University of Miskolc, 5-6 September, 2018. ISBN 978-963-358-162-9
CHANGES IN THE RELATION SYSTEM OF COMPETITIVENESS AND SOCIAL COHESION IN THE EUROPEAN UNION
Dr. Zoltán Eperjesi college senior lecturer
Wekerle Sándor Business School, Budapest
INTRODUCTION
In my current study, I deal with today's current issues, which encompass the whole of the society and economy. In the first part of the study, I deal with the European Union's competitiveness and cohesion policy in greater depth. The thesis is rather current, because the weight of the bureaucratic coordination in the allocation of public resources has significantly increased in the near past, which is often done at the expense of efficiency.
In today's globalizing world of increasing competitiveness, the European Union’s situation is becoming increasingly difficult; because it needs to increase its competitiveness against other economic centres of the world and it should take effective action to achieve regional and social cohesion within the EU. Solving the dual task is really challenging, since falling behind the world’s market leaders obviously leads to further deepening regional and social disparities, while cutting back the social gains achieved so far will lead to very high social tensions within the EU member countries.
As for the social cohesion, we definitely need to discuss the recently joined EU Member States, who are naturally interested in creating social cohesion. In the enlarged European Union, duality and increasing tension are observed in the field of social cohesion. On the one hand, the countries of the old Member States, the countries of the strong core try to maintain their own welfare political system, while the new Central and Eastern European countries are interested in the long-sought catching up.
Amidst the satisfaction of the requirements of the changing world order, the public opinion of the European Union’s core countries is increasingly hostile to the support of the newcomers. We must remember that the EU core countries are facing a structural transformation as well, and unlike the Central and Eastern Europe ex- socialist countries, they are starting to feel the winds of social insecurity just now.
Naturally, the world’s economic and financial crisis a few years ago has accelerated the inexorable pressure for a structural change, and it is clearly difficult to be confronted with it in a 40-year-old welfare state.
Obviously, there is conflict between the goals of competitiveness and the social cohesion. The Lisbon Strategy and the Europe 2020 Strategy clearly place the emphasis on the increase of competitiveness. The rapid building and strengthening of a knowledge-based information society, and an economy-based, export-oriented industrial production and services pose a major challenge to the prevailing European governments in the reintegration of the decaying social strata.
DOI: 10.26649/musci.2018.055
2. THE OBJECTIVE OF THE RESEARCH
The scientific thesis aims to provide a comprehensive view - especially about the improvements promoting long-term profitability, sustainable growth and social cohesion – and about the change of the engagement of state and multilateral, as well as of national development banks after the World War II. Based on the processing and synthesis of the national and international literature on the European Union and on the multilateral development banks’ policy, the research is being conducted along the following hypotheses:
Hypotheses
- Hypothesis 1: The European Union cannot simultaneously increase its competitiveness and strengthen its economic, social and territorial cohesion under the circumstances of intensifying global economic competition. – - Hypothesis 2: The European Union's Europe 2020 Strategy puts all the
emphasis on the increase of competitiveness, and therefore cohesion is relegated to the background.
- Hypothesis 3: The pressure to improve competitiveness and the global economic crisis enforce very careful and prudent development policy under state supervision, but operating under market coordination.
- Hypothesis 4: A paradigm shift is outlined in the European Union's development policy. The development policy operating on the foundation of market mechanisms will be determined by the factors of competitiveness. It will be essential to move from bureaucratic coordination towards market coordination in the allocation of EU funds.
- Hypothesis 5: Highlighting the competitiveness is disadvantageous for the new Member States as regards the economic convergence.
Social cohesion is not only important because social differences cause social unrest, but also because that lack of social cohesion is an impediment to economic development. For this reason, the Lisbon Strategy and the Europe 2020 Strategy set out the objective that the employment in the age group between 20-64 years should reach 75% in the European Union. Reducing unemployment is therefore an important indicator of the strengthening of social cohesion.
3. RESEARCH METHODOLOGY AND DATA SOURCES
The thesis is essentially theoretical in nature; therefore, it is based on secondary sources. The study is multi-disciplinary in nature; it has required the acquisition of a certain level of legal and political knowledge in addition to the economic knowledge.
The used bibliography is rather manifold as the subject is multi-disciplinary in nature. The first group consists of professional guides, journals, and analyses, studies, annual reports, and volumes connected to various research institutions, public institutions, offices, and industrial consultancy firms. I would like to
emphasize the European Commission’s reports on economic, social and territorial cohesion.
The second group of the literature used is comprised of quarterly and annual reports, financial statements, press releases, presentations, publications, project descriptions, statistical summaries published on the official websites of European Union’s institutions, and various multilateral and national development banks. The in-depth analysis of the social and economic developmental programs presented in the European Commission's Lisbon Strategy, as well as in the Europe 2020 Strategy were essential for this thesis.
4. THE MAJOR FINDINGS OF THE THESIS
With the re-launch of the Lisbon strategy, the cohesion policy focuses much stronger on the creation of a knowledge-based economy, the importance of research and development, and of innovation. It is an important new development that the community and the national development policies consider the protection of the environment as a means of growth generation, which enhances competitiveness and increases employment. I present the distribution of the resources of convergence and regional competitiveness during the period 2007-2013 in Table 1.
The European Union’s financial framework in years 2007 to 2013 (million EUR at 2004 prices)
Table 1 Description 2007 2008 2009 2010 2011 2012 2013
2007–
2013 1. Sustainable
growth 51 267 52 415 53 616 54 294 55 368
56
876 58 303
382 139 1.a.
Competitivenes s for growth and
employment 8 404 9 097 9 754 10 434 11 295
12
153 12 961
74 098 1.b. Cohesion
for growth and
employment 42 863 43 318 43 862 43 860 44 073
44
723 45 342
308 041 2. Preservation
and
management of natural
resources 54 985 54 322 53 666 53 035 52 400
51
775 51 161
371 344 Of which:
market related expenditure and
direct payments 43 120 42 697 42 279 41 864 41 453
41
047 40 645
293 105 3. Citizenship,
freedom, 1 199 1 258 1 380 1 503 1 645 1 797 1 988
10 770
security and law
enforcement 4. The EU as a
global factor 6 199 6 469 6 739 7 009 7 339 7 679 8 029
49 463 5. Management 6 633 6 818 6 973 7 111 7 255 7 400 7 610
49 800 6.
Compensations 419 191 190 - - - - 800
Total
appropriations for obligation:
120 70 2
121 47 3
122 56 4
122 95 2
124 00 7
125 527
127 091
864 316 As a percentage
of GNI: 1,100 1,080 1,070 1,040 1,030 1,020 1,010 1,048 Source: [1] Borkó – Fodor – Oszlay, 2007, 6.
In Table 2 we can clearly observe that the Central and Eastern European ex-socialist countries and the Mediterranean countries, except France and Spain, spend their share of resources on cohesion and convergence targets [2]. A minimum resource allocation is made only in the Czech Republic and in Slovakia in favour of the objective of competitiveness. There is a reverse situation in the EU’s developed core regions, where a substantial percentage of the resources is used to boost competitiveness.
Very important conclusions can be drawn from the following self-compiled table regarding the relevant innovations’ convergence, competitiveness and the rate of territorial cooperation within the targets. 60% of the resources for convergence objectives is used in the new Member States and the remaining 40% is used in the old Member States. 22% of the sources for convergence objectives is used in the EU Member States for innovation purposes. For the old Member States, this ratio 25.26% and it is 19.75% for the new Member States.
Within the objectives of the regional competitiveness, the rate of innovations is much more dominant in the old Member States – it is 39.53%. The allocation of resources for innovations is much more important in the old Member States than in the new ones. Within the objectives of competitiveness, the old Member States spend 40.26% of their share of allocation on innovation, while the newly joined ones only 28.8%. Within the innovations, the resource distribution for human resources development is more conspicuous. The old Member States spend 11% of their innovation funds on human resource development, while the new Member States spend 3.56% on it.
In the second paragraph of the chapter, I am dealing with the European Investment Bank’s financing strategies, as well as with its resource allocation. The EIB's strategic policies and business policy clearly show the Europe 2020 Strategy, adopted in 2010. The bank has established a special working group to match the bank’s products and services as perfectly as possible to the transport, R & D, innovation and environmental investments. The bank adopts the strategy of inclusive, internal growth, which aims at achieving high employment, economic, social and territorial cohesion. The biggest challenge for the EIB financing is to
increase employment and productivity within the framework of the so called knowledge triangle, which includes strong support for education, promotion of researches, and strengthening of innovation.
The EIB is carrying out substantial technical advising and assistance activities during the preparation of the big investments of the 12 new EU Member States supportable from structural and cohesion funds.
The distribution of the resources of convergence and regional competitiveness in the EU Member States during the period between 2007 to 2013 (million
EUR) Table 2
convergence
Regional competiti-veness
and employ-
ment European territorial cooperatio
n
Total cohesio
n Fund
conver -gence
disconti- nuing subsidie
s
new grants
Regional compe- titivenes s and employ-
ment
Belgium 638 1 425 194 2 257
Bulgaria 2 283 4 391 179 6 853
Czech
republic 8 819 17 064 419 389 26 691
Denmark 510 103 613
Germany 11 864 4 215 9 409 851 26 339
Estonia 1 152 2 252 52 3 456
Ireland 458 293 151 902
Greece 3 697 9 420 6 458 635 210 20 420
Spain 3 543 21 054 1 583 4 955 3 522 559 35 216
France 3 191 10 257 872 14 320
Italy 21 211 430 972 5 353 846 28 812
Cyprus 213 399 28 640
Latvia 1 540 2 991 90 4 620
Lithuania 2 305 4 470 109 6 885
Luxembourg 50 15 65
Hungary 8 642 14 248 2031 389 25 307
Malta 284 556 15 855
Netherlands 1 660 247 1 907
Austria 177 1 027 257 1 461
Poland 22 176 44 377 731 67 284
Portugal 3 060 17 133 280 448 490 99 21 511
Rumania 6 552 12 661 455 19 668
Slovenia 1 412 2 689 104 4 205
Slovakia 3 899 7 013 449 227 11 588
Finland 545 1 051 120 1 716
Sweden 1 626 265 1 891 United
Kingdom 2 738 174 965 6 014 722 10 613
Interregional
cooperation 445 445
Technical
Assistance 868
Total: 69 577
199
323 13 955 43 555 8724 347 408 Source: [2] Cohesion Policy, 2007–2013, 8.
The EIB’s table on performance evaluation shows that the bank allocates 63–66%
of its resources to investments realized to achieve the growth and employment objectives, while the economic and social objective gives about 30% of the total resources during the operating period from 2011 to 2014. It is worth noting that the financing of the knowledge economy was greater during the three-year operating period, than the financing of trans-European networks.
Also during the allocation of the resources of the European Structural Funds and the Cohesion Fund, the impact of the Europe 2020 Strategy is felt very strongly. A new element of the cohesion policy is that territorial cohesion received a central role.
The European territorial cooperation objective supports cooperation and exchanges of experiences between different European regions. Most of the grant is spent on the development of cooperation in border regions.
There were significant structural changes in the resource allocations during the budget periods from 2000 to 2006 and from 2007 to 2013.
During the budget period from 2007 to 2013, it can be concluded that the focus has shifted towards competitiveness. The spending on competitiveness’ appropriations increase by 6-7% on an annual basis at the expense of the common agricultural policy, which decreases by 3% on an annual basis. 81.5% of the amount of EUR 347.410 billion, available for the current budget period, is spent on convergence objectives, 16% on regional competitiveness and employment objectives, while the remaining 2.5% was used for European territorial cooperation objectives.
Analysing the table 3, it can be established that the tendency of the multiannual financial framework 2007-2013 continues during the current multiannual financial framework lasting until 2020 as well. “The most developed member states – who are also the biggest net contributors to the EU’s budget – fed up with flooding the EU periphery with financial support through agriculture and cohesion funds, decided to reduce the total budget and increase their share of the cake. They fund increasingly those common policies where they have better chances to regain their money [3]”.
Having a close look at the table 3. we can see that the total amount of the multiannual financial framework 2014-2020 decreased by 3,7% in comparison to the former financial framework. The table unambiguously shows that the funds for economic, social and territorial cohesion and natural resources (1.b, 2.) were considerably cut. The commitments for Competitiveness for growth and jobs grow
by 37,29% in the current financial framework, strongly underpinning the changing economic paradigm of the European Union, namely the strengthening of competitiveness.
Comparison of the Multiannual Financial Frameworks (MFF) 2014-2020 and
2007-2013 Table 3.
Commitment appropriation
MFF 2014-
2020 MFF 2007-2013
% of MFF 2014-20 from MFF
2007-13 bn EUR % bn EUR % bn EUR 1. Smart and
inclusive growth 450 46,9 446 44,9 0,93 1.a.
Competitiveness for
growth and jobs 126 13,1 91 9,2 37,29
1.b. Economic, social and territorial
cohesion 325 33,9 355 35,7 -8,36
2. Sustainable growth: natural
resources 373 38,9 421 42,3 -11,29
of which: market related expenditures
and DP 278 28,9 337 33,9 -17,47
3. Security
&citizenships 16 1,6 12 1,2 26,85
4. Global Europe 59 6,1 57 5,7 3,32
5. Administration 62 6,4 57 5,7 7,97
Total commitment 960 100 994 100 -3,44
as a % of GNI 1 1,12
Total payment 908 943 -3,65
as a % of GNI 0,95 1,06
Total outside MFF 37 41 -9,54
of which: EDF 27 27 0,59
Total MFF +
outside 997 1 035 -3,7
as a % of GNI 1,04 1,17 -11,11
Source: [3] Miklós Somai (2013): EU-budget: Less money, less Europe? The new MFF seen from the new member states’ perspective, Unia Europejska.pl Nr 1 (218)
5. THE 5 MECHANISMS CONTRIBUTING TO THE EU’S INCREASING COMPETITIVENESS
In the fifth paragraph I describe the five mechanisms by whose help the European Union can hold its ground in an increasing global economic competition. One of the five policy mechanisms aims to widen the political force field [4]. In this area, the formation of the European Economic and Monetary Union and the introduction of the common euro currency were huge achievements. The formation of an independent European Central Bank was to show the EU’s neo-liberal proclamation. Unfortunately, the EU Member States have failed to recognize the opportunities offered by the EMU properly. They failed to reach an agreement on the regulation of the financial markets, and they could not formulate a uniform plan for the supervision of the financial markets. The success of the coordination of the different policy also varies [5].
In the field of environmental protection, breakthrough results could be achieved at a global level, while a number of initiatives have failed, such as the common energy policy. However, we must not forget that the union managed to reach global control in many sectors, such as the food industry, the chemical industry and the telecommunications. Several studies have highlighted, that the internal diversity, still existing in the union, has greatly undermined the union's ability to enforce its control mechanisms at global level. The second mechanism is principal in terms of the EU’s globalisation leadership to develop its own regulatory mechanisms and exert a decisive influence on the global control with their help.
The third mechanism is the involvement and moving of international organizations necessarily belonging to the management of globalization. This mechanism is, in principle, the substitute of the mechanism relating to the extension of the political field, because the global regulations are usually drawn up by international organizations. The EU has often sought to strengthen the positions of international organizations such as the OECD, the IMF and the WTO, and to extend the membership, which paradoxically led to a decreased ability to enforce the union’s interests.
The fourth lobbying mechanism is to extend the EU's regional influence. This mechanism is primarily focused on countries with member state aspirations. The continued expansion contributes to the widening of the EU's sphere of influence, where the EU's policies are adapted to strengthen the global gravity and the expansion of the community. The EU wants to increase its influence in the international organizations by indirect means.
The fifth mechanism focuses on the sharing of the costs of globalization. The management of the globalization does not only mean the creation of the legal framework governing the exchange processes, but also the sharing of the costs and the benefits. The attempts at the redistribution aim to increase social democracy to a global level. Such global redistribution mechanisms are the trade agreements operating on non-reciprocity grounds in favour of the most disadvantaged countries, or initiated by the EU, and the trade aid programs carried out within the framework of the WTO that offers development support to developing countries for better adaptability.
It is difficult to compensate the costs of globalization, because the ideas of supranational institutions conflict with the nation-state visions.
Analysing the Europe 2020 Strategy, it can be stated that while determining the three key priorities, the five objectives and the seven initiatives of the strategy, the European Union has widely considered the theses of the World Economic Forum on global competitiveness. In the European Competitiveness Index, the innovations and the extensive business services do not appear markedly - see the European Competitiveness Index – the Europe 2020 Strategy has determined among its objectives that 3 % of the EU's GDP should be spent on research and development to improve competitiveness. Six out of the seven initiatives focus on innovation and knowledge society: innovation union, digital Europe, resource-efficient Europe, industrial policy developed for the globalization era, young people on the move, as well as creating new skills and new jobs.
7. SUMMARY
Basic objectives of the study include demonstration and supporting by analyses that the economic policy of European Union shows the tendency of giving preference to economic competitiveness over social cohesion more and more strongly. In parallel with it, I demonstrate advancement of market coordination as compared to bureaucratic coordination which is only strengthened by the global financial and economic crisis. Market coordination takes place simultaneously with the establishment of competitive knowledge economy based on R&D and innovations.
Further objective of the study is to demonstrate the European Union’s development policy and detailed analysis of the relationships and connection system between competitiveness and cohesion. In the studies performed in the specific theme, priority is given to inspection of theoretical and practical relationships between competitiveness and social cohesion. In my researches, I also lay great emphasis on the regional dimensions of competitiveness, social cohesion, knowledge economy and R&D. My analyses include the EU’s so-called core and periphery regions, exploration and easement of tension sources between the competitiveness and social cohesion objectives of old and newly joined member states with regard to the economic and social development. My high-priority aim is to analyse directives of Lisbon and Europe 2020 strategies aiming at the increase of competitiveness, tracing the possible future alternatives as well [6].
With the answers to be given to the hypotheses, I wish to show that under the effect of the financial and economic crisis and the stronger and stronger world economy competition the European Union does not have any other choice than to strengthen its own competitiveness at the expenses of the social cohesion achieved so far.
There are more and more serious tensions between the core and periphery regions as well as the old and newly joined member states, since the core states are interested in competitiveness, while the Mediterranean and newly joined member states in the economic and social development.
In the third chapter “Material and Method” I define two determinant economic policy objectives of our era, competitiveness and economic, social and regional cohesion. For the EU decision makers, it means the greatest challenge whether the competitive internal economic space and the social cohesion can be implemented in parallel with each other. The strategy Europe 2020 wishes to achieve that the
European Union can be the most competitive economic integration of the world.
Although the strategy lays great emphasis on the increase of employment and aid of those living in poverty, it can be stated that the strategy is based primarily on the further development of core regions and does not mention the development of newly joined
The expenses allocated for the objective of competitiveness increase by 6-7%
annually in the former budget period at the expenses of the common agricultural policy which decreased by 3% annually.
The amount allocated to sustainable growth remained the same in comparison to the former financial perspective. The competitiveness for growth and jobs target (1.a) received by 37% more funds than in the former budget period 2007-2013. The tendency today to foster the competitiveness appears even more characteristic that between 2007-2013. The trend concerning the cohesion for growth and employment commitment (1.b) coincides with the tendency of the former budget period, namely the cohesion funds decrease. Comparing the two financial perspectives a decrease of 8% can be established. The target „preservation and management of natural resources” shows also a decreasing trend in comparison to the former financial perspective. The trend of the decreasing agricultural funds seems to proceed further.
The multiannual financial framework 2014-2020 of the European Union just strengthens this tendency. Due to the shift from the social cohesion to competitiveness a two-speed or even multi-speed European Union can be foreseen.
The most developed member states, net contributors strive to increase their competitiveness while the Middle-Eastern European and Mediterranean member states are first of all interested in their economic close-up [7]. These developments cause continuous tensions within the European integration.
It is inevitable for the European Union to elaborate effective mechanism to be effective in the global competitiveness.
The European Union needs to extend its political field and exert an effect on the global control through its own regulatory mechanisms. It is impossible to spread EU community policies without continuous, balanced communication with international organisations. Extension of EU influence on the area of non-member states and proportionate distribution of costs of globalisation are also very important to stand in the fierce global competition.
8. LITERATURE
[1] Borkó Tamás – Fodor Krisztina – Oszlay András (2007): Törésvonalak az Európai Unió költségvetési forrásainak elosztásában, a 2007–2013 pénzügyi keretmegállapodás kapcsán. ICEG European Center. Munkafüzet 20. 2007.
június 30. 35 p.
[2] Cohesion Policy 2007–13: Cohesion Policy 2007–13. National Strategic Reference Frameworks. January 2008. Luxembourg: Office for Official Publications of the European Communities. 2007. 78 p.
[3] Miklós Somai (2013): EU-budget: Less money, less Europe? The new MFF seen from the new member states’ perspective, Unia Europejska.pl Nr. 1
(218), http://www.consilium.europa.eu/uedocs/cms- _data/docs/pressdata/en/ecofin/134949.pdf
[4] Wade Jacoby – Sophie Meunier (2010): Europe and the management of globalization, page 305, Journal of Europen Public Policy 22 March 2010 [5] Orfeo Fioretos (2010): Europe and the new global economic order, internal
diversity and liability and asset in managing globalization, 389-399 p., Journal of Public Policy 17 (3)
[6] European Commission (2010): European Commission: Communication from the Commission, Europe 2020 a strategy for smart, sustainable and inclusive growth, COM(2010) 2020. 3.o.
[7] Forgács Imre (2009): Mégsem éjjeliőr? Az európai kormányzás esélyei és a pénzügyi válság, Osiris–Zrínyi Kiadó, Budapest.
