Opinion of the Economic and Social Committee on "Structural indicators"

(2001/C 139/15)

On 3 October 2000 the Commission decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on "Structural indicators".

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 8 February 2001. The rapporteur was Mrs Bulk.

At its 379th plenary session (meeting of 1 March 2001) the Economic and Social Committee adopted the following opinion by 87 votes to one, with two abstentions.

1. Introduction

1.1. At the Special European Council of Lisbon on 23 and 24 March 2000, the EU set itself a new strategic goal of promoting employment, economic reform and social cohesion as part of a knowledge-based economy: "to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion" (paragraph 5 of the Council conclusions).

1.2. The European Council felt that the existing Broad Economic Policy Guidelines and the Luxembourg, Cardiff and Cologne processes offer the necessary instruments for this, in particular through the Broad Economic Policy Guidelines, which should focus increasingly on the medium and long-term implications of structural policies and on reforms aimed at promoting economic growth potential, employment and social cohesion, as well as the transition towards a knowledge-based economy (paragraph 35). The method of open coordination, with clearly defined targets, data and benchmarking was extended to areas of economic, structural and social policy.

1.2.1. Reform in the four policy areas strengthens each of them, since there are various interactions between them, as well as with the general economic context. In order to gain maximum benefit from the structural economic reforms, a clear and coherent approach is necessary, which takes account of the mutual relations between the various markets.

1.2.2. With this in mind, the European Council asked the Commission to draw up an annual synthesis report on progress on the basis of structural indicators to be agreed relating to employment, innovation and research, economic reform and social cohesion (paragraph 36 of the Council conclusions).

1.3. The European Council of Feira of 19 and 20 June 2000 asked the Commission to present a report by the end of September 2000 on the proposed approach for indicators and benchmarks, both in specific policies and to be used in the synthesis report to the spring European Council, to ensure the necessary coherence and standard presentation (paragraph 38 of the conclusions). This communication is the Commission's response to the requests from the Lisbon and Feira European Councils.

1.4. In this communication, the Commission sets out 27 indicators to be used in its synthesis report intended for the Stockholm European Council in spring 2001. These indicators are an important tool for tracking and comparing progress and, at the same time, for assessing the effectiveness of the policies followed by the Member States in the above-mentioned fields. This assessment will also provide a basis for fixing guidelines in the short and medium term for economic and social policy.

2. General comments

2.1. The ESC would emphasise that an approach which would be common to all the Member States and in which a system of indicators and benchmarks would be agreed in order to give form to the machinery for mutual responsibility is helped by an annual structured report on the progress achieved in the political areas mentioned. So, the emphasis should be less on benchmarks and more on qualitative indicators and reports by country.

2.2. Hence, the Committee is particularly pleased with the Commission proposal. The proposed indicators must be considered as different pieces of the same puzzle. They are distributed among the four policy areas mentioned above. The use of general economic indicators delimits the overall economic context into which the structural reforms fit. So, evaluations and comparisons between the Member States and the other developed economies (such as the United States and Japan) are possible with the greatest transparency.

2.3. The open coordination procedure advocated by the Council and the Commission, the practice of "peer pressure" and "benchmarking" between the Member States, can benefit greatly from the availability of reliable facts serving as a basis for mutual coordination and comparison between national practices.

2.3.1. For this reason it must be borne in mind that indicators make it possible to draw comparisons between the performances of the Member States. Indicators which give only one picture of the whole European Union are insufficient to ensure coordination between the Member States. One must not only assess to what extent the Union as a whole is complying with the conclusions of the Lisbon Council; it is just as important to be able to judge how much the individual Member States are implementing the political agreements reached in Lisbon.

2.4. The ESC wishes to stress that indicators have to rest on a solid theoretical footing. In any event, the statistical sources on which indicators are based should be measurable without ambiguity or dispute. They will also have to meet the following criteria:

- the costs of collecting the data must be proportional to, or reasonable in relation to, the results;

- it should be possible to process the data and make them available rapidly;

- the quantitative data should be relatively easy to obtain from public sources;

- the series of indicators must be able to resist institutional changes on the markets;

- the procedures for carrying out new measurements in the future should be simple.

2.5. The reliability of the conclusions that the Commission will be able to draw in its synthesis report on the basis of the indicators will depend on the reliability, quality and topicality of the figures provided to Eurostat. The preferred option is that, as far as possible, the indicators should be provided by national statistical services, since often less is known about the collection and harmonisation methods used for data from other sources. It is very important that the figures be highly reliable and as up to date as possible. It is only under these conditions that an indicator can give a reliable and objective picture of the situation in the European Union.

2.5.1. One can also wonder whether the indicators proposed by the Commission can be adapted to the requirements of the synthesis report, which will have to be finished in at most six months. This is the first time that the Commission is to draw up a synthesis report using the proposed indicators. Hence, as the Commission communication itself notes, these indicators are not limitative, but may well be added to or improved. The Committee would therefore urge that priority be given to the further development and fine-tuning of a reliable statistical information system. Given the complexity and importance of further developing the set of indicators, the Committee - subject to the comments below - will continue to follow closely the development of the statistical information system.

2.6. The ESC wishes to point out that any measuring instrument is at the service of the objective for which it is used, and this also applies to the structural indicators. The choice of certain indicators depends on the objective of the Commission's synthesis report, namely the evaluation of the progress achieved in the implementation of the strategic goals outlined in Lisbon, aimed at reforming the EU into the most competitive and dynamic knowledge-based economy in the world.

2.7. The Committee would also stress that, in addition to the high standards of reliability, topicality and uniformity required of each of the proposed indicators, it will be necessary to interpret the indicator-based figures in order to assess progress made in economic, social and structural policy. This can be done with the help of an underlying statistical information system, so that in interpreting the data account is taken of e.g. the economic and demographic characteristics of a Member State. A sound evaluation is needed if the objectives agreed at the Lisbon summit - namely a high level of employment in a competitive and dynamic economy - are to be achieved. Thus, the interpretation and assessment of indicator-based figures will also have to meet high standards of verifiability, efficiency and reliability.

2.8. The ESC notes that a large number of the proposed indicators are not new. They are already used inter alia to support the national accounts of the Member States, the Broad Economic Policy guidelines and the employment pact.

2.8.1. The ESC wishes to stress that the relationship between the annual synthesis report of the Commission and the existing processes of economic and social development of the European Union should be delimited clearly. The European Commission's synthesis report is clearly linked to existing processes and thus, in the Committee's view, will potentially be an excellent basis for directing policy in the above-mentioned areas, among other things, by assessing how far Member States have implemented the strategic goals outlined in Lisbon.

2.8.2. The value added of the list of indicators submitted by the Commission lies not so much in the separate indicators as in the integrated approach to the political sectors covered by the series of indicators. A clear, structuring basis such as that provided by the Commission's synthesis report is potentially of great benefit to the open coordination procedure advocated by the Council and the Commission, under which Member States coordinate their policy among themselves. The European Commission can draw on this synthesis report to establish a similar basis for the discussions required in the various meetings of the Council of Ministers.

2.9. Although the Commission stresses that the various indicators cannot be considered completely separately from each other, there is a risk that the separation into four policy areas will highlight less clearly the interdependence and direct interactions which exist between the different indicators, which may give a distorted picture. Moreover, there are considerable differences in the economic structure of the Member States, e.g. in their financial, tax and social security arrangements. In this respect, it is inappropriate to apply separate indicators. Moreover, a series of separate indicators can hardly give a detailed description of the interdependence between the various indicators. A more detailed structure where the indicators are, as far as possible, derived from a single underlying statistical information system may provide a clearer picture.

2.9.1. Such an information system and the underlying indicators derived from it can be targeted at the various sectors of the economy and a country's overall economic structure. The indicators proposed by the Commission are clearly defined and delimited in a similar way. As a result, they are indeed able to measure the same thing in the various economic structures of the Member States. Only when this condition is fulfilled can genuine conclusions actually be drawn from the synthesis report on the progress made in implementing the strategic aims of Lisbon.

2.9.2. The Committee feels that account must naturally be taken of EU enlargement. After all, following accession, the new Member States' statistical services will also be required to submit to Eurostat the figures needed to determine the indicators proposed by the Commission. Consideration must therefore be given to how far these figures already exist.

3. Specific comments

3.1. The Commission proposes five general economic indicators to delimit the general economic context within which the structural reforms on the labour, product and capital markets take place, namely: GDP per capita and the real GDP growth rate, the energy intensity of the economy, labour productivity (per person employed and per hour worked), the inflation rate and the cyclically adjusted budget balance.

3.1.1. The Treaty of Amsterdam lays down that environmental protection should be integrated into Community policy in order to achieve sustainable development. The overall guidelines for economic policy must ensure that consistent policy measures are proposed for the various sectors of the economy.

3.1.1.1. The integration strategies currently being developed by the Council have already provided various indicators which are of sectoral and general importance. Indicators such as the level of energy efficiency, environmental investment and emission of greenhouse gases or other pollutants - both in absolute terms and per unit of GDP - should be used in any general assessment. The Committee also wonders why an environmental indicator of this kind is lacking; it points out once again that the indicators should be related to the economic structures in the Member States and the various sectors. Only in this way can there be a true comparison between the Member States. This presupposes that the indicators are derived from a consistent information system for the economy and the environment. The NAMEA system currently being developed by Eurostat (and already applied in 14 Member States) is eminently suitable for this purpose.

3.1.1.2. The Commission's proposed general economic background indicator "energy intensity of the economy" is difficult to assess because it depends on the economic structure of a country. A possible alternative is the aforementioned measurement of energy efficiency, which can be defined as the weighted sum of energy consumption in each industrial sector in relation to the European average for that sector.

3.2. Employment indicators

3.2.1. One of the key objectives of the new strategy adopted by the European Union at the Special European Council of Lisbon is to boost employment as part of a knowledge-based economy. The European Union has to endeavour to achieve an employment rate of 70 % by 2010. The average number of women in employment should then be more than 60 %. For that, an active employment policy is necessary. The proposed indicators should first of all cover the two strategic employment goals set for 2010. For employment, seven indicators are proposed: employment rate, female employment rate, employment rate of older workers, unemployment rate, long-term unemployment rate, tax rate on low-wage earners and lifelong learning adult participation in education and training.

3.2.2. In addition to the specific position of older workers, the ESC feels that account should also be taken of that of younger workers. It is also worth noting that there are no indicators of the relative percentages of men and women or of younger and older workers in the workforce.

3.2.3. The Committee would note that the "female employment rate" indicator is an important one, but that it is equally important to measure the male employment rate so that the two can be compared. Furthermore, the Committee would recommend that the unemployment rate should also be broken down into male and female rates.

3.2.4. The Committee wonders whether the indicator "tax rate on low-wage earners" really measures something which is relevant to policy. The Commission's intention is to measure the extent of the poverty trap among the lowest-income groups; the point at issue therefore is not so much the tax rate as the income gap. Secondly, it notes that the data for this indicator are sourced from the OECD and are model-based. A somewhat different definition is employed by Eurostat, whose data are survey-based. The Committee prefers the latter approach.

3.2.5. With regard to "lifelong learning", the Committee would stress once again that this aspect of employment policy is very important for the citizen, as it enables him to acquire the necessary skills and knowledge to maintain and if possible improve his position on the labour market. However, the Committee wishes to point out the minor differences in the definitions used in the various Member States. Moreover, this indicator centres on the input side. Consideration should also be given to output. In addition, the Committee thinks it highly important, in this context also, for not only quantitative but also qualitative indicators to be developed, such as length and relevance of the education undertaken.

3.3. Innovation and research indicators

3.3.1. Technological progress and improvements in the quality of work and of capital flows in the production process are responsible for a major part of economic growth and constitute an important engine for competitiveness and employment. This explains why the strengthening of the capacity for innovation is an essential element of the EU's new strategic objective. The transition to a knowledge-based economy must be backed up by a better policy as regards R& D, education and the information society.

3.3.1.1. The information society has assumed a much higher profile over the years, and technological developments are becoming increasingly rapid. The use of information and communications technology (ICT) for the transfer of funds, commercial transactions and communications has become widespread. The new possibilities offered by ICT can make the market sector more competitive. The exponential growth of the possibilities offered for the rapid mutual exchange of information between the various players involves (often profound) changes to organisational structures and work processes. The new ICT increases the mobility of knowledge. This will certainly affect the possibility of transferring work across borders.

3.3.1.2. There are seven proposed innovation and research indicators: public expenditure on education, R& D expenditure, ICT expenditure, level of Internet access, patents in high-tech areas, exports of high-technology products and venture capital.

3.3.2. However, older people and the low-skilled usually have difficulty in accessing ICT. In addition to the importance of lifelong learning in this policy area, attention should also be paid to the access of the (long-term) unemployed and their dependants to the new knowledge-based society. An integrated approach is necessary, but it is not clear how much the individual indicators contribute to this. A further division in society should be avoided. That in turn is an indication of how important it is to establish an underlying information system which can be used to assess which sections of the population benefit directly or indirectly from the knowledge-based economy. Mere aggregated indicators do not therefore suffice.

3.3.3. The Committee notes that "public expenditure on education" is an input indicator which fails to provide adequate information on changes in the quality of education. This difficulty could be overcome by adding the national accounting indicator on growth trends in the education sector - an indicator which does take quality issues into account. Harmonised data on this front will be available from Eurostat shortly.

3.3.4. The Committee would point out that "R& D expenditure" is also an input indicator and that consideration should also be given here to growth trends as opposed to value trends alone.

3.3.5. With regard to the indicator "patents in high-tech areas", the Committee notes that it is better to include all patents, not only those in the high-tech sector. After all, the competitiveness of the Member States is also influenced by technological developments in sectors other than the high-tech industries.

3.3.6. With regard to the indicator "exports of high-technology products", the Committee notes that it is important for high-tech products processed into other exports to be assessed. However, a marginal note should be made to the effect that a country's competitive position is determined not so much by major high-tech production but rather by the high-value production of as many goods and services as possible.

3.4. Indicators of economic reform

3.4.1. With the establishment of EMU and the introduction of the euro important steps have been taken towards an integrated European internal market. Technological progress and globalisation have given an additional spur to these integration processes relating to the goods and capital markets. For economic reform policy indicators are proposed in the fields of market integration and market efficiency. There are seven proposed indicators: trade integration, relative price levels and price convergence, prices in network industries, public procurement, sectoral and ad hoc State aids, cross-border banking penetration and capital raised on stock markets.

3.4.2. The Committee would point out that a "trade integration" indicator makes little sense. At most, a change in this indicator can provide information.

3.4.3. With regard to the indicator "relative price levels and price convergence", the Committee notes that this is complicated by the fact that a comparable basket of goods must be found that is relevant to all the countries concerned. Within the EU we try to solve this by using purchasing power parities, but to date the quality of such data leaves much to be desired.

3.4.4. In the case of the "cross-border banking penetration" indicator, the Committee wonders whether the very detailed information required is available in all the Member States. In addition the Committee points out that the "cost of capital" indicator which the Commission proposes to develop would probably be better suited to the goal which the indicator purports to measure: integration of the financial markets.

3.4.5. The Committee wonders whether the "public procurement" indicator really measures the openness and transparency of the public procurement market in the European Union. For example, the indicator takes no account of the differences in scale between the Member States' economies. Probably a better indicator would be the value of public procurement divided by GDP. But even that indicator still gives little information on stimulating the internal market, since it does not measure the value of public procurement contracts which are finally awarded to enterprises from other Member States.

3.5. Indicators of social cohesion

3.5.1. The structure of the workforce is changing. As the labour market is tightening, it is important to have a workforce that is employable, well-trained and always learning throughout life. Combating poverty and making sure that people can still be part of the work process remain major challenges. The traditional tasks of social and economic policy are therefore more valid than ever: to promote participation in society through work, to have a labour market that functions smoothly, to have a balanced distribution of incomes, to guarantee an income for persons who are unable to provide one for themselves, and to combat benefit dependency and premature exclusion from the work process.

3.5.2. Six indicators are proposed for social cohesion: distribution of income (income quintile ratio), poverty rate before and after social transfers, persistence of poverty, jobless households, regional cohesion (variation in GDP per capita in PPS across regions) and early school-leavers not in further education or training.

3.5.3. The exalted aim of becoming the most competitive and dynamic knowledge-based economy in the world means, among other things, that poverty must be combated. Combating poverty and social exclusion means encouraging access to careers of quality and the access of all to resources, rights, goods and services. Account must be taken of the proposal submitted by the Commission at the Lisbon European Council to bring down the percentage of persons living below the poverty line from 18 % today to 15 % in 2005 and 10 % in 2010, and to halve the number of children living in poverty by 2010. The Committee would point out that the proposed poverty indicator is based on a relative poverty threshold which is adjusted automatically in line with any change in the income level in the Member State concerned. The Committee considers it very important that the persistence of poverty also be measured. Households living for several years below the poverty threshold are in an even more vulnerable position than households living temporarily below the threshold.

3.5.3.1. It is essential here to try and establish a clear link between the indicators which reflect the various aspects of employment policy and those which measure social cohesion. To this end, excellent use can be made of the Social Accounting System currently being tested in a pilot project by eight Member States and Eurostat.

3.5.3.1.1. The fixing of qualitative and quantitative common indicators can serve as a basis for the development of an open coordination method between the Member States, like that which already exists in the field of employment and for the development of national programmes to study and combat poverty and social exclusion, in accordance with the conclusions of the Lisbon European Council.

3.5.4. With regard to the "distribution of income" indicator the Commission proposes that income distribution be measured using the quintile ratio of incomes (which compares the share of a country's income received by the highest-earning 20 % of a country's population with that received by the lowest-earning 20 %). The Committee takes the view that the decile ratio (comparing the income of the highest-earning 10 % with that of the lowest-earning 10 %) is a better indicator of income inequality in a Member State since it better reflects the extremes in the income distribution.

3.5.5. The Committee would point out that the "jobless households" indicator is heavily influenced by differences in the size of households.

3.5.6. The strengthening of economic and social cohesion, with the view to a harmonious development of the various regions within the Union, is one of the EU's political priorities under the terms of the Treaty of Amsterdam. The 15 Member States are composed of 150 regions. The figures for per capita GDP, which is the basis for determining whether the level of development of a given region is higher or lower than the Community average, date from 1995 and are therefore no longer up to date, but they do show that there are still big differences between the regions. Owing to the lack of data, it is not clear if this gap between the different regions is getting smaller over the years and/or if convergence is really taking place. Furthermore, regional per capita GDP figures are sometimes not the best indicators of regional prosperity, e.g. in regions where many residents commute out of the region, where often little is produced, but the incomes (of employees working elsewhere) are relatively high. For this reason the disposable per capita income of the population would seem a better indicator.

3.5.6.1. In this connection the Committee would also recommend that at a later stage the standards now being tested at national level be tested at regional level too.

3.5.7. With regard to the still to be developed "company registration" indicator, the Committee would recommend that account be taken of the fact that while there is agreement on the definitions, they are used in practice in different ways by the Member States, e.g. the founding and dissolving of companies are not registered in the same way throughout the EU.

4. Conclusions

4.1. The Committee is very pleased with the Commission proposal to establish a set of indicators to be used as a basis for the annual synthesis report. The Committee would stress the importance of further developing and fine-tuning a reliable statistical information system and therefore hopes that in the process the Commission will draw on the comments in this opinion. Given the complexity and importance of further development of the set of indicators, the Committee will continue to follow the development of the statistical information system closely.

4.2. The Committee strongly recommends that account be taken of the fact that the application of separate indicators does not make possible any real synthesis and cannot do justice to the differences between the Member States in their overall economic structure. A more detailed structure, with the indicators being based as far as possible on a single underlying statistical information system, will provide a clearer picture.

4.3. The Committee wishes to stress that the figures provided by the indicators will need to be interpreted to make it possible to assess progress in the policy areas of employment, innovation and research, economic reform and social cohesion. The interpretation of these figures as a basis for policy will have to meet high requirements of appropriateness, verifiability and reliability; it should also be borne in mind that the figures alone can never give a fully accurate picture of social reality.

4.4. The Committee thinks that an open coordination method as applied in the field of economic, social and structural policy can benefit greatly from a clear, structuring basis, as can be provided by the Commission's synthesis report. The European Commission can draw on this synthesis report to establish a similar basis for the further discussions required in the various meetings of the Council of Ministers.

Brussels, 1 March 2001.

The President

of the Economic and Social Committee

Göke Frerichs