I thank the Chairman. Good morning everybody. I would particularly like to thank the Chairman for giving me what, in public speaking terms, is known as the "rabbit slot". It is called that because the rabbit is the only animal known to man who can sit bolt upright with eyes wide open while being fast asleep. After what I believe was a very good night in Farmleigh, there may be a few rabbits around here and I will be looking out for them.
As the Chairman said, my background is marketing. We marketeers have some unusual hobbies. One of mine is that I collect personal announcements in provincial newspapers, which are a most effective form of marketing. I find the collection of them is almost a compulsion and I have collected some unusual ones. I would like to share a few of them with the group which, if this does nothing else, it will probably test the instantaneous translation. Those present have had an easy morning so far, therefore I will test them. I will share a few of my favourite small advertisements from newspapers, and as this is an international community, I will refer to some from publications around the world. First, a small advertisement from an Irish newspaper states, "To all our patrons, this week the Saturday matinee will be held upon Tuesday, instead of Thursday". One has to be Irish to understand the thinking behind that one. For our UK colleagues, a small advertisement from a Scottish newspaper states, "Notice to ship in bottle makers, free service, young man accepts full bottles of whisky, returns them empty, ready for insertion of ship - prompt, conscientious work guaranteed". That is innovation and creativity, the likes of which we need more.
Another small advertisement, with a certain directness, from an Irish newspaper states, "Farmer, aged 38, wishes to meet woman around 30, who owns tractor, please send photograph of the tractor." The Tánaiste talked a good deal about America. I have two small advertisements from American newspapers which symbolise the American way. The first will test the translators. It states, "Important notice - if you are one of the hundreds of parachuting enthusiasts who bought our course entitled "easy skydiving", please make the following correction, on page 8, line 7, change the words "State zip code to "pull ripcord". That is a pretty important piece of information. A small advertisement in the New York Times states, “For sale, entire set of encyclopaedias, 45 volumes, excellent condition, $1,000, got married last week, wife knows everything.” That is what marketing does for one.
The Lisbon Agenda has one unusual feature, at least where European policies and programmes are concerned. It has a simple description, consisting of only a couple of dozen words which more or less anyone can understand. I refer to the now famous formula that the aim of the agenda is to make Europe, "the most competitive and dynamic knowledge-based economy in the world by 2010". All business endeavours should have what is know in the business community as a BHAG - a big, hairy, audacious goal. Perhaps the most famous BHAG of all time was President Kennedy promising, in the early 1960s, that the US would put a man on the moon by the end of that decade. Sadly, he did not live to see Neil Armstrong take that "giant step for mankind" in 1969. However, he proved the value of a BHAG. Now, with the Lisbon agenda, the EU has its own very welcome BHAG.
It is a deceptively simple aspiration. However, it raises as many questions as it attempts to answer. Behind the targets and objectives of the agenda are the key issues of where Europe stands now in the world of technology and competitiveness and where exactly it should seek to be. The formula gives quite a few hostages to fortune. There is the definition of "the most competitive economy". How is that to be measured and who is to measure it? There is also a remarkably precise deadline of 2010. Will a result, as they say in the football world, be declared and, if so, by whom? If it cannot plausibly be claimed that the objective has been achieved, will that be put down as another European failure by Europe's rivals and critics and add to despondency among its friends and supporters? That would be the wrong reaction.
The leaders of Europe did the right thing in setting some fairly precise targets at Lisbon. This gives extra political impetus to the project, along with the commitment to review it at the annual spring summit. Without such impetus, in all probability we would not still be discussing the progress of the agenda. It would have disappeared back into the diverse national politics of Europe and, perhaps, like monetary union for many years, it would remain an aspiration whose time, thankfully unlike monetary union, might never come.
Instead, we have clear objectives, even though we know they are not all being achieved according to schedule. Already there is talk that Europe will not be the world's most competitive knowledge-based economy by 2010, but I suggest that such talk is foolish. First, achieving competitiveness and maintaining it, as anyone in business knows, is a permanent task and challenge. There is never a moment or a year when one can sit back and say, "I am now the best in the business and I can relax." Whatever we succeed in doing by 2010, there will be just as much left to be done. That is the nature of the world in which we live.
Second, it is foolish to take too seriously a phrase such as "the most competitive economy". It is fine as a headline, but not as a serious statement of policy. Like companies, countries - even the European Union - have particular competitive strengths. They must capitalise on those strengths and make the most of them, improving their competitiveness where they have advantages and abandoning other areas to those who have advantages in them. People may have fun drawing up annual lists as to who is the most competitive at a business or national level, but fun is all it is. Competitiveness is a holy grail. We are absolutely correct to pursue it. However, to be competitive Europe badly needs to have a competitive currency which clearly it does not have. There is no argument for the current strength of the euro. There is something fundamentally wrong when someone can fly to New York, stay in a hotel, shop until he or she drops, and return again having saved money. The almost incredible thing about this lever of competitiveness is that Europe has the capability to influence it, both easily and quickly. Failing to do so is, in my view, an "own goal" of monumental proportions.
For Europe, the questions are where its strengths lie and how it can make itself stronger in these areas. What are its weaknesses? Among these, which ones can be turned into strengths, and which are endemic weaknesses where the business, in effect, should be closed down? Not only are these difficult questions but the answers can be uncomfortable and sometimes unpleasant.
As the Tánaiste has remarked, the rise of China and of India as global economic powers provides a dramatic illustration of these points. Already, China's output is larger than that of Germany. If it continues to grow at 7% per year - and there is no theoretical reason it cannot - that output will double in a decade. It will be built on a cost base which the rich economies cannot hope to match.
This is certainly a threat but it is also an opportunity. It will make the world richer - a great deal richer. The peoples of China and India will emerge from the abject poverty of the past. This is a good thing. However, I would welcome a more level playing field in terms of environmental practices, labour practices, ethical standards and the protection of intellectual property rights. The World Trade Organisation has a major role to play in this regard. Nevertheless, the incomes of the rich world will be enhanced by a flood of lower cost products and services which these new economies can and will provide.
Governments, firms and social partners in Europe and elsewhere must face the fact that they cannot compete directly with these new economies in many areas, especially in basic manufacturing. Instead, they must seize the opportunities provided by millions of new consumers, thousands of new suppliers and hundreds of investment possibilities. Europe must look to its strengths and seize these opportunities, by keeping open its markets while offering competitive products, services and investment of the kind the new economies will require as they become richer and more sophisticated.
Let us make no mistake about it - Europe has many strengths. It has world-beating technologies, from aviation to genetics. Its universities conduct world-class research. It is home to several of the world's biggest banks. Most striking of all, it has a commanding position in being home to many of the world's leading brands, such as Mercedes, Nestle, or - dare I say it - Waterford Wedgwood. It can match the United States in the range of products which consumers around the globe not only wish to buy but will pay a substantial premium price to acquire.
We must be honest and admit that a great deal of change in Europe is driven by perceived weaknesses compared with the US. I say, "perceived", because, while there are undoubted European weaknesses, they are not always the ones which are commonly portrayed.
Too much attention is paid to raw comparisons of economic growth. The US simply has higher growth potential than Europe because of its expanding labour force. This demographic fact is not a European "weakness". There is no reason to concede more than America's natural advantage in economic potential. That is why the Lisbon proposals for reform of the labour market are important. There is untapped labour force growth in the low employment levels of Germany, France and Italy as well as in many of the countries joining our enlarged community. The high employment levels of Denmark, the Netherlands and Sweden show that more jobs are not incompatible with the European social model.
The agenda's objectives for improving skills and lifelong learning are enormously important. Some economists call the combination of the numbers plus skills the "effective labour force". It is, perhaps, the biggest single explanation of the Irish economic miracle of the 1990s. Certainly, we in Waterford Wedgwood firmly believe in and are totally committed to the concept of lifelong learning. For example, we employ some 1,500 people in County Waterford. To date, more than 900 of those 1,500 people have completed some form of third level education in recent years and have achieved either diploma, certificate, primary degree or a master's degree. The individual provides the time and the commitment. The company not only funds the courses - most of them at our neighbouring Waterford Institute of Technology which plays such a pivotal role in the infrastructure of the south-east region - but also provides an active network of mentoring and encouragement. The impact of this programme is incalculable; it enriches everybody - intellectually, economically and, most of all, spiritually.
Other measures outlined in the Lisbon Agenda would also enhance economic growth. These include the opening of telecommunications markets, consumer competition in gas and electricity, and full liberalisation of air transport. There are other less glamorous sectors where deregulation and competition could make a significant contribution to growth and employment in many countries. One thinks particularly of some parts of the retail sector.
It is worth stressing that, although we speak of Europe for reasons of convenience and politics, the performance of individual countries can vary enormously, as it does among the states of the United States. In a wide range of measures, from employment growth to company profitability, the best EU countries outperform the US. The spread between best and worst is wide and the EU average is consistently below that of America. There is clearly scope for European countries to look at the best performers in each category and learn from them.
I have no doubt that better economic growth would remove much of the questioning in Europe over its role and destiny. The last few years, when the US averaged growth of approximately 3% per year while the EU failed to reach 2%, left a slightly bitter taste. Reform is necessary to improve that performance. I believe there is a deeper worry driving the Lisbon process - a feeling that Europe is being left behind in the technology stakes, that it is losing its former position as a rival to the United States and Japan in the development of the products and processes of the future.
We must be careful to avoid fads and fashions here. In the 1980s, America was seen as the technological loser. Its research was too driven by defence requirements, the theory went. The Japanese and the Europeans were seen as leaders in the technologies which produced products people actually wanted to buy. The 1990s changed all that. Information technologies provided the new paradigm, and the US led the world in those. Many of the hot products of the 1980s, such as super-computers, turned out not to be so hot after all. The world of the Internet was, and is, a largely American world.
The lesson is that it is difficult to predict successful technologies. There is the famous Western Union memo of 1876: "The telephone has too many shortcoming ... the device is inherently of no value to us." Then there was Darryl F. Zanuck, the legendary head of 20th Century Fox who said in 1946, "TV won't hold onto any market it captures. People will simply get tired of staring at a plywood box every night." We all know the story of the head of International Business Machines who thought there would be no more than half a dozen customers for computers. The Americans sold the rights to the transistor to the fledgling Sony Corporation because they could see no commercial use for it.
It is equally true that technologies which are widely admired run into the sand. At one time, the smart money was on steam-powered automobiles rather than the difficult internal combustion engine. Post-Concorde, there is no supersonic airliner, and little prospect of one.
The US does have an advantage in this unpredictable world. It is not necessarily because its research is better, or even more successful. Germany registers more patents per 10,000 inhabitants than the US. It is because its system is better adapted to the development of new ideas across a wide spectrum of research, and to providing the finance to turn those good idea into commercial realities. In short, it is more entrepreneurial and has a more efficient capital market ready to respond to such entrepreneurial flair and willingness to take risks. In this regard I always have been impressed by the words of that fine American writer, Brooks Atkinson, when he said:
There has been a calculated risk in every stage of America's development
The nation was built by men who took risks
- by pioneers who were not afraid of the wilderness
- by businessmen who were not afraid of failure
- by scientists who were not afraid of the truth
- by thinkers who were not afraid of progress
... and by dreamers who were not afraid of action.
Some of the most critical parts of the Lisbon agenda are those which seek to create a wider and more efficient capital market in Europe, and to improve the connections between that market and research establishments, with closer links between knowledge institutions and industry. Of these several goals, the creation of a single capital market is undoubtedly the most difficult. More progress has been made on the agenda's targets for innovation and research and development but I am not sure that these targets are ambitious enough. We need to think harder about how world class universities and institutions are to be funded and the relationships between the world of academia and profit and production.
As for the proposals on capital markets, they may be less eye-catching than other parts of the agenda but the importance of getting them right cannot be underestimated. Neither can the difficulties. European countries have very different traditions in the workings of capital markets and it is not easy to marry them. A recent, perhaps controversial, analysis by Goldman Sachs claimed that inefficient allocation of capital was the root cause of Germany's recent poor economic performance. It stated capital was, in effect, subsidised, leading to over-investment and poor returns. The same criticism has been levelled at the Japanese system.
I am not in a position to say if these criticisms are valid. I am well aware that many Europeans are equally critical of what they see as the fraught and short-term nature of the Anglo-Saxon financial model. I am no Anglo-Saxon but I am an inheritor of that system and work under its disciplines. From that perspective, I have to say attitudes to mergers and acquisitions in certain continental European countries are a startling illustration of the work yet to be done in creating a genuine European capital market.
The particular concern of the Lisbon process is the provision of development capital for new and small enterprises. Progress has been made in matching the two - more can be made - but there is a limit to what institutional change can do. Ultimately, we must create a market where capital looking for a return can be matched to businesses looking for finance, to the mutual benefit of both. Such a market will have to meet the peculiar needs of fast growth and high risk technology companies if a thousand flowers are to bloom, and the lucky few hundred are to produce seed.