in its export markets. however, a country like italy, which is specialized in shoes and clothing, is confronted with severe competition from china. consequently, italy will have to restructure its shoes and clothing industries, something the netherlands already did by the end of the 60s. a key question for the future is whether europe can sustain global competition with countries like china. the development of labour productivity is an important determinant of the competitive position. in this respect, it is worrisome that the growth of european labour productivity has been lagging behind its main competitors in the past years 2, although recently there seems to be a pick - up in trend productivity growth. possible explanations for the low productivity growth in europe are the lack of technological progress and an unfavourable business environment 3. let me take a closer look at both. concerning technological progress, there is evidence that europe ’ s relative weak productivity growth can at least partly be explained by its low research - and - development efforts. in the us and japan, cpb ( 2006 ), china and the dutch economy ; stylised facts and prospects, cpb document 127. while annual productivity growth recently decelerated from 2. 4 % ( 1970 - 1995 ) to 1. 3 % ( 1995 - 2004 ) in the euro area, it accelerated from 1. 3 % to 2. 4 % in the us. source : european commission ( 2007 ), annual report on the euro area. source : ecb ( 2005 ), competitiveness and the export performance of the euro area, occasional paper no. 30. r & d - expenditures 4 in total manufacturing are about 50 % higher than in the euro area. a second factor which might explain our weak productivity growth, is the education of the european population. over the last decades we have seen an increase in the level of educational attainment. but to create a knowledge - based european powerhouse, we need to unlock universities ’ potential. in a global context european universities are currently no match for american universities 5. more competition between academic institutions, selective entrance exams and allowing more freedom in funding could spark a move to high - quality academic research. this is one of the things europe needs to become “ the most competitive and dynamic knowledge - driven economy ” as laid down in the lisbon agenda. concerning the overall business environment, there is evidence that europe is in a less favourable position than its main competitors. surveys among european businessmen suggest that this holds in particular for the tax system, labour

to approximately three children during their lives. after having fallen to 1. 5 children in the mid 80s, this figure is now projected to be only 1. 75 children in the coming decades. secondly, we live longer. at the time the public pension scheme ( aow ) was introduced ( 1957 ), the average remaining life expectancy at age 65 was less than 15 years. nowadays, new aowbeneficiaries expect to receive aow - benefits for more than 18 years on average. r & d - expenditures divided by value added. p. kalaitzidakis, t. p. mamuneas and t. stengos ( 2001 ), ranking of academic journals and institutions in economics, october 2001. source : oecd. marginal tax on labour consists of income tax, employee and employer social contributions as a percentage of total labour costs of average worker. turmann, a. ( 2004 ), a new european agenda for labour mobility, ceps task force report. world bank ( 2006 ), world development indicators, business environment database. source : un ( 2006 ), world population prospects : the 2006 revision. from an economic point of view, both demographic trends are basically good news. having fewer children reduces the scarcity of finite natural resources, which has a positive effect on individual welfare. living longer partly mitigates this effect as individuals use more finite natural resources the longer they live. however, living longer also increases an individual ’ s potential earning capacity over their lifetime. reaping the potential economic gains from living longer requires adjustments, in particular with respect to education and retirement. let me take a closer look at both. living and working longer requires more attention for education both when young and old. young people should be properly educated and the number of school drop outs should be reduced. older people need to get additional education during their careers to keep pace with the latest technological developments. in this respect, it is good to note that this concept of life - long learning is one of the leading principles of education at insead. living and working longer also requires an increase in retirement ages. until recently, most european countries never increased their statutory retirement ages despite the increased longevity of their population. this threatens the sustainability of the pay - as - you - go financed european public pension schemes. germany and the uk have recently announced a gradual increase in the statutory pension age to 67 and 68 respectively. other european countries should also increase retirement ages in response to longevity developments