lock - in to low - wage / low productivity production. this would lead into rapidly widening income differences between the eu countries. in the longer term, know how, business management skills, and capital imported through fdi need to be “ rooted ” in the societies such as to build up domestic capacity and ability for further increases in productivity. as static comparative advantages based on lower labour costs has been deployed, the new member countries need to base longer term industrial strategy on dynamic comparative advantage and policies that enhance productivity through innovative activities of the firms. once more, competition combined with appropriate renewal of institutions would be essential.

tradition in science and innovation. indeed, europe is the birthplace of scientific inquiry. and, it is fitting that some of the most influential scientists of the 20th century, john von neumann and leo szilard, men whose contributions ushered in the computer and nuclear age, hailed originally from our host city budapest. this tradition provides a solid foundation to build on. high - profile joint undertakings such as cern can play an important role in pooling european resources to advance basic or fundamental research. such endeavours can also spawn unexpected by - products. for instance, the world wide web came to being at cern. however, even more important than large european projects, is that we put in place conditions that allow and encourage private companies and public sectors to embrace new technologies. this means that we need to equip all european citizens with the skills that they need to cope with the rapidly changing world. population ageing requires increasing public sector efficiency in general, large public sector employment tends to crowd out employment in the private sector, thus distorting the allocation of labour input in the economy. similarly, a large public sector can be a drag for productivity growth. even though it is difficult to measure productivity in the public sector, in aggregate terms it appears to be lower than in the rest of the economy and in particular in the open sector, and grows more slowly. the question of how to minimise these negative aspects of a large public sector, becomes all the more pressing with an ageing population. in finland we face the most rapidly ageing population, so these are no longer hypothetical questions but a reality that policymakers must deal with today. the demand for welfare and health services increases as the population grows older, and at the same time, the room for financing extra expenditure by higher taxation is limited because of an already high level of taxation and increasing tax competition. how can we ensure that the public sector in general and welfare services in particular can adapt? one way, the applicability of which varies from case to case, is to expose part of the public services to private competition. another way is to focus on measuring performance of the public sector and put in place appropriate incentives to respond to change. the public sector needs also to be more responsive to its " customers " needs. too often bureaucracies forget that they ultimately exist for the benefit of their customers. the customer - oriented approach is not only essential for ensuring efficient delivery of public services. but, perhaps more importantly, the public sector