© The Indian Express Pvt Ltd
Tags:
Journalism of Courage
During a curtain raiser to the latest World Economic Outlook by the IMF, its Managing Director, Kristalina Georgieva, shared quite a remarkable set of data about Europe’s economy.
CHART 1 shows the companies in the European Union that are less than 50 years old but today have a market capitalisation of more than $10 billion. This list includes well-known names such as Spotify and Ryanair.
But now look at CHART 2 which places the market capitalisation of European companies next to US companies of the same vintage.
CHART 2 speaks for itself and shows how seven US mega-firms — none of which existed 50 years ago — boast market capitalisation dwarfing that of firms of similar vintage in Europe.
The point that Georgieva, who hails from Bulgaria, wanted to make: “…my beloved, native Europe, some tough love: enough lofty rhetoric on how to lift competitiveness — you know what must be done. It is time for action.”
How did Europe, which essentially ran the world until a century ago and was the birthplace of Enlightenment and industrial revolution reach this state?
As it happens, the newly-minted Nobel laureate in Economics, Philippe Aghion (who teaches economics on both sides of the English Channel) had much to say on this slide earlier in the week.
He said that while Europe was catching up with US standards of living as it recovered after the devastation of WW2, since the mid-1980s the average per capita GDP (read income) of the eurozone has declined relative to the US. He argued, “The big reason is that we failed to implement breakthrough high-tech innovations.”
Aghion said that at the heart of the matter was Europe’s inability to reconcile competition policy (which aims to promote fair competition in an economy by clamping down on anti-competitive entities such as monopolies and cartels) and industrial policy (which aims to promote national industries to achieve economic, social and security goals).
“In Europe, in the name of competition policy we became very anti any form of industrial policy. I think we need to evolve on that and find ways to reconcile industrial policy in areas like defence, climate (change), AI (Artificial Intelligence), biotech…,” said Aghion. He gave the examples of the Defense Advanced Research Projects Agency (DARPA) in the US which he called is the pro-competition way of doing industrial policy.
In fact, while he was quick to point out that he does not welcome the “protectionist wave” in the US as it is not good for global growth and innovation, he could see the bright side: “European countries have to realise that we should no longer let the US and China become the technological leaders and lose to them.”
Georgieva’s solution: Consider appointing a “single market czar” with real authority to drive reforms forward. Remove border frictions in the labour market, goods and services trade, energy, and finance. Build a single European financial system. Build an energy union. Complete your project. And catch up with the private sector dynamism of the US.
Any guesses how many Indian companies figure in the top 100 companies by market capitalisation in the world?
The US has 59, China has 12, Europe and the rest of the world have 27 companies.
India has two.
The first is Reliance, which ranks 71st and the second is HDFC Bank, at the 90th rank.
This whole debate also puts into perspective what India needs to do and how far it needs to go.
