Thursday, 19 May 2005

The Lisbon Strategy or a Lisbon Tragedy?

EUOBSERVER / COMMENT – The agenda of the latest EU summit focused on two key issues: the services directive and the criteria of the Stability Pact.

However, preparations for the summit provoked heated discussions about the Lisbon Strategy and its future in the EU and the European Parliament.

President of the European Commission Jose Manuel Barroso pointed out, with good reason, that the prospects of implementing the Lisbon Strategy depended on the services directive.

The summit is over and it is already clear today that the prospects of the services directive are dismal, while the newly adopted changes to the Stability Pact, which are called exemptions, will acknowledge de jure the financial instability of several of the EU member-states and allow the European Commission to turn a blind eye to it.

Although upon the accession to the European Union many of the new member-states proclaimed their aspirations to join the European Monetary Union as soon as possible, the adoption of the exemptions in question raises serious doubts about the euro as a stable and credible currency given that every year more and more countries fail to comply with one or even several of the Maastricht criteria.

After the membership agreements are signed with Bulgaria and Romania, not only the European Commission but also all of the member states are likely to be faced with more economic, social and border security concerns.

What is in store for the European Union and the Lisbon Strategy if the underlying principles of a single market and transparent and stable public finances of the member-states are so easily flouted?

At a recent discussion of the Lisbon Strategy, authoritative experts made a foregone conclusion that the Lisbon Strategy had died. For many, this opinion may appear to be unexpected and unacceptable at first glance. But let’s look at the results of the first five years of implementing the Lisbon Strategy and its prospects.

Management or political declarations?
A strategy is an established term in management theory and practice. It is about drawing a clear action plan that reflects and is in line with rationally assessed circumstances and resources.

The principle of open coordination, which underlay the implementation of the Lisbon Strategy from the very beginning, is in principle unsuitable for handling any kind of strategy.

For this reason the implementation of the Lisbon Strategy was from the very start nothing but free “drifting” of the member states towards objectives that were set by way of political compromise and therefore often appeared to clash with one another.

Developing a strategy for the whole of the European Union and setting detailed objectives that are directly independent of government authorities is unfeasible if only because economic and social processes, which are spontaneous in their essence and are only indirectly affected by government and actions, cannot be an object of strategic planning.

If strategic planning were applied to social and economic processes at the national level, such planning would lead to totalitarianism and social engineering.

So the Lisbon strategy is unfeasible because its object is not a specific organisation like, the European Commission, but the whole European Union and its economy.

For the aforesaid reasons even appointing responsible officials “Mr or Ms Lisbon” in the member states cannot serve as a part of the salvation plan for the strategy. Rather, this would inflict more bureaucracy on good initiatives and discredit them.

The strategy’s Achilles’ heel
The old EU member-states differ in terms of their economic capacities to achieve the social goals and specific indicators. For Portugal, Greece and even Spain, economic growth is today task number one because these countries would simply lack the resources necessary to accomplish other objectives.

As the strategy was created without allowance being made for the accession of the new member-states, there is a programmed gap between the Lisbon Strategy and the strategic goals and policy measures pursued by the newcomers.

Another problem is with the sectoral view on specific parts of the strategy and a lack of clear priorities. This creates conditions for institutional contradictions in implementing the strategy by the member states, while an absence of a coordinating centre and a lack of interim evaluations make any goals or assessment tools meaningless.

It is regrettable that the integration process, which was evident enough at that time, was neither assessed nor taken into account while developing and implementing the strategy.

The revamped strategy promises some change
There is no doubt that the revision of the strategy brought in positive changes.

The main strength of the updated strategy is the focus on economic growth as compared with the goals of social cohesion and sustainable development.

Scrapping the declarative goal of becoming a world leader and cutting down the objectives were certainly positive moves.

The deplorable results of the first five years led to necessary changes in administering the strategy too. The open coordination principle was foregone in favour of direct dialogue between the member states and the Commission. This is likely to enhance administrative effectiveness.

It is not clear whether the consolidation of the administration of the Lisbon Strategy and the appointment of a responsible minister in each member state will become positive factors.

After all, this means creating another bureaucratic structure whose effectiveness will depend on the political will of the national government and parliament. It is not clear whether a local “Mr or Ms Lisbon” will manage to put the Lisbon goals above national political or economic interests.

However, a single national plan and a single report (a sectoral principle was applied before) will facilitate the task of assessing the effectiveness of the plans and policy measures used.

The fundamental flaws remain
The main shortcoming of the updated strategy is that economic growth, which is emphasized in the strategy, is not viewed as the foundation of any social or environmental objectives.

This causes parallelism between the objectives, just like the previous version declared a pro-active position in those areas where economic processes occur spontaneously (such as competition, business and science relationships).

With regard to the compatibility and links of the strategy with other key reform initiatives, it is alarming that no attention is paid to structural reforms – like CAP reform.

Likewise, it is unclear whether constantly cited investments in R&D will not distort the market and whether they will be effective if used by public scientific and educational establishments; especially in the new member states.

It is regrettable that making assessments in terms of budget expenditures (e.g. 3 percent of GDP for R&D) rather than in terms of the effectiveness of the goals achieved and the measures used to achieve these goals is still a popular practice.

In addition to that, the strategy contains not only parallel but also opposite objectives -for example, maintaining jobs and to achieve a flexible labour market. Although the updated strategy emphasizes the role of social partners, the recent terror that trade unions in the old member-states employed against companies in the new member-states shows that labour mobility and competition will be strongly resisted.

The opposition against the services directive that had been unleashed before the recent summit in Brussels shows that reluctance to compete is the biggest obstacle to economic growth and the development of the single market.

The state or state-funded services sector and trade unions in the old member-states have been the biggest drag on economic growth, and these forces are likely to hinder the implement
ation of the Lisbon Strategy.

Given the inherent contradictions and weaknesses of the strategy plus the unfavourable external environment, this plan might become a “Lisbon tragedy” rather than a strategy for EU salvation and economic growth.

Ugnius Trumpa (pictured) is President of the Lithuanian Free Market Institute, a private non-profit, non-partisan think-tank based in Vilnius, Lithuania.
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