How we can compete with China
By Prof. Roland Berger
China is growing at an astounding pace. In 2006, its economy expanded by 13.6% – nearly three times as fast as the world economy. At this rate, China will overtake Germany in 2008 and become the world’s third-largest economic power. The Middle Kingdom has long since graduated from low-cost workbench to "high-tech bazaar economy". Of the value that goes into Chinese high-tech exports, 84% is first imported from abroad and then assembled or manufactured in China. In 2007, China will export more than the US. A year later, it will take over from Germany as the world's largest net exporter. India, Russia and Brazil, too, are catching up with the leading industrialized nations. By 2025, these four countries will account for around 40% of the global economy.
Globalization is not a one-way street, and the rise of the emerging countries is unstoppable. And thank God, because globalization is increasing prosperity worldwide. However, if we want to keep our place on the world's A-team, we Europeans have a lot of work to do. Above all, we must promote the knowledge and service economy more energetically. In the US, the service sector already contributes almost 80% to value added. At present, the EU-25 countries lag behind at just 71.3%. We must press ahead in implementing the Lisbon Agenda to turn the EU quickly into one of the most competitive economic areas in the world. Investing in forward-looking technology, spending more on research, development and education, and taking political steps to promote innovation and create jobs will all help. In addition, each EU member state is drafting its own program of national reforms. That will further encourage competition.
There is no shortage of European success stories. Since the mid-1990s, Ireland has evolved from being one of the poorest countries in Europe to a showcase economy that is growing fast and has reached full employment. The groundwork was laid by an austerity policy to clean up the public budget, wage restraint on the part of the unions and tax breaks on net wages. Finland, too, has revamped its economy and now pumps 5.8% of GDP into education every year. The results speak for themselves: Finland topped the list in the PISA study, and hardly anyone leaves school without a certificate. In the UK, rigorous privatization and an open, flexible labor market have, since the 1980s, laid the foundation for a stable economy with low unemployment, low interest and virtually no inflation. Now, Germany – a high-wage country with limited natural resources – must likewise tread the path of research and innovation if it is to compete with the rest of the world. This will require greater efforts, greater dedication and a more competitive education system.
(This column was published in "Rheinischer Merkur" on March 9, 2007)
