Communication from the Commission on the european competitiveness report 2008 [SEC(2008)2853]
Date: 2008-11-28
Institutions: European Commission
Subjects: European industrial area, activity report, competitiveness, economic growth, productivity, small and medium-sized enterprises, trade policy

EN 

EN 

   EN 

 
 
COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.11.2008 
COM(2008) 774 final 

COMMUNICATION FROM THE COMMISSION 

on the European Competitiveness Report 2008 

[SEC(2008)2853] 

EN 

   EN 

 
 
 
  
1. 

INTRODUCTION 

The EU is facing a changing international reality. Currently financial markets are in a severe 
crisis that has started to spill over to the real economy. Policy makers around the world are 
working to restore confidence in the financial system. In 2008, volatile commodity, food and 
energy  prices  and  the  weakening  of  the  dollar  against  the  euro  have  influenced  economic 
developments.  These  developments  underline  the  need  for  Europe  to  further  enhance  its 
adaptation  capacity  to  external  shocks  by  developing  a  knowledge-based  economy  and 
boosting  competitiveness  through  continued  commitment  to  the  Growth  and  Jobs  Strategy. 
European competitiveness is at the centre of analysis of the yearly competitiveness report of 
the Commission. Its main focus is on recent changes of the EU's productivity growth, which 
is  the  key  driver  of  competitiveness  in  the  long  run.  Besides  this,  the  European 
Competitiveness  Report  20081  analyses  different  factors  that  may  have  an  impact  on 
competitiveness,  such  as  the  openness  in  trade  and  FDI  and  corporate  social  responsibility 
(CSR) as well as the EU's recent proposal for a sustainable industrial policy. This year's report 
also studies in depth the competitiveness of the most important segment of our economy, the 
small and medium-sized enterprises (SMEs). 

The 2008 Competitiveness Report shows a continued improvement of the European economy 
in terms of productivity and standards of living vis-à-vis the United States, although in 2007 
Gross  Domestic  Product  (GDP)  per  capita  levels  were  still  lower  than  the  US  by  roughly  a 
third. Both at macro and sector level, total factor productivity (TFP) is an important source of 
difference  between  the  US  and  the  EU.  A  number  of  factors,  such  as  innovation,  better 
institutional  and  business  environment,  improved  managerial  practices,  and  access  to  ICT 
explain  the  higher  contribution  of  total  factor  productivity  in  the  US  compared  to  the  EU 
countries. Intra-EU productivity differences are diminishing, new Member States are catching 
up and some of the richest EU Members States actually outperform the US. 

2. 

OVERALL COMPETITIVENESS PERFORMANCE 

Growth of the European economy continued in 2007 

Economic growth in the EU continued to be strong in 2007, though a slowing down became 
visible  especially  in  the  fourth  quarter  (the  EU's  real  GDP  grew  by  2.6%).  This  strong 
economic  growth  performance  was  supported  by  a  high  employment  growth  rate  of  about 
1.7%. Labour productivity growth, which is typically more cyclical than employment growth, 
slightly weakened to 1.3% in 2007 (from 1.5% in 2006). 

In terms of per capita income levels (i.e. GDP per capita) the EU is still lagging behind the 
US  (EU-27=100,  US=154.3).The  reasons  for  this  continued  gap  vary  across  EU  Member 
States,  although  it  is  partly  due  to  differences  in  hours  worked  per  person.  For  some  EU 
Member  States  (Belgium,  France  and  Netherlands)  this  gap  is  fully  explained  by  a  lower 
number  of  hours  worked,  as  their  hourly  labour  productivity  actually  outweighs  US  levels. 
For  the  new  Member  States,  lower  GDP  per  capita  levels  are  mainly  due  to  lower  labour 
productivity. 

1 

European Competitiveness Report 2008 COM (2008)… 

EN 

2 

   EN 

 
                                                 
Table 1: Growth of real labour productivity per person employed & 2007 levels of GDP per person 
employed (ppe), GDP per hour worked (phw), and GDP per capita (pc)

Average annual labour productivity 
growth per person employed

1996-2001 2001-2006

2007

GDP ppe
2007
(EU-27=100)

GDP phw
2007
(EU-25=100)
(*)

GDP pc 2007
(EU-27=100)

Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
EU-25
EU-27
US 

1,6
1,3
2,4
2,6
2,0
1,4
8,5
2,2
1,2
2,0
3,1
3,2
3,2
0,9
6,0
7,2
1,5
2,6
1,4
5,5
1,8
0,9
3,8
4,0
0,2
1,8
1,9
1,7
1,7
1,8

1,4
1,4
3,3
0,2
4,1
1,7
6,9
2,0
1,2
1,6
2,5
4,0
2,2
0,0
6,7
5,9
1,6
1,1
1,6
3,6
0,6
6,9
5,0
3,6
0,5
3,0
1,6
1,4
1,4
2,1

1,4
1,1
3,3
1,1
4,6
0,0
6,6
2,1
0,8
1,0
2,7
1,5
1,6
0,5
6,6
6,7
0,2
1,1
1,1
1,9
1,7
4,7
8,1
3,3
0,8
0,5
2,3
1,3
1,3
1,0

120,4
131,2
35,6
84,7
73,1
107,1
67,5
113,4
123,6
106,6
105,4
74,8
135,4
108,0
53,6
60,2
182,3
90,1
113,1
61,4
68,4
40,5
76,6
85,7
102,5
113,0
110,8
103,9
100,0
142,0

107,9
133,8
34,6
73,9
59,7
112,3
54,2
107,1
129,4
119,3
77,9
60,3
115,9
94,9
45,3
51,5
180,8
85,0
130,4
49,7
62,2
N/A
69,1
79,3
99,6
112,2
107,4
100,0
N/A
128,4

127,7
118,9
37,9
91,6
81,0
124,0
71,4
118,3
110,6
114,0
98,2
64,1
145,9
101,3
57,9
59,8
279,2
77,1
131,2
54,4
73,6
40,2
68,3
90,1
104,1
123,6
117,8
100,0
N/A
154,3

Note: The relative levels of GDP per person employed, per hour worked and per capita have been calculated
on the base of purchasing power standards.
(*) Data for Romania and EU-27 are not available (N/A), and number for the US refers to 2006

Source:  AMECO (Annual macro-economic database of the European Commission's 
                  Directorate General for Economic and Financial Affairs), June 2008

Intra-EU productivity differences are diminishing 

In 2007 (as well as in 2006) productivity growth in the EU-27 outperformed that of the US 
which is a positive development. However, the EU-27 productivity level is much lower than 
in the US as an employed person in the US contributes on average 42% more to GDP than his 
or her EU counterpart; the difference of productivity per hour worked is lower (28% in 2006; 
2007  data  not  yet  available  for  the  US).  Intra-EU  differences  are  still  substantial.  Starting 
from  very  low  levels  of  productivity  in  the  immediate  post-Communist  years,  the  new 
Member States are catching up since they typically show faster growth in labour productivity. 
Facilitated by EU membership, the new Member States benefit from the adoption of advanced 
technologies and improved organisation and management. 

EN 

3 

   EN 

 
        
 
Box: Growth and productivity – explanations of concepts 

Economic  growth  can  be  decomposed  into  employment  growth  and  growth  in  labour 
productivity. Employment growth may result from an increase in the population in a country 
labour  market  performance  (including 
("demographic  component")  or  from  better 
participation  rates,  unemployment  rates  and  hours  worked;  this  is  the  "labour  market 
component"). 

Higher per capita income levels do not necessarily correspond to increased welfare levels. To 
the extent that these high income levels are achieved through intensive use of labour (relative 
to other countries), this implies less leisure per worker which should be counted as a welfare 
loss when leisure time is positively valued. Therefore, labour productivity per hour worked is 
a more direct indicator of efficiency than labour productivity per person employed, as hours 
worked per employee differ across countries. 

A complementary productivity indicator is total factor productivity. TFP refers to the factors 
linking  production  and  the  combination  of  productive  inputs.  In  other  words,  changes  in 
production can be due to changes in factor inputs (say, capital or labour) but also due to other 
changes. This latter component, the unexplained residual, reflects a change in TFP. It is the 
part of the productivity growth generated by intangible factors such as technical progress or 
organisational  innovation  instead  of  increased  use  of  inputs,  such  as  capital.  Among  the 
policies  most  relevant  to  TFP  growth  are  those  designed  to  foster  technological  progress, 
organisational  changes,  labour  mobility,  increased  investment  in  R&D,  the  use  of  ICT, 
competition  and  product  market  reforms.  These  policies  are  all  at  the  heart  of  the 
microeconomic pillar of the Lisbon strategy, suggesting that it can contribute significantly to 
boosting TFP. 

Structural labour productivity growth in the EU is lower than in the US 

The annual average EU-15 growth rate of real GDP was around 0.8% lower than the US over 
the  1995-2006  period.  A  macroeconomic  growth  accounting  exercise  for  this  group  reveals 
the strong and weak points in that period (see Annex): 

•  EU  strengths:  The  EU-15  has  made  relative  improvements  compared  to  the  US  in  the 
field  of  labour  market  participation.  Moreover,  the  initial  education  of  labour  has  also 
improved more in the EU-152. 

•  EU weaknesses: The lower growth rate in the EU-15 was mainly due to less favourable 
demographic developments and lower growth of labour productivity, the latter being 
caused mainly by underperforming total factor productivity developments and, to a lesser 
extent, less capital deepening. 

The  slower  growth  of  labour  productivity  and  in  particular  of  total  factor  productivity  may 
relate  to  EU’s  lower  level  of  innovation  performance,  which  is  a  key  long  term  driver  of 
productivity. Although measures of innovation performance show the EU is catching up with 
the US, the rate of this convergence appears to have slowed down. 

2 

The results should be interpreted carefully, as the available data are not fully harmonised and the data 
on employment breakdown by educational attainment for the US are only available from 2001. 

EN 

4 

   EN 

 
                                                 
High variation across sectors in their contribution to EU labour productivity growth 

A  large  part  of  the  annual  labour  productivity  growth  rate  in  the  whole  economy  over  the 
period  1995-2005  (1.6%)3  is  accounted  for  by  a  relatively  low  number  of  sectors.  Setting 
aside  non-market  sectors,  the  highest  six  (out  of  49)  contributors,  namely  agriculture,  retail 
trade,  wholesale  trade,  post  and  telecommunication,  inland  transport,  and  financial 
intermediation,  account  for  half  of  labour  productivity  growth  over  the  period.  This  is  the 
result of above average productivity growth rates combined with relatively high shares in the 
economy. Interestingly, the EU’s performance in these sectors, relative to US, is mixed as in 
half of them (post and communications, inland transport and financial intermediation) the EU 
displays higher labour productivity growth. At the same time, the US largely outperforms the 
EU in retail trade. 

3. 

DRIVERS OF COMPETITIVENESS 

3.1. 

Trade openness and competitiveness 

Openness in terms of trade or foreign direct investment (FDI) benefits the economy – there is 
massive empirical evidence that open economies are richer and more productive than closed 
ones: macroeconomic studies indicate that a 1 percentage point increase in the share of trade 
in GDP raises the level of income in the range of 0.9 to 3 percent. From a sectoral perspective, 
a  positive  and  significant  relation  is  found  between  trade  openness  levels  (both  export 
openness and import penetration) and labour productivity growth. 

Exporters are more productive than non-exporters  

Firms  engaging  in  trade  are  substantially  more  productive  than  those  that  do  not.  Evidence 
using firm level data shows that the "export premium" (i.e. better performance by exporters) 
based on labour productivity in EU ranges from 3% to 10%. Two hypotheses are being used 
as  explanation  for  the  export  productivity  premium:  self-selection  hypothesis  according  to 
which  the  most  productive  firms  self-select  into  export  markets;  and  the  more  intuitive 
learning-by-exporting  hypothesis  according  to  which  firms  increase  productivity  through 
exporting. These two hypotheses are not mutually exclusive and most productive firms may 
self-select  into  exporting,  but  once  firms  have  entered  export  markets  productivity  growth 
may receive a further boost. Empirical evidence supporting firm-level productivity gains via 
learning-by-exporting is, however, more mixed than the evidence showing that only the more 
productive firms self-select into exporting. Even if exporting has a mixed effect on firm-level 
productivity,  it  has  a  clear  undisputed  positive  impact  in  aggregate  productivity.  Similar 
results can be found for importers that are also more productive than non-importers, and for 
firms engaged in foreign direct investment (FDI) that are more productive than both exporters 
and  importers.  Given  the  productivity  gains  associated  with  exports,  imports  and  FDI 
activities,  policies  aimed  at  opening  markets  abroad,  as  well  as  open  domestic  markets  are 
well placed. 

3 

The productivity  (per  hour  worked) growth  rate  for  the  whole  economy  is  calculated  as  the weighted 
average  of  sectoral  growth  rates,  where  weights  are  the  sectors’  shares  in  the  total  number  of  hours 
worked.  This  may  differ  from  the  growth  rate  presented  by  other  sources.  The  source  of  data  is  the 
research database EUKLEMS (www.euklems.net). 

EN 

5 

   EN 

 
                                                 
The crucial role of the internal market 

For  EU  countries  the  internal  market  has  been  of  paramount  importance  when  reaping  the 
productivity  gains  from  openness.  Focusing  on  intra-EU  trade,  recent  research  confirms  the 
important  role  of  the  internal  market  for  productivity  growth:  it  is  estimated  that  average 
productivity  would  be  reduced  by  13%  if  bilateral  trade  within  the  EU  was  eliminated. 
Furthermore, it is also estimated that productivity can increase by 2% if trade costs within the 
EU are further reduced by 5%. These findings stress the importance of the Single Market, a 
common  currency  and  eliminating  border  controls  for  doing  business  within  the  EU  and 
underline  the  economic  potential  of  further  improvements  of  the  functioning  of  the  internal 
market. 

A well developed internal market also plays an important role as it enables Europe to take the 
lead in setting benchmarks and bringing about convergence of rules worldwide. Finally, since 
decreasing trade costs in the past have been driven by lower transportation costs and tariffs, 
the emphasis on “softer” trade costs often linked to non-tariff barriers could benefit SMEs that 
particularly suffer from these kinds of barriers. 

The importance of non-tariff-barriers 

Trade  costs  (divided  into  transport  costs,  border  costs  including  tariffs,  currency  and 
information costs, and retail and wholesale distribution costs) for developed countries might 
add  up  to  a  170%  ad-valorem  tax  equivalent.  However,  EU  firms  perceive  that  non-tariff 
barriers  and  lack  of  information  (e.g.  lack  of  knowledge  on  export  markets)  are  more 
important  than  the  traditional  policy-based  trade  constraints  of  import  tariffs  and  duties4.  In 
addition  EU  firms  also  perceive  internal  market  policies  as  very  helpful  for  doing  business 
abroad  because  of  a  common  currency,  common  customs  procedures  at  the  EU  external 
borders and Single Market legislation including harmonised technical standards5. 

The EU's external competitiveness policies should therefore help to reduce behind-the-border 
costs. Information costs and non-tariff barriers in third countries are major trade impediments. 
Policies  directed  to  deepen  integration  with  third  countries,  ideally  by  implementing 
policies aiming at removing behind-the-border barriers for goods and services trade and 
foreign direct investment and by enhancing international regulatory cooperation are in 
order  here.  These  policies  can  deal  with  reducing  regulations  heterogeneity,  non-tariff 
barriers  and  standardising  customs  procedures.  The  Transatlantic  Economic  Council  and 
regional  and  bilateral  "deep  free  trade  agreements"  with  some  Asian  countries  pursue  this 
approach. Particularly with some Asian countries with weak IPR protection systems, the EU 
should work towards an effective protection of innovations. 

3.2. 

Economic performance and competitiveness: the role of SMEs’ growth 

Entrepreneurship and small and medium-sized enterprises (SMEs) are increasingly recognised 
as  the  main  drivers  of  the  EU's  economic  performance  since  they  are  engines  of  structural 
change,  innovation  and  employment  growth.  Encouraging  the  growth  potential  of  SMEs  is 

4 

5 

Although  these  results  hold  generally  for  all  broad  sectors  of  activity  considered  in  the  analysis,  for 
particular sectors and countries import tariffs are still major trade barriers for European firms exporting 
abroad. 
Based on estimations using "Observatory of European SMEs" survey, Flash Eurobarometer Series no. 
196. 

EN 

6 

   EN 

 
                                                 
one of the primary objectives of the Small Business Act (SBA) which is a key element in the 
EU's Growth and Jobs Strategy6. 

The effect of business structure and dynamics on productivity and differences between the 
EU and the US  

Using sector and country data it can be shown that while a strong SME presence in itself is 
not  a  guarantor  of  a  strong  labour  productivity  or  value  added  growth,  the  entrepreneurial 
climate triggered by a strong SME presence can contribute to generate the business dynamics 
and the development of high-growth firms in a sector/country which are positively associated 
with labour productivity, employment and value added growth. 

At  a  more  aggregate  level  there  is  evidence  that  both  entry  and  exit  contribute  to  overall 
productivity  growth.  Comparison  of  these  contributions  across  the  Atlantic  reveals  that  the 
contribution of entry to aggregate productivity growth is on average slightly higher in Europe 
but the contribution of exit is much lower than in the US. 

A  comparison  between  the  EU  and  the  US  also  reveals  important  differences  in  business 
structure and business dynamics. The main differences are that (i) in the US successful new 
firms expand more rapidly compared with the EU; (ii) entrants in the US enter at a smaller 
size and display a higher dispersion of productivity levels than in Europe; and (iii) in the US 
the more productive firms have a stronger tendency to increase their market shares than in the 
EU after some years. As a result American firms are on average larger than European firms 
and  firm  size  distribution  in  the  US  displays  a  substantially  smaller  firm  and  employment 
share of micro enterprises (1-9 employees). Entry and exit rates as well as survival rates are 
largely  comparable  across  the  EU  countries  and  the  US  though  some  sources  suggest  that 
entry rates are more similar than exit rates, which tend to be lower in the EU than in the US. 
Taken together, these findings suggest that the market environment is more competitive in the 
US  and  favours  greater  market  experimentation.  In  addition,  the  evidence  indicates  that 
relative to the US, barriers to growth pose the biggest problem for a business in the EU. 

Rapidly growing firms exist in every economic sector and in every country in the EU 

Employment in new firms is crucial for total employment growth and is of at least the same 
importance as the net job contribution of continuing (high growth) firms. Contrary to popular 
belief,  recent  evidence  shows  that  rapidly  growing  firms  are  found  in  every  sector  of 
economic activity and in every country. This implies that high-growth firms are not only, 
or  even  primarily,  high  tech  firms.  They  manifest  the  firms’  entrepreneurial  alertness 
and ability to exploit opportunities on the market. Nevertheless, evidence also points to the 
relative weakness of the EU in high-tech sectors. In the US many more new R&D-intensive 
firms, (often labelled “New Technology-based firms” or NTBFs) were able to develop, grow 
rapidly  and  become  key  economic  players.  This  phenomenon  allows  the  US  economy  to 
orient itself towards new promising sectors with more flexibility than the EU. 

There is evidence that industrial countries close to the technological frontier provide stronger 
incentives for entrepreneurial innovation, while firms in other countries will typically pursue a 
catch-up strategy based on investments for growth. Within the EU-15, high-growth firms are 

6 

Commission Communication "Think Small First - A Small Business Act for Europe" – COM(2008)394 

EN 

7 

   EN 

 
                                                 
characterised  by  above-average  innovativeness,  whereas  in  the  new  Member  States  their 
innovation inputs and outputs are closer to average. 

4. 

IMPACT OF IMPORTANT EU POLICIES ON COMPETITIVENESS 

4.1. 

Sustainable Industrial Policy 

To keep Europe competitive in the increasingly challenging international environment and to 
further environmental goals by constraining the carbon footprint, the EU is promoting change 
toward  a  low-carbon  and  resource-efficient  economy.  In  order  to  achieve  this  objective, the 
European Commission proposed a range of Community-wide measures among which: the 3rd 
Internal  Energy  Market  package  and  the  Climate  action  and  renewable  energy  package7  in 
January  2008  which  are  currently  discussed  in  Council  and  Parliament.  Its  ambition  is  to 
reach  a  significant  reduction  of  the  EU’s  greenhouse  gas  emissions  (depending  on  the 
international situation, 20% or 30% as compared to 1990 levels) and an increase of the share 
of  renewable  energy  in  the  EU’s  overall  energy  consumption  to  20%  by  2020,  without 
compromising the EU's competitiveness. 

The  shift  towards  a  low-carbon  economy  represents  a  real  potential  in  growing  markets  for 
"environmentally  friendly"  products.  It  also  creates  opportunities  for  the  competitiveness  of 
this sector on international markets. European industry has already made significant advances 
in improving its energy and resource efficiency and is at the leading edge in key industries8. 
However,  barriers  still  hold  back  the  market  penetration  of  such  products  and  technologies. 
One  such  barrier  results  from  consumers  often  not  being  aware  of  the  existence  of  these 
products  or  being  discouraged  by  their  higher  initial  prices  despite  longer-term  subsequent 
savings. 

Evidence shows that  increased  market penetration  of  energy  and  resource  efficient  products 
and  technologies  entails  very  significant  potential  benefits  for  both  the  economy  and  the 
environment. To unleash such potential the Commission has recently adopted an Action Plan 
on Sustainable Consumption and Production and Sustainable Industrial Policy that sets out a 
harmonised,  integrated  and  dynamic  framework  aimed  at  improving  the  energy  and 
environmental  performance  of  products9.  The  framework  proposed  aims  at  improving  the 
overall  environmental  performance  of  products  throughout  their  life-cycle,  promoting  and 
stimulating the demand for better products and technologies and helping consumers to make 
better  choices  through  a  more  coherent  and  simplified  labelling.  As  such  they  should 
contribute to the strengthening of the EU competitiveness. 

4.2. 

Corporate Social Responsibility  

When re-launching the Lisbon Strategy in 2005, the Commission stated that Corporate Social 
Responsibility (CSR)10 “can play a key role in contributing to sustainable development while 

7 

8 

9 
10 

COM(2008)30 final, COM(2008)13 final, COM(2008)16 final, COM(2008)17 final, COM(2008)18 
final and COM(2008)19 final. 
Wind energy, for which EU companies have 60% of the world market share, is a case in point. Solar 
energy is another example.  
COM(2008)397. 
CSR  is  a  concept  whereby  companies  integrate  social  and  environmental  concerns  in  their  business 
operations and in their interaction with their stakeholders on a voluntary basis. 

EN 

8 

   EN 

 
                                                 
enhancing  Europe’s  innovative  potential  and  competitiveness”11.  The  importance  of  CSR 
cannot  be  overestimated,  not  least  since  one  lesson  from  the  current  financial  crisis  is  that 
socially  responsible  entrepreneurs  and  CEOs  are  of  utmost  importance  for  the  wellbeing  of 
our societies. 

CSR has a positive impact on firms’ competitiveness  

An  overview  of  the  effects  of  CSR  on  six  different  determinants  of  competiveness  at  firm 
level - cost structure, human resources, customer perspective, innovation, risk and reputation 
management,  and  financial  performance  -  shows  that  it  can  have  a  positive  impact  on 
competitiveness.  The  strongest  evidence  of  a  positive  impact  of  CSR  on  competitiveness 
appears  to  be  in  the  cases  of  human  resources,  risk  and  reputation  management  and 
innovation. The reputation of a company in terms of CSR becomes increasingly important for 
the chances to be successful in recruiting staff on highly competitive labour markets. 

The evidence suggests an important positive relationship between  CSR and competitiveness 
via human resource management, although for some companies the additional costs of CSR 
might  initially  outweigh  the  benefits.  CSR  is  an  essential  component  of  risk  and  reputation 
management  for  many  companies,  and  becomes  increasingly  important  as  enterprises  are 
exposed  to  greater  public  scrutiny.  Dealing  with  CSR  issues  such  as  transparency,  human 
rights,  and  supply-chain  requirements  from  a  risk  management  perspective  have  lead  some 
companies to discover additional positive impacts of CSR. 

Certain aspects of CSR, such as the creation of employee-friendly work-places, can enhance a 
firm’s  capacity  for  innovation.  The  positive  relationship  between  CSR  and  innovation  is 
strengthened  by  the  fact  that  innovation  is  increasingly  a  collaborative  exercise,  and  by  the 
trend  towards  the  generation  of  new  business  value  from  innovations  that  address  societal 
problems. 

The relationship between CSR and competitiveness appears to be getting stronger  

Many  of  the  factors  affecting  the  business  case  of  CSR  are  themselves  dynamic  and  are 
intensifying, such as employee expectations, consumer awareness, trends in private and public 
procurement,  the  nature  of  innovation  processes,  and  the  importance  that  financial  markets 
attribute to social and environmental issues. Business interest in CSR is increasingly based on 
opportunities  for  new  value  creation  and  not  just  on  value  protection  through  risk  and 
reputation management. 

The  strength  of  the  business  case  of  CSR  in  any  given  enterprise  is  still  dependent  on  its 
competitive  positioning.  For  some  companies,  exceeding  social  and  environmental  legal 
requirements  might  generate  costs  that  undermine  competitiveness.  However,  for  an 
increasing  number  of  enterprises  in  a  growing  number  of  industries,  CSR  is  becoming  a 
competitive necessity. Moreover, to be a competitive differentiator, CSR needs to be part of a 
core  business  strategy.  Enterprises  in  which  CSR  remains  a  peripheral  concern,  mainly 
confined  to  public  relations  functions,  are  likely  to  miss  opportunities  for  competitiveness 
gains. 

11 

Communication to the Spring European Council "Working together for growth and jobs. A new start for 
the Lisbon Strategy", COM(2005)24. 

EN 

9 

   EN 

 
                                                 
5. 

POLICY IMPLICATIONS 

This  year's  Competitiveness  Report  has  important  policy  implications:  well  designed  and 
implemented policies in some specific areas such as trade, innovation and entrepreneurship or 
energy can contribute to strengthening the competitiveness of the EU economy. 

The analysis of this year's Report has shown that the priorities and policy recommendations of 
the 2008-2010 cycle of  the  EU's Growth and Jobs Strategy remain highly relevant. The EU 
has to further boost innovation, the uptake of ICT and the competition in retail and product 
markets.  The  Small  Business  Act,  if  implemented  at  all  levels,  will  improve  the  business 
environment and promote entrepreneurship. It will foster entrepreneurial experimentation and 
the overall business climate in the EU. 

Concerning  the  external  dimension  of  competitiveness,  trade  policies  should  target  the 
reduction  of  behind-the-border  costs,  namely  international  regulatory  co-operation  and 
policies aimed at reducing non-tariff barriers and customs procedures. This can contribute to 
significant productivity gains for the EU economy. 

Early action in the field of sustainable production can lead to first mover advantages and can 
bring  very  significant  potential  benefits  for  both  the  economy  and  the  environment.  The 
recently  adopted  Action  Plan  on  Sustainable  Consumption  and  Production  and  Sustainable 
Industrial Policy is an important step towards a competitive low-carbon economy. 

Finally,  this  year's  Competitiveness  Report  has  pointed  to  a  positive  link  between 
competitiveness  and  Corporate  Social  Responsibility.  The  Commission  will  continue  to 
provide political impetus and the practical support to all stakeholders engaged in CSR. 

EN 

10 

   EN 

 
Annex: Growth decomposition in the EU-15 vis-a-vis the US (1995-2006) 

Growth differences vis-à-vis the US (1995-2006) in EU-15 

Real GDP  

Demographic component  

Labour market component 

Labour productivity  

Native population   

Net migration   

Share of working age population 

Youth participation   

25-54 male participation 

25-54 female participation 

55-64 participation   

Unemployment rate 

Average hours worked 

Initial education of labour 

Capital deepening   

Total factor productivity 

-1.2 
% 

-1.0
%

-0.8
%

-0.6
%

-0.4
%

-0.2
%

0.0% 0.2% 0.4%  0.6% 0.8% 

Source: Mourre, G. (2008), “What Drives Income Differentials, Underutilisation of Labour and Economic 
Growth in Europe? A Detailed GDP Accounting Exercise”, Manuscript, Free University of Brussels. 

EN 

11 

   EN