9780881323436

As industries evolve and restructure, the capacity of an economy to adapt to new economic conditions determines its success over the long run. Three key forces are currently driving change in the developed economies: expanded global competition, the increased use of information and communications technologies, and the development of the global financial system. Arguably, these forces have created a new economy due to increased intensity of competition, as well as altered demand patterns and changes in the way businesses operate. Europe grew rapidly for many years, but now, faced with greater challenges, several of the large economies in Europe have either failed to generate enough jobs or have failed to achieve the highest levels of productivity (or both). Realizing these difficulties, the European Council, meeting in Lisbon in March 2000, proposed reforms to promote a "radical transformation of the European economy." In this study, Martin Neil Baily explores why Europe's growth slowed, what is the contribution of information technology to growth, and what poli

Preface

ix

Acknowledgments

xv

New Policies and New Goals for Changing Times

1

(32)

The Need for Sustained Economic Reform in Europe

4

(2)

Reform Progress to Date

6

(1)

A Framework for Transforming the European Economy

7

(14)

Summarizing the Nature of the Reform Proposals

21

(4)

Feasibility of Reform Proposals

25

(1)

Chapter Summaries

26

(5)

Concluding Remarks

31

(2)

Europe's Postwar Success and Subsequent Problems

33

(60)

What Drove Rapid Growth in Postwar Europe?

35

(5)

The European System's Advantages for Postwar Catch-Up

40

(3)

The 1973--95 Global Growth Slowdown

43

(4)

The Impact of Slower Productivity Growth: The US Lesson

47

(2)

The Impact of the Productivity Growth Slowdown on the European Economy

49

(11)

Cyclical and Structural Sources of Low Employment

60

(2)

Skill Differences and the Distribution of Wages

62

(4)

Taxes, Transfers, and the Willingness to Work

66

(3)

Demographic Changes: Extended Life Expectancy and Changes in Cohort Size

69

(6)

The Possibility of an Unstable Labor Market: A Warning Parable

75

(8)

Economic Performance since 1995

83

(3)

The Diagnosis

86

(7)

A Model of Employment and Productivity

88

(5)

What Drives Productivity and How to Improve It in Europe

93

(46)

Policy Implications of the OECD Growth Analysis

95

(7)

Understanding What Drives Productivity Improvements Based on US Experience

102

(2)

Can Growth Accounting Track US Productivity Trends and Reveal the Role of IT?

104

(6)

Industry Data and Case Studies: How Much More Do They Explain?

110

(6)

A Summary Explanation for the Post-1995 Improvement in US Productivity Growth

116

(2)

Case Study Evidence on the Importance of Regulation and Competition in Europe

118

(11)

Lessons for Europe about Procompetitive, Productivity-Enhancing Regulation

129

(2)

The Role of IT in Productivity in Europe: Is an IT Policy Needed?

131

(2)

The Role of IT in European Economic Growth

133

(6)

The Productivity Puzzle in Britain

139

(40)

Economic Performance in the Postwar Period

141

(3)

Resolving the Productivity Puzzle: Capital, Skills, and Other Factors

144

(15)

Productivity Differences Associated with Nationality of Ownership and with Being Part of a Multinational Company

159

(3)

Case Study Evidence of Barriers to Productivity in Britain

162

(13)

Why Does the OECD Conclude that Product Markets in Britain Are Deregulated?

175

(2)

Conclusions on the Productivity Gap in Britain

177

(2)

Reforming the Labor Market and Social Programs

179

(66)

Reform and European Labor-Market Values

180

(2)

Social Policy Reforms

182

(15)

The Wage-Setting Process: Making Jobs Available

197

(7)

Labor-Market Reforms: European Solutions that Have Raised Employment

204

(41)

The Nonobserved Economy, Undeclared Work, and European Economic Reforms

235

(10)

What Should Europe Do: Getting the Macroeconomics Right

245

(36)

The Stability and Growth Pact

245

(9)

Fiscal Policy Leading Up to and after the SGP

254

(3)

Problems with the SGP

257

(2)

Reform Proposals from Economists

259

(5)

The European Commission's Reform Proposal for the SGP

264

(2)

Modifying the European Commission Proposals

266

(3)

Getting the Macroeconomics Right: The ECB Mandate and Its Stated Goals

269

(3)

External Assessments of What the ECB Has Actually Done

272

(4)

Is the ECB Following the Right Monetary Policy?

276

(4)

Macroeconomic Policy to Support Reform

280

(1)

Are Current Reform Efforts on the Right Track?

281

(30)

Where Does EU Competition Policy Stand Now and What More Is Needed?

282

(8)

Reform: Driven by Individual European Governments, Reinforced at the EU Level

290

(1)

A Summary of Reforms to Date in the Four Largest Economies

291

(17)

A Big Push or a Slow and Incremental Approach to Reform?

308

(1)

Conclusion: Progress Has Been Made, but Much More Is Needed

309

(2)

References

311

(18)

Index

329

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Transforming the European Economy

0881323438

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