Red tape is turning best firms away from Europe

I am interested in what allows economic growth, what causes it and what prevents it. I take no delight in Europe suffering from its own bullets; I want everyone to succeed. But here is one more lesson on what works.

The news is bad. The Telegraph of UK reports

rope's most successful companies are turning their backs on EU markets because of red tape, a high-level report said yesterday.

The companies that Europe needed to survive were instead investing more money than ever in the United States and Asia, concluded the report, presented to the European Commission in Brussels.

The lack of investment was so dire that it threatened Europe's "comfortable" way of life. "Europe has to act before it's too late," said the report's author, Esko Aho, the former prime minister of Finland.

And they knew 10 years ago that they had a problem and they promised "to quit."

The findings made unsettling reading for the EU leaders, ripping into their pledges to build a "knowledge-based Europe" that would overtake America in 10 years.

Perhaps most damagingly, Europe's most important countries were pouring more and more of their technology investment overseas, as they despaired of the European Union becoming "innovation friendly".

Unless EU governments took bold action to increase spending on research, freed labour (sic) markets so skilled workers could move more easily, and stopped pouring taxpayers' money into dying industries, Europe's post-war way of life was doomed.

The report said: "Europe must break out of structures and expectations established in the post-Second World War era that leave it today living a moderately comfortable life on slowly declining capital.

Is now the time for denial? For France and Germany: yes. But here is an exception:

Mr Aho [of Finland] refused to follow the lead of French or German politicians, who have attacked major corporations for investing overseas and called for more "economic patriotism".

He said: "We cannot blame them. They are trying to take care of global competitiveness. Unfortunately, these companies can survive without Europe, but Europe cannot survive without these companies. That is why Europe has to act before it's too late."

Some of the specifics:

• continuing to pour state aid into dying industries such as cars, steel and textiles.
  
• lack of investment: "As part of the so-called Lisbon agenda of 2001 EU leaders committed themselves to spending three per cent of their gross domestic product on research and development. Halfway through the 10-year Lisbon agenda programme, the EU still spent a meagre 1.9 per cent, far behind the US or Japan.
  
• productivity: "the report noted that Europe badly needed to extract more productivity from each worker.

And how about taxes?