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Vice-President of the European Commission responsible for Industry and Entrepreneurship
"Mission Growth: Europe at the Lead of the New Industrial Revolution"
Brussels, 29th May 2012
As Winston Churchill once said: “Pessimists see difficulties in every opportunity. Optimists see opportunities in every difficulty”. Well, personally, I belong to the latter category.
Europe is facing an unprecedented economic and social situation since the end of World War II. Along with the urgent need to create new jobs and boost our competitiveness, Europe has to confront other vital challenges: the ageing of European citizens in a context of growing world population; increasing pressure on availability of raw materials and energy supplies as well as the need to counter climate change and preserve ecosystems.
In 2020 our world will be very different from today. Global GDP will rise from today's $69 trillion to $121 trillion, with a 76% increase. 70% of the growth will be generated by emerging economies - leading these countries to weigh for more than 50% of global GDP, and China to overcome the European Union (EU). The main reasons behind these outstanding growth rates, with a differential of five points with respect to EU growth in the last ten years, are two in particular: demography and rising internal demand fuelled by the rise in GDP per capita.
World population is increasing at a pace of 70 million people per year. By 2020, Europe will depend on imports for the 80% and 90% of its needs of natural gas and oil respectively. In 2030, global energy consumption will double. Also as a consequence of emerging countries' economic growth, two billion people will reach a per capita income level between $10.000 and $30.000. The consumption of goods will increase exponentially, and so will the demand for energy and raw materials. For example, by 2030 the worldwide number of cars will double, from today's 800 million units to 1.6 billion. In 2050, it will reach 2.5 billion vehicles. In China only, within ten years the amount of cars will increase to 130 million units from today's 60 million, and will total 600 million in 2030.
Should the existing technologies and the current dependency on hydrocarbons (80% of total energy needs) remain unaltered, by 2050 climate-changing emissions would increase by 50%; energy insecurity and difficult access to raw materials, along with market speculation, would pose an increasingly serious threat to the growth of the European economy and the survival of its industrial base.
These are formidable challenges that Europe must tackle with a common effort. Nevertheless, they should also be seen as the opportunity for a positive sea-change, as the chance to attract new demand for goods and services, and to create more jobs. If Europe wants to take this opportunity, politics should play its part, aiming at a new industrial revolution.
The first industrial revolution is often associated with the use of carbon and steam for powering the machines; then the oil age came. The new revolution, boosted by adequate technological developments, should lead towards the gradual substitution of hydrocarbons as our main source of energy, and towards a more efficient and sustainable use of our resources, which will become increasingly scarce.
Our economy as a whole is going through major transformations, with new production techniques based on digital technologies, advanced materials, key enabling technologies (KETs), genome science, space, robotics, renewable energy, recycling and reuse of raw materials.
This revolution will affect many economic sectors: manufacturing, services, energy, raw materials, infrastructure and transport, construction, tourism and chemicals; and it will be propelled by technological development, ability to adapt quickly and the creation of new professional figures. It is also important that we are able to adapt to the demand coming from the market if we want to create new growth and employment.
A key role will be played by bank and finance enabling enterprises to invest in the future and to rip new opportunities.
Policies and investments for research and education will be the key tools for global competition between old and new industrial powers to fight for the leadership in the on-going transformations and exploitation of the huge potential in terms of economy and job creation.
A new strategy for growth based on industrial innovation
The coming years will be crucial for developed countries, as they will have to boost their competitiveness potential in order to attract demand from the most dynamic markets, and to safeguard their welfare state and their living conditions.
Today only 9% of European export goes to China and even less to India, Brazil and other emerging countries. Europe must play this game with greater determination in order to create new jobs and perspectives for the new generations. Several significant studies estimate that millions of new jobs could stem from investing in the green economy and in KETs. But this requires making right and timely choices.
Along with a stable and predictable European legislative framework aimed at orienting the choices of industries and investors, without undermining the potential of these sectors, we need more funds to be devoted to industry- and market-oriented research; more investments in key material and intangible infrastructures, within a European strategy; and we need to target the new occupational demand by providing adequate education and training.
With the Europe 2020 strategy, the Europe is well positioned in order to promote and up accompany the revolution under way. Now it is the time to shift a gear up to get out of the crisis.
Between 2008 and 2009, the United States and China spent $780 and $500 billion respectively in order to boost internal demand and competitiveness and get out of the financial and economic crisis. Out of these amounts, much was spent to promote green economy, finance research and enhance network infrastructures. Europe needs a grand plan for growth, which eases and accelerates the transition towards a more sustainable and competitive economy. This is not about creating more debt. On the contrary, this is about restoring our public finances by using our resources in a more efficient way.
This conference provides the opportunity to discuss the new technological frontiers of this revolution, and to debate over a European strategy aimed at fully exploiting its potential for growth. I would like to thank President Barroso, all the Ministers and business leaders, as well as Mr Jeremy Rifkin. They will contribute to the individuation of concrete proposals to be implemented in order to get out of the crisis, and lead Europe to become once again the protagonist of its own future.
2. The key driving sectors of the new revolution
A more competitive, efficient and sustainable industry
Between 1990 and 2010, Europe’s greenhouse-gases emissions have been reducing sharply (15.5%), despite a 41% growth. Important progress has been made with regards to resource efficiency. In the last twenty years we have experienced an increasing “decoupling” between economic growth and environmental impacts.
Improving resource efficiency within a context of increasing pressure on raw materials and energy supply is crucial not only in order to achieve energy security, but also to defend and boost the competitiveness of the European industry.
Even though significant progress has been made, this is not enough. According to recent estimates, every point of resource-efficiency increase is equal to additional €23 billion of turnover and 150.000 additional jobs. The opportunities offered by improving the efficiency of our resources have therefore to be seen - and exploited - as a key driver of growth.
SMEs: protagonists of the green revolution
Small and Medium-sized Enterprises (SMEs) represent 99% of EU companies and provide 67% of all jobs. A recent study points out that 85% of newly created jobs is generated by SMEs. The way out of the crisis must be based on the support to enterprises efforts to innovate, to improve quality and sustainability and to export. Already in 2014, just by investing in efficiency, renewables, recycling or green goods and services 2.3 million jobs can be created in addition to the 6.6 million already generated.
The car of the future
More than 12 million jobs in the EU depend, directly or indirectly, on the automotive industry. This sector is also the most important private investor in R&D, with a total level of investment amounting to €28 billion every year. Therefore, it constitutes a key strategic industry for growth and industrial innovation. At the same time, it is also facing huge challenges. In 2020, the Chinese market for cars will double and the Indian one will triple. This formidable increase in the demand for cars in the coming decades makes it unavoidable to create more efficient or zero-emission models.
In the Communication on the car of the future the Commission outlines a strategy based on two pillars: continuing to work on improving the efficiency of the warm engine, which will remain the more widespread at least for the next two decades; but getting prepared for the cars of the future, with cold and zero-emission engines. Some studies estimate an EU market, just for the electric car of 170 billion EUR and 110.000 new jobs by 2030.
This higher diffusion of electric cars is fuelled by the gradual disappearance of various obstacles, such as technological barriers, low batteries’ efficiency, high recharging time, missing columns for recharging. Within the Green Cars Initiative several financing lines have been made available to support technological development and pilot projects in the electric car sector. These funds have been provided by the European Investment Bank (EIB) and the EU budget.
EU and China are by now producing the same number of cars but there are big differences in terms of value of cars sold. Only betting on the added value of quality and technology and on the car of the future the EU could keep its leadership in this sector with a strong production base in the EU territory. In the final meeting of CARS 21, scheduled on June 6th, the lines of action for a new strategy for the automotive sector will be presented.
Over the last ten years, the renewable energy sector has experienced a spectacular rise, with growth rates for the solar and wind segments alone equal to 30-50% per year. Emerging sectors such as mini-hydroelectric, submarine turbines, concentrated solar power, the new biomasses, and bio-fuels of second and third generation are attracting huge investments and creating thousands of jobs and new professional figures. Thanks to the application of innovation in the chemical sector and in the KETs green sources would get more and more competitive.
In the EU alone the renewable energy sector has experienced an average occupational growth rate of 11% per year. It is estimated that people employed in the sector will be more than one million by 2020, with a potential of up to three millions and a potential turnover equal to €100 billion per year. The European industry is well positioned to exploit this opportunity, thanks to its current 40% market share and its technological leadership in various sectors. Nevertheless, the competition is fierce, since USA, Japan, South Korea and China are heavily investing in the sector. For example, two years ago China became the first world producer of photovoltaic panels. Conversely, many European enterprises are not being able to keep the pace of the rapid technological evolution of this sector.
A more efficient and safe construction sector
40% of energy and 30% of greenhouse-gases emission is produced within buildings. Future constructions will have to be much more sustainable than today, even in order to follow the requirements set out by the directive on energy efficiency in constructions which will have to be implemented by 2012.
The opportunities for investment and job creation are huge and can be paid back by reducing the energy bill. For example Germany, which is leader in the sector of energy efficiency in constructions, benefits from a market worth more that €400 billion per year and generating 4 million jobs. The Commission foresees that the implementation of the new directive can lead to the creation of up to 500.000 new jobs and savings in energy for five billions a year.
Tourism accounts for 7% of European GDP and is one of the most resource- and emission-intensive sectors, in addition to having a strong potential for growth. Investments in machineries, new materials, restructuring and in professional figures devoted to implementing a better management of resources can lead to the creation of new jobs, make the touristic structures more competitive and mobilize tens of billions of new investments. Furthermore, it could help attracting environment-friendly customers.
It is also essential to attract more tourists from emerging market, by easing visa procedures and promoting voluntary agreements on off-season tourism among operators of the sector.
“Smart Cities” and “Smart Grids”
Cities are the main laboratories of new technologies. It is in cities that 70% of world population lives and more than 60% of energy is consumed. Cities will necessarily need to be reinvented because they produce a great amount of noxious emissions, and because of population growth and the increase in urban concentration.
Buildings, transports, lighting and waste management will have to become more and more efficient and sustainable. The heart of this process of transformation will be constituted by smart grids which constitute the nervous system of tomorrow’s cities, thanks to the combination of digital technologies, satellite applications and electric grids.
Innovation and raw materials in Europe
The supply of raw materials, an essential factor for industrial competitiveness, is getting more and more difficult. In order to boost internal production of raw materials, the Commission has proposed to set up a European partnership for innovation. This is about pooling our efforts to improve the prospection, extraction and treatment of these materials. According to recent estimates, in Europe the total value of unexploited mine sites which find themselves at a 500-1000 meters depth is equal to €100 billion.
New technologies will make it possible to extract materials from deeper deposits, even in extreme conditions. It is also necessary to find adequate substitutes for some essential raw materials, which are getting scarcer and scarcer, as well as to improve the recycling of the minerals incorporated into the electric and electronic devices that EU citizens produce every year (17 kilos per citizen).
Key Enabling Technologies (KETs)
By the end of June the European Commission will adopt a Communication on "A European Strategy for Key Enabling Technologies (KETs) – A bridge to growth and jobs". It will lay down how the KETs, notably micro- and nanoelectronics, advanced materials, industrial biotechnology, photonics, nanotechnology and advanced manufacturing systems, can be better used to give European industry the necessary boost to keep its technological leadership and to regain competitiveness. KETs economic impact at global level was estimated €646 billion in 2008 and is expected to grow to over EUR 1 trillion by 2015.
Today the global satellite navigation market is worth €124 billion, and should double within 2020. More than 6% of EU GDP, corresponding to €800 billion approximately, depends on applications related to satellite navigation, including highly strategic sectors such as networks management, mobility and smart transports. In terms of growth and competitiveness, the European projects currently being implemented, such as Galileo or GMES, can generate extremely positive effects. These are estimated to be equal to €90 and €70 billion respectively for the next twenty years.
3. Role of European policy
A cultural leap
Europe must recover confidence in its ability to invent, to undertake new ventures, to innovate and to grow. For this reason, Europe should put at the centre of the stage the real economy and the industry, its strength. In line with the Europe 2020 strategy, necessary synergies must be ensured between different policies for our industry, the fight against climate change and the conservation of the ecosystem, R&D and innovation, education and training. All these should consider the current changes, in a coherent plan to get out of the crisis.
The "green" market is an enormous opportunity for the industry, with an estimated turnover of €1.000 billion per year in goods and services which is expected to double by 2020. But the revolution in place goes even further. It touches upon the digital economy and the information society which make available and cheaper the access to information and the technological know-how, for example with cloud computing. Printers in 3D which may produce tailor-made objects, self-adjustable machines, the use of robots on the assembly chains, as well as software and materials increasingly sophisticated, applications of technologies space-related, are only a few examples. These changes will be pushed by new ideas and professional roles which will replace traditional production methods and skills. Easier access to credit and risk capital as well as banking and financial system more focused on enterprises keen on new projects will be needed. The ones who will be more open to change and will demonstrate ability to quickly adapt, by seizing the opportunities, those will win.
Therefore, this revolution requires a cultural and mentality change for European citizens as well as more inclination to risk. That means: more widespread entrepreneurial and business culture and a more favourable context for businesses and not hostile to change. The transition towards more sustainability and new production methods foresees an active role for the policy makers. In addition to rules and industrial standards, significant investments and public incentives are required.
Framework and standards to encourage investors
In recent years, a framework of rules and standards has been defined to encourage investment and industrial innovation to support the European leadership in the current revolution.
In this context, it is essential that industry is considered a necessary partner in order to come up with effective and realistic responses to the challenges we are confronting with – including environmental sustainability. We have to avoid excessively costly measures where environmental protection becomes a handicap for industry and not a driver for competitiveness. I believe that going beyond the 20-20-20 in the absence of a global agreement in that sense is counterproductive.
The EU cannot afford to have the highest energy costs in the world. This is one of the main factors behind the delocalisation of our industries, which would exacerbate both the pressure on climate and deterioration of our industrial base.
The European Commission is working to have common EU standards for electric cars and broaden the scope of the Eco-design Directive that would allow for a 12% saving already in 2020 in the total consumption of electricity in Europe. More in general, we have proposed new rules to encourage the adoption of innovative standards at EU level. A greater integration of the internal market with less bureaucracy and the promotion of public procurement geared to innovation will be also essential together with a plan for Trans-European energy, transport and digital infrastructures.
If research and some other investments require a framework until 2050 in the transition towards a more sustainable economy, the crisis requires an agenda – including investments – for the next months.
Boosting industrial innovation
To react to the crisis of 2008, Europe prepared a plan with investments in energy infrastructure and some initiatives of industrial innovation with part of the EU budget and EIB loans. Among these, the car, manufacturing and green construction were included. Some key industrial sectors on which to channel public and private resources were also identified, such as renewable energy, energy efficiency, networks and smart cities. Europe needs to accelerate now and use the forces in place as a way to get out of the crisis.
The recipes are: more EU funds for industrial innovation, access to credit and venture capital, infrastructure and competitiveness – with research more oriented to businesses and the market, even with demonstration and pilot projects close to commercial purposes and concrete applicability. We need to devote a particular attention to SMEs which must have the adequate means in order to adapt to change.
The Commission proposals for the new EU budget in part reflect these priorities, with Horizon 2020 which provides €80 billion for industrial research and innovation, and COSME with more funds for access to credit and risk capital for growth and expansion enterprises, €50 billion for network infrastructures, out of which 10 for Project bonds and regional funds targeted to resource efficiency, innovation and SMEs.
Increasing these investments should not be considered as making the debt or deficit higher, as they are essential to generate more wealth and competitiveness. One the contrary, they would contribute to a better balance sheet by providing rapid returns. I envisage for example a plan for more sustainable and safe constructions or more in general for the partial reconversion of our industry towards improved resource-efficiency.
Part of them could also come from a €310 billion saving, equal to 2.5% of the European GDP, which we spend every year to import over 75% of the gas and 85% of the oil we consume. Part of the funds paid by industry for CO2 auctions under the emission trading system which will start in January 2013 should be re-used to help businesses to convert their production towards greater efficiency.
Essential is also an improved role of the EIB which should be refinanced to support industrial innovation projects and more access to credit. With the agreement we reached at last Wednesday’s informal European summit about a 10 billion recapitalisation of the EIB, which shall enable a leverage effect of more than 180 billion, credit and industrial innovation could be enhanced, especially in the weakest countries. But we can go further by using part of the unspent EU funds for further recapitalisation.
Access to credit and late payments
Every week thousands of companies go out of the market. This is because one third of SMEs do not manage to have the credit they applied for. In this respect the last report by the ECB and the European Commission highlights the risk of further worsening. Access to credit has a key role in letting enterprises invest in quality, innovation and human resources. Even healthy businesses run the risk of closing down. The Commission is undertaking the strategy which was presented in last December providing for more EU funds in guarantees to ease the credit situation, a more active role of the EIB, an integrated market for risk capital, Basel III adapted to the needs of SMEs.
In such a troubled situation in which governments ask citizens and enterprises for sacrifices and for fiscal loyalty, I believe it is a moral duty, and not only a legal obligation, that public administration be timely in paying their debts towards companies. For this reason, the immediate implementation of the Directive on Late Payments is necessary without waiting for March 2013. This directive would unlock 180 billion for enterprises. Thousands of companies’ going bankrupt could then be avoided without further loss of jobs and with a positive impact on public finance itself.
An innovation-friendly public administration
Among the biggest obstacles to innovation investments, sustainability and infrastructures I just mention the additional costs caused by administrative burden. In the current crisis, bureaucracy should not be an obstacle but an ally for companies. Systems to speed up and simplify practices should be assessed, also at EU level, by introducing where possible, a tacit consent in reasonable times, as envisaged for certain infrastructures or for renewable energy. Derogations should also be considered for SMEs for whom procedures are four times more expensive than those for large businesses.
The Commission is undertaking a plan to reduce red tape by 25 % with savings estimated in the range of tens of billions. We also introduced a competitiveness test for assessing the impact of new legislation on companies.
Furthermore our SME envoys are committed every day to promoting and defending a more business friendly context.
EU companies must better exploit the chances provided by emerging markets. I could myself notice during the growth missions undertaken in Brazil, USA, Mexico and Colombia with representatives of EU industry and SMEs how much our technology and quality is appreciated in the world. It represents a real asset in our external relations. My intention is to continue with these missions and visit North Africa, Russia, China and Vietnam between the second half of 2012 and the beginning of 2013.
What we need is also a less naive commercial policy, aimed at creating a real access to the markets for our enterprises. Reciprocity should be the key condition in our trade relationships with strategic areas such as for example the American and North African markets.
Education and new professions
In order to match the demand of new professional roles with their supply, universities should work closely with business organisations and have greater freedom to compete on excellence. It is also to attract talents and skills, by avoiding the drain of young talents to the US or Asia.
Industrial innovation and European governance
Some structural reforms, such as the shift of the tax base from labour to revenues and consumption, or to discourage the waste of resources are extremely helpful for competitiveness. The push for industrial innovation as an engine of growth and competitiveness should become a central element of the European semester and of the new economic governance.
Commission on the front line
The exit strategy from the crisis, therefore, passes through more attention to the real economy, SMEs, the innovative and creative power of our industry. Without a strong industrial basis we do not create work and we will not count in tomorrow's global world. 37 million jobs in Europe depend directly on the manufacturing sector. This figure rises to 76 million if we include manufacturing related services. By losing capacity in the manufacturing sector, we will lose jobs and fail to innovate.
Only by boosting the entrepreneurial spirit, the ability to create and do business to drive our future we could provide concrete responses and prospects for new generations. Entrepreneurs, by their nature, tend to innovate, are enthusiastic about ideas they want to realize. We must accompany this force, by removing obstacles, opening up certain prospects and using public stimulus, when necessary.
The commission should be at the front line in order to support European leadership in the unfolding industrial revolution. In addition to the European partnership on raw materials launched on 29 February and on the strategies on Key Enabling Technologies and on cars to be presented in June, by this summer we aim at adopting a communication on the construction sector. With the event of today the Commission will launch a consultation open to all parties interested in a new industrial strategy, which I will present in September and which could enable European companies become protagonists in the global challenging scenario.
Young people first
Innovation being the new energy in the machine of our economic systems, we need to be aware that most of it will come from the thinking and efforts of 20 or 30 year old people.
Through young people, governments may understand how to give space to the entrepreneurial and innovative spirit of emerging businessmen. Not only young people have the right to sit at the table of the discussion, but without them, an essential vision of how to address the future will be missing.
New generations must be educated to the culture of risk. If we wasted their talent and potential it would mean that we learnt no lesson from this crisis.
By September, the Commission will present a European plan for entrepreneurship which will strengthen instruments for access to credit, venture capital (also for start-ups) and exchange programmes like the Erasmus for young entrepreneurs. We have to be more inclined to accept that new forms of entrepreneurship bear more risk of failure, without putting a stigma on them.
Betting on growth
Last Wednesday’s informal Summit tackled the most urgent issues at stake for the EU economy. Among these the Eurobonds could help in reducing the debts and to in putting a brake to the financial speculation. Also, a European guarantee scheme on bank deposits would provide more stability to our banking systems and ease access to credit. I also hope that a real discussion about the role of the ECB and about the rate of the Euro compared to rival currencies would now take place.
In general, the summit highlighted that there is a growing awareness on the fact that fiscal discipline is not enough to restore public finances. From this point of view, some progress has been made in paving the way for a real Pact for Growth which should be twinned with the fiscal one, the latter being necessary but not sufficient. Here I can think about boosting measures in line with the so called Golden Rule, with some investment in research or infrastructure or the paying back of debts to enterprises. These might not be accrued in the calculation of the public debt or deficit. Or even further, the use of the unspent regional funds to support credit, capitalise the EIB or the promotion of Project Bonds.
The seriousness of the crisis and the real risks of loss of some achievements we had in sixty years of integration, including euro and the internal market, require exceptional measures also in the short term. And some of them necessarily have to be taken at European level to really have an impact on growth.
In 1933 the US President Franklin Delano Roosevelt said, in the middle of a major recession: "we will go out from the crisis and we will have prosperity. The only thing to be afraid of, it’s the fear itself".
But there is no more time to lose.