The European economy has been financialised, rather than ‘Lisbonised’
By 2010, the European Union was supposed to be the world’s ‘most competitive and dynamic knowledge-based economy’ according to Europe’s grand strategy – the Lisbon Agenda. It was meant to turn Europe into the world’s hub of innovation and technology-driven growth.
This strategy emerged from the European Council’s Lisbon Summit in 2000 – hence the name – and established a series of targets for the European Union to achieve over the next 10 years. These included:
- Increasing Europe’s GDP growth rate to 3% per year
- Increasing Europe’s employment rate to 70%
- Increasing Europe’s R&D spending to 3% of GDP.
It’s now 2014 and Europe is far from the bright, futuristic, techno-wonderland imagined in the Lisbon Agenda. So, what happened?
Even before the global financial crisis derailed things completely, the Lisbon Agenda had already been found wanting by the mid-term review held in late 2004, known as the Kok Review. The subsequent re-launch led to a reduction in the number of targets, but still emphasised the need to transform Europe’s economy in order to ‘save’ (or reform) the European Social Model. As before, we know that even the revised Lisbon Agenda failed to turn Europe into a hub of high-technology industries and innovation.
In light of this failure it’s interesting and important to analyse what the Lisbon Agenda has actually done to the European economy. What I present below is one possible answer to that question drawing from a recent co-authored article.
Europe’s economy changed quite significantly between 2000 and 2008 when, of course, the global financial crisis changed everything. However, these changes, when compared with the specific Lisbon targets, show that Europe didn’t turn into the world’s ‘most competitive and dynamic knowledge-based economy’:
- Europe’s labour productivity didn’t improve; it actually fell further behind so-called competitors like the USA and Japan.
- GDP growth didn’t reach 3% per year, but stayed around 1.8%.
- The employment rate rose to almost 68%, but didn’t hit the 70% target.
- The new jobs that were created, however, were more likely to be part-time and temporary than new jobs created in the USA and Japan.
- Average pay fell further behind the USA.
- There was no increase in high-tech employment, which remained stagnant.
- R&D spending stayed remained at about 2% of GDP.
What’s most surprising, though, in light of the Lisbon Agenda’s purported goal to stimulate and support high-tech, innovative industries and employment were the following two trends:
- Europe’s fastest growing employment sector was finance, insurance and real estate.
- Europe’s best-paid employees worked in finance as well, not in high-tech sectors.
These trends imply that Europe’s economy had actually financialised during the 2000s, rather than Lisbonised. In order to understand these changes, it’s important to look at how the Lisbon Agenda was tied to the restructuring and transformation of Europe’s financial sector and financial markets.
The Lisbon Agenda was underpinned by a number of assumptions about what made the American economy so dynamic and innovative. In particular, there was considerable emphasis on the role of venture capital and financial markets as the critical driver of innovation, especially in high-tech sectors. This is evident in how the Lisbon Agenda characterised financial markets:
Efficient and transparent financial markets foster growth and employment by better allocation of capital and reducing its cost. They therefore play an essential role in fuelling new ideas, supporting entrepreneurial culture and promoting access to and use of new technologies … Furthermore, efficient risk capital markets play a major role in innovative high-growth SMEs [small and medium-sized enterprises] and the creation of new and sustainable jobs.
These assumptions legitimated and supported ongoing efforts to restructure Europe’s internal financial markets, especially in terms of promoting the liberalisation and integration of them across borders. As a result, the Lisbon Agenda helped to promote the Financial Services Action Plan (FSAP, 1999-2004) and the Markets in Financial Instruments Directive (2007). This transformation of European finance was meant to encourage and support high-tech innovation and high-tech sectors, as exemplified by the European Commission’s position in the 2005 Financial Services Policy white paper:
Financial markets are pivotal for the functioning of modern economies. The more they are integrated, the more efficient the allocation of economic resources and long-run economic performance will be. Completing the single market in financial services is thus a crucial part of the Lisbon economic reform process; and essential for the EU’s global competitiveness.
What happened, then, was that the Lisbon Agenda became tied to the expansion and liberalisation of finance as the dominant sector of the European economy. It has in effect helped to embed a finance-driven regime at the heart of Europe’s economy. Despite the best-laid plans of the visionaries of a post-industrial future, it seems that it’s not the scientists or inventors who have inherited the earth; it is instead the bankers and their ilk.
About the author
Kean Birch is the author of We Have Never Been Neoliberal: A Manifesto for a Doomed Youth from Zer0 Books.