From the West to the East: Europe’s industry is moving. Any impact?

NYT writes that Europe’s industrial heartland originally stretching stretching from Manchester to Milan has moved eastward. How do you perceive this shift, does it have some real economical and political impact on Europe in you opinion? Read few comments.

Bob Hancké, Associate Professor of Political Economy, London School of Economics and Political Science

This is possibly the biggest shift in economic geography that Europe has ever witnessed, and puts tremendous strain on all sides of the continent. The north-west will have to learn new ways: how to adapt to an economy where manufacturing is no longer the driver of exports, jobs and growth. The south will have to think carefully about the wisdom of being a highly dependent, low-cost manufacturing workshop in a world where there is always someone who will do things more cheaply — as happened after 1989. And Central and Eastern Europe will have to think about the same — but without the welfare state cushion that supported the first wave of industrial restructuring in western Europe in the 1980s and 1990s. Neither of the three parts of the continent are in an enviable position, therefore.

The situation in the north is simple: either those countries invest in education, broadband, modern infrastructure and the like so they can make the jump to a knowledge economy, in which exports shift from things to intangibles such as business software, intellectual property, and R&D, or they will perish as much of their manufacturing sector finds its way elsewhere. Competitiveness here will increasingly mean ‘cost competitiveness’, and that’s hard to imagine in countries where wages are still mainly set through robust, union-led collective bargaining systems. The situation in the south of Europe is not helped by the fact that they are EMU members, in effect locked in an exchange rate regime that kills their export sectors. Spain’s improvement in competitiveness, for example, is much more the result of a fall in wages than in rising productivity; a peseta would have allowed the burden of adjustment between productivity and real wages to be shared. And the countries in central Europe depend too much on strategic decisions made in the headquarters of multinationals in the centre.

Helen Bicknell, Professor, The Fresenius University of Applied Sciences

The fall of the Berlin Wall and the ensuing industrial relocation which has taken place since 1989 are given facts, but comparing the ‘blue banana’ to the ‘golden football’, we must consider not only productivity and labour costs, but how Europe has dealt with the constraints imposed upon it by the Euro –obviously primarily affecting the Eurozone members.  Introducing monetary union without democratic legitimacy to apply fiscal instruments as necessary, was a high-risk strategy from the start. East Germany escaped some pain after being ‘taken over’ by West Germany, but those countries which entered the Eurozone with low productivity, high government debt and no other policy options, like devaluation. to increase competitiveness are now only left with austerity and planned strategic investment funds as panaceas. So the ‘new kids on the block’ are those who can profit from low labour costs, proximity to the German ‘profit centre’, and their non-Euro currencies.

Due to its extraordinary reliance on an export-driven economy, Germany has profited from a relatively under-valued Euro,  England has been kept alive by financial services and Scottish oil, and at current exchange rates, Switzerland is now having trouble producing anything except Swiss Francs.

France, Spain, Italy and the other, less profitable, struggling Eurozone members need to hope that Juncker’s investment fund can provide them a life-line before their electorates start voting for radical, anti-European parties (as may also happen in the UK), whilst Mario Draghi watches the Euro decline by 25% (and still falling) in the hope of getting back to 2% inflation.  Strangely, though, voters seem to worry more about unemployment, personal debt and falling pensions. Even drivers in Germany are hoping that some of the investment funds will be used to fill in the pot holes and repair the bridges on the roads and the Autobahn.

Josep-Maria Arauzo-CarodAssociate Professor, Department of Economics, Universitat Rovira i Virgili

The information provided by The New York Times is not new, as spatial distribution of manufacturing activity has been moving towards East Europe since many years ago. The implications are quite important in terms of industry composition, capacity to generate value added and, among others, about skills and educational levels demanded by labour market in a context in which Europe is moving from traditional manufacturing activities to knowledge intensive service activities. Nevertheless, it is also true that extant expectations from 10-15 years ago about an Europe losing its manufacturing activities due to international relocation towards China have been demonstrated to be false, as several plants previously relocated to this country (and other Asian countries) hace decided to come back to Europe. As a conclusion: yes, manufacturing is shifting but everything is moving and there is no an steady state for the geographical distributions of economic activities.

Paul HareProfessor Emeritus, School of Management and Languages: Accountancy, Economics & Finance, Heriot-Watt University

Here in the UK, with the economy recovering nicely and wages starting to rise again, unemployment is falling. We’re trying to move upmarket to a ‘knowledge economy’ (though no one is quite sure what that means) that generates enough value added to support high wages – mostly in services, but also some advanced manufacturing. Although the economy still has a lot of unskilled and low paid jobs to be done, increasingly we find that local people don’t want to do them, but immigrants (mostly short-term, some longer term) will. In fact among employers here, immigrants from Eastern Europe have a good reputation – well educated, hard working, and reliable workers. Some unskilled workers do complain about this, saying the immigrants are taking ‘their’ jobs, but mostly that’s just not true.

Smaller, poorer economies like Greece are in a much harder position – firms are poorly networked as the NYT says, trade is less significant for the economy (though it ought to be far bigger), and the economy is still characterised by patronage, personal connections between the political and business elites that allow really inefficient firms to survive and, more importantly, make it harder for new firms to get going. In other words, quite a bad business environment. Greece has also had to suffer from far too much austerity, which hasn’t helped matters. Of course, the country had to adjust, but I suspect they haven’t reformed the right things to make the economy more dynamic and flexible.

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