Europe's policy-makers must not become preoccupied with the threat of jobs moving to low-cost countries such as India and China, according to a paper to be discussed at an informal meeting of EU industry and competitiveness ministers today, writes Cliff Taylor, Economics Editor
Despite a "palpable sense of unease" among EU policy-makers, job losses so far have been concentrated in low-cost sectors and there is little evidence of a widespread move of higher-skilled employment, according to the paper prepared by the Department of Enterprise, Trade and Employment.
"There is danger that a preoccupation among policy-makers with de-industrialisation, as a result of competition from lower-cost countries, can lead to bad policies and a misallocation of resources," the Department says.
It warns that the concept of stopping "de-industrialisation" is a negative one and can lead to policies such as trade protectionism. In contrast, the goal should be increasing productivity - and success in doing so will determine European living standards in the long term. This will require a focus on policy areas such as education, innovation and the best use of technology.
The latest communication from the EU commission on industrial policy published at the weekend also finds no sign of a general "de-industrialisation" of Europe. However, it says EU industry is facing major structural change.
The conference, which opens in Dromoland Castle, Co Clare, this morning, is being hosted by the Tánaiste, Ms Harney. It will involve ministers for all EU members and the accession states discussing Europe's competitive position with a group of senior business leaders.
Ms Carly Fiorina, chief executive of Hewlett-Packard, is one of the keynote business speakers and will address this morning's session on "Competitiveness in a global market". She will be joined by industry leaders from Germany, France, the UK, Sweden and Belgium.
The ministers and business leaders will focus on the impact on European industry of competition for jobs and investment from low-cost economies outside Europe and will also discuss the continuing "brain drain" to the US of EU-educated scientists and researchers.
The conclusions of the meeting will be reviewed at a formal Competitiveness Council meeting in Brussels next month and at the June European summit. "This will help to prioritise the work of the Competitiveness Council in the light of the new challenges which will follow enlargement," according to the Tánaiste.
Looking at manufacturing, the background paper prepared by Ms Harney's Department says it is "unreasonable" to expect Europe to maintain all of its current manufacturing activities. The challenge is, rather, to increase the added value and novelty of products and services, thus creating new jobs and compensating for the decline in other areas of manufacturing.
The meeting will examine the structural changes needed to achieve this and the reason why productivity in the EU has been lagging behind the US. The background paper argues that the low level of investment and poor productivity performance in the EU is the symptom of a "wider problem" reflecting weaknesses in the research environment and a lack of competition.
Weak competition means "there are still too many industries in Europe where high levels of investment are not necessary for companies to remain profitable".The paper argues that "Europe is not solely at the mercy of competition from lower-cost locations. It remains very much master of its own destiny."
The paper refers to the 10-year plan agreed at the Lisbon Summit in 2000 to make Europe the most competitive economy in the world. A key part of this strategy calls for an increase in the number of research scientists working in the EU and a boost to overall research and development spending. However, Europe overall lags behind - both in terms of investment and on other key measures of innovative performance, such as patenting.
Today's meeting will discuss the financing of research and development expenditure in the EU, and particularly why many companies choose the US rather than the EU to undertake spending in this area. It will also consider how to keep more research scientists working here. Some 400,000 EU science graduates are currently estimated to be working in the US and, of those, some 90,000 are working in research and development.
The economic returns to innovation are higher in the US, according to the background paper - leading to higher-quality work and better pay for researchers. These trends mean the EU is increasingly exporting its research factors of production - in terms of finance and expertise - and importing back the output of this research, it argues.
It identifies the challenge as increasing the returns to investment "by improving the quality, both of the environment for research and the research itself, and by increasing the pay-off to commercialisation".
