GOLDEN GROWTH
This chapter assesses the performance of European enterprises over the past decade, asking and answering four questions: · What does Europe expect from its enterprises and do they fulfill these expectations? Enterprises in Europe are expected to generate new employment, make jobs more productive, and export a large share of their output. European enterprises have generally delivered on these expectations, though recently there have been signs that in some parts of Europe—notably the south—enterprises are failing to deliver two or more of these three goals. · How have European firms done in an enlarged Europe? While regional discrepancies exist, European firms benefit from a bigger and more diversified market. Enterprises in the new member states have become part of the panEuropean supply chain, helping them restructure their production systems and increase their exports. Many Western European enterprises responded well to the growing competition in global markets (especially from East Asia) by investing in emerging countries in Europe and moving parts of their business eastward. However, Southern Europe has neither attracted investment nor taken advantage of the offshoring opportunities presented by cheaper eastern economies. · Why did some parts of Europe do better than others? This question is answered along two perspectives: geographic (a three-speed Europe); and the benefits and drawbacks of foreign direct investment (FDI), offshoring, and lower quality of regulations. Countries with more efficient regulatory systems did best in increasing productivity. This helped them become internationally competitive, raise exports, and sustain job creation. These countries had entrepreneurial profiles that were better suited for ever more integrated European markets. In particular, they had a critical mass of large enterprises. Regulatory arrangements that made complying with laws easy and did not penalize enterprises that grew, as well as supporting policies that attracted foreign investors, were most important in helping enterprises balance social responsibility at home and competitiveness abroad. · What is the relationship between business regulation and enterprise growth? The answer is a little different looking east (emerging Europe) or west (Continental and Northern Europe, and Southern Europe). In advanced Europe, reducing the regulatory burden on firms increases their productivity and brings about a size and sector distribution of enterprises that is most conducive for a single European market. An efficient—not necessarily lighter—regulatory framework is needed for firms to reach the minimum size required to operate internationally, especially to attract FDI. In emerging Europe governments can also support enterprise through improved infrastructure and better access to credit to finance investments, which are common features of the best-performing countries. In short, an economic model that requires enterprises to be socially responsible can be compatible with a vibrant private sector if it is supported by a simple and efficient regulatory framework. Not all countries in Europe have managed to strike this balance. Regulations still impede enterprises in some countries, preventing businesses from taking advantage of a more integrated Europe. Nevertheless, this chapter concludes that outside the EU15 southern states,
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