János Gács
The Lisbon Enigma
The Fall and Rise of a Secret Plan
On 22 and 23 March, 2005, the EU's prime ministers and heads of state convened
in Brussels to survey the so-called Lisbon Process, a complex set of
reforms with a set deadline. Any honest account of events would have been
bound to report that the Lisbon Process produced one of the major failures in the
history of the European Union. Up until then, the Union had more or less managed
to usher through institutional reforms and repeated enlargements without fuss
and on schedule. Examples include institutional reforms as complicated and
time-consuming as the creation of the Single Market in 1992, the finalisation of
the European Monetary Union in 1999, or the accession of ten new countries in
2004: all of these were completed on time and, in essence, successfully. But not
the Lisbon Process, it seems, which has grossly failed to satisfy the goals it has
set. What went wrong, and how will the Union deal with this failure?
It was November 2002. At the conference, a growing number looked at each
other as if to say, "Did I hear that right?" As in every autumn over the last few
years, the Austrian National Bank had organised an East-West Conference in
Vienna to discuss issues of the Eastern European economic transition and the EU
enlargement. The participants were bank analysts, government officials, experts
from international organizations and researchers. Speaking at that particular
moment was a middle-aged professor from Portugal, who said something definitely
odd: that a few years previously, the EU had launched a programme that
would ensure that the Union would outstrip America in competitiveness within 10
years. In addition, it sought to achieve progress in all kinds of other areas that
could previously only be dreamt of. Be it employment, research and development,
education, social protection or the environment, the Union set itself ambitious
and precise goals which could be and had to be achieved within a decade. This
was the Lisbon Process, otherwise known as the Lisbon Strategy.
The desire to catch up, ambitious plans, an unstructured mass of tempting
objectives, the naive "if you wish hard enough you will succeed" logic of all this
was terribly familiar to those of us from Eastern Europe who happened to make
up the majority of the target audience. But Western participants were also irritated
by what they apparently perceived as pure voluntarism. Thus those commenting
on the lecture were either ironic or gave polite expression to their misgivings.
We thought of ourselves as familiar with EU issues, but in two and a half years
we had heard nothing of the Lisbon initiative. How could this be? And neither did
the whole thing really fit into our picture of the Union. True, the European economy
is growing more slowly than that of the United States, but how can the Union
initiate a catch-up programme, and why would it set out deadlines and numerical
objectives for 2005 and 2010? The European Union is not a planned economy.
One of the many fundamentally flawed assumptions of the ideology of centrally
planned economies based on state ownership was that the planner was omnipotent.
The Union is, however, a group of associated market economies, so none of
its administrative centres can hope to exercise comprehensive control over the
economies of all the member states. Indeed, a number of areas, like employment
and social protection, are in the hands of national governments, and the Union
has next to no jurisdiction over them. How, then, is the Union to be expected to
induce member states to observe "plan targets"?
Anything nice and good
So what happened in March 2000 in Lisbon, and what has happened since?
In 2000 the EU's heads of state and government met for their usual spring
summit. The turn of the millennium ran hot with notions such as the "new economy",
information technology, telecommunications and biotechnology; the
world was feverish thanks to booming stock markets and the dotcom revolution.
The continent's leaders thought it was time to shake up the member states, else
in this speeded-up world Europe would forever lag behind a United States that
was leading the way in revolutionary change. Meanwhile Europe's employment
problems and an increasingly aging population made the reform of labour markets
and welfare systems inevitable. The summit decided that a new strategy was
needed: a reform strategy with suitably ambitious goals. A document was passed
that declared the following:
The Union has set itself a new strategic goal for the next decade: 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.
Increased competitiveness was to be guaranteed by liberalisation and reforms:
liberalisation of telecommunications and financial services, of transport, of rail
and air travel, less bureaucracy with company formation, reducing the burden on
enterprises, and state support for particular sectors. The objective was for the
Union to increase GDP each year by an average of 3 per cent. The knowledgebased
society was partly to be strengthened by the introduction of a unified
European community patent system and by increasing spending on research and
development. This was expressed numerically, with spending on research and
development to reach 3 per cent of GDP by 2010, with, if possible, 2 per cent of
this to be raised by the private sector. As far as employment was concerned, ambitious
objectives were set for the total employment rate to rise from 63.4 per cent
to 70 per cent, for female employment from 54.1 per cent to 60 per cent and for
the employment rate of older workers from 37.8 per cent to 50 per cent. Full
employment was declared to be desirable, that is an average unemployment rate
of around 4 per cent. Plans were made for the training of the young and the lifelong
learning of those in employment. This was also expressed in numerical terms:
by 2010, 20 million new jobs were to be created in what in 2000 were the 15 member
states. The social cohesion objectives concentrated on a tangible reduction of
poverty and social exclusion, a strengthening of the European social model, while
at the same time - in view of the ageing population - seeking to reform it. Environmental
protection was to be served by various measures, including fulfilment
of commitments under the Kyoto protocol and restrictions on growth in transport.
The plan - with nothing in the way of preparation or debate
Essentially, the Lisbon Process can be likened to a long-term plan for the period
from 2000 to 2010, with a list of numerical objectives. As we have seen, with
the exception of a few areas, this plan covers all of the Union's more important issues
relating to the economy. These objectives refer to the Union as a whole, however,
and are not broken down to individual member states. One reason for this is
that the Union's heads of state and government are well aware that the Lisbon
Process mainly targets areas traditionally under national jurisdiction. The EU cannot,
for example, force any of its member states to raise its employment rate or
spending on research and development to a particular level in any given year.
The Lisbon Strategy, in essence, expresses the belief that progress cannot be
made in many EU areas without coordinated leadership at the EU level. The
unspoken corollary of this is that these questions should perhaps be brought
within the scope of EU competence. These areas - the labour market and employment,
social protection and welfare institutions, the tax system, education and
training, research and development, innovation - however, are all politically
sensitive. Individual states differ widely, as to their national preferences and they
are not likely to accept rigid universal directives set across the EU. In all countries, whoever is in government is aware that their hold on power depends on the
domestic policy framework within which they deal with the above questions. In
the light of this, they cannot easily be persuaded to abandon their control over
these areas and hand them over to the Union. In truth, the Lisbon Strategy is an
experiment in moving many aspects of the EU into a grey area which, in terms of
its coordination, lies somewhere in-between questions clearly under national
jurisdiction and those under centralised EU control.
Questions included in this grey area cannot be dealt with in the same way
as those under EU jurisdiction. (The latter are, put simply, mutually accepted EU
laws and directives that are transposed into the member states' own legal systems.)
For this reason, the Union has developed a unique technique for implementing the
Lisbon Process, the so-called open method of coordination. The elements of this are
as follows: the elaboration and regular updating of community-level guidelines,
and a schedule for the achievement of stated objectives; the use of quantitative and
qualitative indicators to measure the performance of the Union and its member
states; the analysis and benchmarking of innovative solutions; adapting EU guiding
principles to policies at the national level, regular common monitoring, evaluation
and a so-called "peer review" of the achievements of member states.
This new method seems somewhat complicated at first, and looks like little
more than an over-elaborate etiquette of consultation serving only to waste time
and resources. The European Union is a complicated institution, however, and
even decisions taken with partially or completely centralised jurisdiction come
about only after a prolonged mechanism of negotiation.
The new coordination mechanism, then, seemed not so much unusual as simply
inefficient. But the real puzzles of the Lisbon Strategy are as follows: (1) the
strategy was not preceded by competent professional preparatory work and
research; (2) for years, awareness of it among the public in member countries was
nil; (3) despite its evident and peculiar characteristics, it encountered no criticism
for years. Criticism has not been forthcoming from either academic or political
quarters, and not even - as far as one can see - from the press.
Although I am an economist, I do not think that all political decisions should
be taken in the light of academic considerations. The European Union, however,
is to a large extent the realization of rather utopian concepts of an institution that
has never really existed, and so those who dreamed it up regularly turned to the
experts when creating the edifice. This is what happened during the Union's two
significant transformations in the 1990s, for example. The implementation in 1992
of the single market for goods, services, labour and capital was prefaced by a
series of academic studies, just as was the introduction of the euro as a common
currency, at the end of the decade. When creating the Lisbon Strategy in 2000,
however, the EU's heads of state and government did not think any academic
study of the strategy to be necessary. This was later to blow back in their faces.
For they failed to raise the question of what the relationship between the many
individually desirable objectives (competitiveness, employment, building a knowledge-
based society, social cohesion, protection of the environment) was. Put simply,
were these to strengthen each other, or be at each other's expense? Did the
numerical goals have any basis in reality? Would all the interstate consultation and
coordination be enough to persuade member states to implement the objectives?
A similarly mysterious circumstance is that since the launch of the Lisbon
Strategy in 2000 there has been simply no specialist literature on it: in contrast to the
extensive writing on the operation of the single market or the euro zone, until the
middle of 2004 there were hardly any articles in the international database of economics
literature that dealt with the subject. And it has inspired but a single volume,
edited by the very Portuguese professor, mentioned above, Maria Joao Rodrigues.
A good example of just how unknown the process was until very recently is the
case of Jean-Claude Juncker, prime minister of Luxembourg, who started talking
about Lisbon at an election campaign rally in 2004, only for his followers to interrupt
him and tell him to stop talking about his holiday plans and turn to the real
problems in hand.
The victor y of politics
This brings us to the essential question: how can the EU's leading body have
burdened the community with such an inadequately prepared and voluntarist
programme, a programme whose obvious errors were not discussed at all for
many years, and which was doomed to failure almost from the outset?
The political climate of the summit in Lisbon gives some answer as to the
rapid, unprepared beginnings, and a continuation far removed from the initial
enthusiasm. In March 2000, the prime ministers of the EU's three largest
economies were Tony Blair, Gerhard Schröder and Lionel Jospin, all leaders of
socialist or social democratic parties, just like Antonio Guterres, prime minister
of Portugal, the country holding the EU presidency. At the time of the Lisbon
summit, a number of politicians put great hope in the success of Blair's "third
way", and they knew that their respected rival, the United States, was led by Bill
Clinton, a politician both of whose terms in office had displayed unprecedented
economic successes. The faith of the Lisbon Process in medium- and long-term
planning, and the belief that questions of employment and the welfare state
should be coordinated at the EU level, were rooted in their left-leaning way of
thinking. Yet the proposed strategy was also supported by governments that were
not left-wing, because they mostly expected that it would systematically remove
the bureaucratic obstacles to competitiveness. In the first half of 2000, many
thought that strengthening international competitiveness, increasing employment
and enhancing social cohesion in line with European values could all easily
be harmonized with one another. This historical moment did not last for more
than a few months, however: the momentum which set the Lisbon process in
motion was soon blown away by the bursting of the dot.com bubble, by a change
in the direction of American economic policy, by the deepening difficulties of the
German economy and by a host of other factors.
While clearly playing its part in the management of the tasks it involved, the
apparatus of the European Commission never fully put its weight behind a plan
that was essentially political in motivation and that had not been professionally
deliberated. This meant that the Lisbon Strategy and the efforts made to implement
it were to all extents and purposes kept a secret for many years. Academic
researchers either did not know about this hushed-up initiative, or did not take
it seriously. Hardly any critical thoughts were formulated, perhaps also for fear of
picking a quarrel with the EU: after all, the chief sponsor of research into the
Union is the European Commission. The EU is not an imperial power structure,
but sadly some of its behaviour nevertheless reminds one of the tale of the
Emperor's New Clothes.
Enthusiastic officials, dismal achievements
In the first months of 2004, with a number of Austrian, Italian, Swedish and
Hungarian experts and leading civil servants, I discussed the progress of the
Lisbon Strategy both in member states and accession countries. Without exception,
these experts saw it as an important initiative, and considered their own
participation and the systematic international harmonization of EU policies to
have been useful. It transpired from these conversations and the documents
analysed that the greatest advantage of the Lisbon Process was indeed that it put
the long-term strategic problems facing the countries of Europe on the agenda,
and made the consideration of institutional reform a permanent issue. What from
the outside appears to be an endless series of consultations and negotiations in
fact encourages the governments and bureaucracies of the individual member
states to have a strategic outlook, to think in terms of institutional alternatives,
and to compare notes on their substantive experiences. In addition, advocates of
certain issues, who by the nature of the issues have limited representation of
their interests and also face indifference in their countries - like those fighting
poverty and social exclusion - are armed with significant ammunition by dint of
the attention Europe pays to them.
Despite these positive experiences, the years passed and there was no sign of
the goals of the Lisbon Process being met. By 2004 and 2005, the European public
was forced to face the fact that here was a strategy for growth and reform for
the period 2000-2010 which had already brought dismal results in its first five
years: the competitiveness gap between Europe and America (however we interpret
it) had not diminished, the employment objectives appeared unrealistic, and
Europe as a whole was still not at the forefront of the establishment of the knowledge-
based society.
Criticisms and corrections
In 2004, a few articles and studies appeared in academic circles that formulated
an honest critique, and the president of the European Commission asked a socalled
High Level Group, led by Wim Kok, the former Dutch prime minister, to
evaluate the progress of the Lisbon Process. While researchers pointed to its
structural weaknesses, the report of the official committee echoed, alongside
some restrained criticism, optimistic clichés. "The objectives, comrades, were
good ones; the only problem was with the implementation" - the Wim Kok report
clearly evokes memories of similar turns of phrase used in the Comecon countries
in the days of centrally-planned economies.
In February 2005, and based on the Kok report, José Manual Barroso, president
of the European Commission, submitted a proposal to the European Council,
comprising EU heads of state and government, which promised a restart of the
Lisbon Strategy. He suggested that the issues of social cohesion and environmental
protection be left out of it. In the future, the revived Lisbon Strategy will concentrate
on growth, employment and the establishment of a knowledge-based
society. Almost all of its numerical objectives have been put aside; even the 2010
deadline has been removed, and the Strategy has, in good enough time, become
an open one. The EU's approach would become simpler on condition that member
states were to make greater efforts and take ownership of the process for
themselves. The government of each member state has individually to prepare unified
annual and tri-annual Lisbon action plans, report on their success and to
nominate a national commissioner responsible for the Lisbon Strategy - a Mr or
Mrs Lisbon, if you like. The involvement of national parliaments and the European
Parliament in the elaboration of the Lisbon Strategy and the evaluation of its
achievements is called for in order to increase recognition and legitimacy for it.
The Commission's proposal has been debated in both the Council of Ministers
and the European Parliament. Ministers and MEPs from many countries (including
Hungary) objected to the initiative of social cohesion being thrown overboard
by the captain of the Lisbon ship. Belgian Prime Minister Guy Verhofstadt, taking
seriously the substantive criticism of researchers concerning the Process, came up
with a radical alternative proposal. Amongst other things, he wished to see the
Union accept minimum and maximum requirements for the labour market and
social and fiscal issues that are to remain within the jurisdiction of member states.
This would mean regulation similar to that in place today in the case of value
added tax, i.e. that every member state can freely set the rate of the tax between
the minimum and maximum values determined by the EU. From the point of view
of management technique, Verhofstadt's proposal clearly provided an alternative
to the inefficient method of open coordination. Its substantive objective, however,
would have been the implementation of a unified European growth strategy,
without allowing certain member countries, primarily the new member states in Central and Eastern Europe, to undermine the European social model with a form
of fiscal and social dumping (i.e. low taxes and welfare levels). This proposal only
strengthens the impression, one that is in the air, that whereas the United States
had once been the only bogey-man for the 15 old member states, it was being
joined not only by China, but also by the new EU countries.
The debate was concluded in record time, alternative opinions were not the
order of the day, and in the end the EU heads of state and government accepted
the original proposal of the Commission led by Barroso. The starting gun for the
new incarnation of the Lisbon Strategy had gone off. Following five years of fruitless
meandering, perhaps there is now more hope that in addition to, or rather
instead of, thunderous talk of change, the member states may really sit down and
think through what is desirable, what is possible and what is politically acceptable
for them, and for the community as a whole, as far as a coordinated growth
and society-shaping strategy is concerned.
János Gács
is currently Senior Research Fellow in the Institute of Economics, Hungarian Academy
of Sciences. He has published on planners' behaviour, the economics of shortage, trade
liberalisation in transition countries as well as on various issues of the economics of
transition and EU integration.
