Addressing the social and economic challenges in Europe

Specific Challenge:

Years after the crisis and near-zero interest rates, resilient economic growth is still low in Europe. Boosting economic growth requires concerted actions to simultaneously stimulate supply and demand side economic policies. From the supply side, the “productivity puzzle”, namely the deceleration of productivity growth despite technological advances, has regained the attention of policy and academic communities. With a view to the next decades that will bring far-reaching demographic changes, this situation will become problematic: shrinking working-age populations with fast-increasing numbers of older people and considerations on inter-generational fairness will make strong productivity gains ever more essential. Re-acceleration of productivity growth through creating a strong knowledge base is hence key for maintaining the EU's current economic and welfare position. At the same time, the ways in which knowledge- driven economies work in their national contexts and interact internationally have also changed. Therefore, productivity and growth cannot be addressed without taking into account with greater precision the impact of globalisation on national economies. To understand productivity dynamism, one needs to study its micro foundations (intangible assets, market entry, digitalisation) and the role of public sector intangibles (culture, education, skills) to identify their role in the growth-productivity relationship in Europe.

Availability of data and official statistics for comparative economic research on these challenges is essential. Data provision and its take up in the official statistical systems in Europe is central with a view to supporting policy making. From the demand side angle, weak economic performance may reflect an unusually prolonged shortfall of aggregate demand that may have given rise to what has been called "secular stagnation". Against this backdrop, the question that arises is what government demand policies can do to boost economic growth, and how the fiscal and monetary policy can have a redefined role in this low growth environment.

Scope:

Building on past economic research in the fields of productivity and growth measurement, proposals should analyse the underlying reasons for the "productivity puzzle", together with the impact of globalisation and demographic change on national economies, and the distribution of income flows generated by global value chains (for example by the mobility of intangible assets, the role of of Multi-National Firms). Proposals should also examine the degree to which productivity may be inadequately measured due to data problems and conceptual gaps. Furthermore, attention should be paid to both alternative explanations and the micro and macro-economic underpinnings of growth and productivity in a global context. In this vein, the barriers for low entry and weak dynamism (finance, skills, knowledge diffusion, scaling-up) in European SMEs and start-ups should be elucidated. Understanding the role of the government sector and its intangibles for European growth and productivity dynamism is also important.

Research should pay strong attention to improved or even new measurements and accompanying macro- and firm-level statistics on productivity, intangible assets and global value chains and their interactions. Thus, collaborative statistical and economic research should integrate the new and improved statistics and data in the official statistical system in a sustainable fashion. Along with better measurement and statistics, the combined effects of globalisation and technological change in terms of their distributional impacts through labour market dynamics and innovation remain central questions to be addressed.

Furthermore, proposals should focus on understanding whether the growth stagnation of the past years is truly "secular" or not and, what kind of fiscal and monetary policy tools e.g. interest rate policies, would be well equipped to support growth-enhancing reforms. Proposals should focus on understanding whether demand stabilisation policies have changed since the crisis what the role of fiscal and monetary policies, e.g. the role of balance sheet policies, would be with a view to boosting aggregate demand.

Expected Impact:

This research action will foster new economic policy thinking and bring about new statistical advances concerning how to address the challenges of maintaining productivity in an ageing society with intergenerational fairness, investment, globalisation and macroeconomic policies, and will thereby address key concerns of citizens in Europe. The research will improve the European statistical systems and policy design in key economic areas.