for reform to their citizens (Wo sind die guten Nachrichten?). Additionally, it pointed out that the EU has failed to reach several of its mid-term targets. For instance, overall employment the EU stands at only 64.7%, whereas the target was set for 70%; likewise, the employment of those aged 55 and over, which should be at 50%, is so far at a mere 40.2%.

Employment aside, other areas are just as disappointing. The agreed target of 3% of GDP to be invested in research and development (R&D) is far from being met, and stands at only 1.9%. Also, while the Lisbon agenda calls for the entire electricity market in Europe to be opened by 2010, only 59% has thus far been opened to competition. Conversely, one of the few targets to have been reached is that of Internet penetration, where over 30% of homes have access to the Internet. It's another question altogether of whether this target was low to begin with.

While arguing that Europe is falling further behind the US and Asia economically, Wim Kok admits that the EU hasn't had control of all factors. Moreover, he concluded that member states are stuck in a catch-22 situation: they can't reform because their economies are sluggish, but they can't ignite their economies without reform.

Nevertheless, Kok's report on EU reform last year was quite clear on what needs to be done: the EU needs to raise productivity sharply, research spending should increase to the agreed target of 3% of GDP, member states need to cut taxes, the retirement age needs to be extended, and regulations need to be simplified. If member states fail to implement these reforms, he warned, then Europe may be forced to roll back its social model.

In order to help bring about these reforms and "save" Europe's social model, the Kok report outlined what the role of the EU should be in this respect. First and foremost, the EU must call on each country to adopt a national action plan aimed at raising growth and jobs. These plans would then be monitored by the European Commission (EC), with the best performers held up as role models and poor performers shamed, the so-called "name and shame" process.

Despite the recommendations put forward by the Kok report, not only have EU leaders failed to further the "American-style" reforms cited, some observers argue that there is a distinct attempt to dilute them. Calling for the creation of national champions, something that would be avoided under the Lisbon agenda, French president Jacques Chirac argued that Europe must keep its social dimension and it needs a true industrial strategy. Likewise, when the Dutch prime minister called for a program of naming and shaming good and bad EU economic reformers, Gehard Schroeder attacked the idea and the German delegation went on to argue that any free market reform must be combined with a rethink of the stability pact.

Gehard Schroeder also highlighted the unpopularity of potential pro-business reforms. In his closing news conference at the summit last year, the chancellor bemoaned the fact that there was no majority support at home or within his governing coalition for his finance minister's proposal to scrap Germany's October 3rd public holiday. German media had sharply criticised Hans Eichel's suggestion to do away with the holiday which he claimed would boost Germany's national output and growth.

The concept of "knowledge for growth"

Apart from national leaders opposing the reforms associated with the Lisbon agenda, many Eurocrats appear to be against them as well, calling the reform plan overambitious. In fact, even the president of the EC, Jose Manuel Barroso, had stated that the Lisbon agenda, with more than 120 actions and priorities, was too complicated and that what was needed was to refocus priorities (Grwoth and Jobs).

Likewise, Janez Potocnik, the Commissioner in charge of research, noted that the "streamlining" of the Lisbon agenda will enable Europe to enter as a main player on the main stage. The Lisbon process is no longer a means to make Europe the most competitive region in the world; instead, the EC will be satisfied if it can just keep up with the US and Japan.

Potocnik is also confident that a streamlined Lisbon agenda is likely to award even more emphasis on research and development. Accordingly, the EU of the future will no longer be able to compete on low wages or security systems. Rather, Europe will be able to compete on the basis of a concept of "knowledge for growth": knowledge creation, knowledge dissemination, and knowledge use. This, in essence, is at the heart of what the EC frequently refers to as the "knowledge-based economy."

These views from Brussels represent a major shift in EU policy. Previously, the then new, incoming president of the EC had said that the Lisbon strategy would be central to his administration. Prior to the summit, however, he was politically wounded when his original team of commissioners he presented to the European Parliament was rejected. Fearing that he would be cast into another political role, he decided to move away from the Lisbon agenda after seeing France and Germany express reservations over the Lisbon process. Consequently, it remains to be seen what authority Barroso will ultimately have. Furthermore, since most of the reforms have to be implemented on a national level, what actually counts is what the likes of Schroeder and Chirac say, and not someone in Brussels.

As a result of all this, many now share Germany's view that the fiscal strait jacket of Growth and Stability Pact was wrong and that it needs to be more flexible. In essence, they argue that the Lisbon agenda itself will need to be revised to achieve economic growth, and that what is needed is a gradual approach to take into account the needs of individual economies.

Everything will depend on France and Germany

One of the main reasons for the unpopularity of the Lisbon agenda among national political leaders is the reforms it proposes ultimately means cutting back on job benefits and other hallmarks of the welfare state. As a result, political leaders don't have the political will to pursue such an agenda. What is more, the targets set by the Lisbon agenda are, by definition, long-term goals. As the reform process was set within the time frame of ten years, and as political cycles are often much shorter, governments naturally aren't prepared to risk their political life on the issue.

Although most pro-Lisbon advocates didn't expect big solutions to come out of last year's summit, they also didn't think either that the entire program would be dumped on. Some are now wondering how bad the economy will have to get in Europe before changes become inevitable or unavoidable.

For now, it's apparent that the Lisbon agenda is on hold, with some lip service given to reforms. There will also be a move towards a process of outlining "step-by-step" reforms. Indeed, in smaller countries, where many of the reforms are being implemented, there will be so-called "success stories" to somehow demonstrate the feasibility of the Lisbon agenda. Nevertheless, everything will depend on France and Germany and whether they decide to fully embrace the process or not.

What may yet keep the Lisbon process alive, however, is the UK. The UK is very keen on reforms and when the British take over the EU presidency next year, the question of economic reforms will no doubt come back on the agenda. To what extent it will be pursued by the British presidency will depend foremost on Blair's own political position. Although committed to the Lisbon agenda, some see Blair stopping short of giving it high priority as he already has got his fingers in so many other pies.

Even if the UK fails to revive the Lisbon agenda during its presidency next year, some pundits are convinced that the Lisbon agenda cannot die because there is no alternative to economic reform -- and that national political leaders know that very well. Although leaders like Shroeder and Chirac may not be behaving that way at the moment, pundits argue that Europe is facing a huge economic and social crisis and, sooner or later they are going to have to follow up with action. Europe is bursting at the seams: there are 19 million unemployed, growth figures have just been revised downwards to 2%, and social systems are deemed unsustainable. Experts warn that unless something is done soon, Europe will be in the midst of a real catastrophe.

Apart from the debates and clashes among different member states and interest groups over the Lisbon agenda, its obvious failure highlights a weakness inherent in how the EU in and of itself is run. In other words, the failure of the Lisbon agenda demonstrates that there are actually limitations to the extent at which a centralised commission can actually bring about fundamental social and economic changes. In many respects, it can never work since the EC is unlikely to force national governments like Germany or France to do what is possibly unpopular, despite whether the measure is necessary or not. The EC can co-ordinate and give some guidelines, but the main responsibilities for making any reforms relies on member states.

Is there an "European Dream"?

Along these lines, some observers have begun to re-examine the very framework of the Lisbon agenda itself. In particular, they question of whether the Lisbon process is really a pan-European agenda in the first place. They point out that what is being debated is a collection of related issues which are conveniently combined all together and called the Lisbon process, but actually the problems in each distinct country are quite different. Thus, the whole debate surrounding the Lisbon agenda shouldn't be approached from a so-called "European" perspective, complete with centralised targets. Governments know what needs to be done; they don't need a group of very unpopular commissioners in Brussels telling them what to do.

Not surprisingly, those pushing hard for the "economic reforms" aspect of the Lisbon agenda see things differently. In many ways, they need to frame the debate within a pan-European context because they know that they can't take on the trade unions -- especially in France and Germany -- on a national basis. To put it in another way, big business can only argue for economic reforms on a pan-European scale, where it feels safe and strong enough.

Still, others see that what is needed at this point is to persuade the public at large on the necessity of reforms, and to have public opinion behind the Lisbon process in the form of a "European dream". If the EC would be able to communicate to Europeans what "needs" to be done so as to able to compete on the global market, then people might end up accepting the painful reforms that are being advocated.

This, of course, is wishful thinking and highly unlikely, and is the main reason why most national governments are wary of implementing reforms. In Germany and France, public protest against these "painful reforms" is precisely the reason why governments are in favour of a diluted version of the Lisbon agenda. The people of Europe don't want to lose the quality of life and the security they have at the moment, and they will do whatever they can to protect it.

On the other hand, it's quite true that a vast majority of European citizens know nothing about the Lisbon agenda. Yet this has little to do with "communicating Lisbon" as much as a lack of democracy on a pan-European scale. On the one side there is the EC which is not even elected. On the other is the European Parliament which is elected but with very little power. It should come as no surprise, therefore, that during the EU elections last year in June almost everybody campaigned on a domestic platform.

Still, those in favour of the Lisbon agenda are adamant in their belief that Europeans are actually in favour of the economic reforms proposed, and that it's vested interests that are blocking attempts at implementing them. Hence, they argue that these vested interests, the so-called "social partners" -- unions and employers associations -- are the ones that can't communicate to European citizens about what needs to be done in the way that is necessary.

The Lisbon agenda was born at the tail end of the "digital revolution

Unfortunately, as the debate over the Lisbon agenda its subsequent reforms continues, what is lost in all the talk of economic priorities is the social dimension, namely that of human capital. Yet as with the debate over economic reforms, many of the supposed social aspect of the Lisbon agenda is likewise controversial. For example, the concept of lifelong learning is clearly a sham. While it seems to carry with it connotations of quality education, in reality it's nothing more than a mere euphemism for the retraining of workers in an economy where people are chained to the speed of unflagging machines. In other words, workers are simply looked upon as expendable machines in themselves, which are to be retooled when required.

In the end, we need to look back to the year 2000 when the Lisbon agenda was born in order to fully understand what it is all about and why, at the end of the day, we shouldn't shed any tears at its demise. The Lisbon agenda was born at the tail end of the tech boom, or as some have called it the "digital revolution". It was a period of major advances in computer technology, and was fuelled by digerati hallucinations of a world born and bred on computer mediated communications (i.e., the Internet). In essence, we would spend our entire lives, from womb to tomb, in what was then known as "cyberspace".

This period coincided with the end of the Clinton era in the US, a time of unprecedented economic growth. It was also the tail end of a global stock market bubble, the popping of which subsequently became known as the "tech wreck".

Given this social and economic environment, the idea that substantial growth and the ability to keep budget deficits at low levels was then considered to be not an unreasonable prospect, given the ability of the US at the time to post spectacular growth figures and, at the same time, create a budget surplus. However, as history was soon to show, the bubble burst, many then "dot-com" companies driving the so-called digital revolution suddenly went out of business, and the digerati dream soon withered and died.

In Europe, meanwhile, the Lisbon agenda survived. Even so, it was critically mauled by the end of the tech boom years and has since never been able to fully regain its footing. The willingness of the Barroso Commission to streamline the Lisbon agenda is a sign that the EC has finally decided to cut its losses and salvage what it can from the process.

Ironically, the streamlining of the Lisbon agenda comes at a time when the economies in much of the world appear to picking up once again from the huge losses suffered at the end of the digital revolution. Hence, many pro-business elements -- the hardline supporters of the Lisbon agenda -- feel that now is not the time to admit defeat but to stay the course.

Yet for the average European citizen, the entire process is almost meaningless. It's not only because many are actually unaware of what the Lisbon agenda is, but that it fails to adequately deal with problems and issues at hand. The neo-liberalist remedies it puts forward benefits a small minority at the expense of the vast majority. While national governments are told to cut back on the welfare state, money is pumped into defense and "security" related industries. Indeed, "security research" is regarded by the EC as a major priority of European research; a special R&D programme specifically devoted to this area will be implemented in Europe starting 2007.

Taking all this into account, tears needn't be shed for the demise of the Lisbon process. Instead, an entirely new agenda should be proposed, one that will safeguard Europe's social model. By focusing more on human rights as opposed to simply human capital, Europe would be able to still achieve some of the modest goals it sets for itself in 2010, this without having to sacrifice the quality of life and relative security its citizens presently enjoy.