The European economy is looking for its Michelin star

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MARAVILLAS DELGADOAnyone who has tried it knows that facing a recipe for the first time is a challenge. The list of ingredients, the quality of the raw materials and the indications of times and steps to follow do not guarantee the desired result. In the kitchen, success or failure also depends on the skill of the cook, acquired through experience and learning. Something similar happens in the economy. In the production of goods and services, the secret ingredient is not raw materials or machinery, but knowledge. In fact, the importance of the intangible in globalization is already a palpable reality. Services account for 20-25% of global trade, data transfers on the internet grew by 500% between 2010 and 2017, and the dissemination of knowledge has multiplied by 1.4 since the 2008 crisis. At the same time as multinationals are building innovation and development (R&D) centres in different countries, trade in services in economic sectors such as telecommunications, IT and biotechnology is increasing in a dynamic independent of trade in goods. The production of vaccines against Covid-19 is a good example. Scientific knowledge has determined the creation of vaccines such as Moderna or Pfizer-BioNTech, the most widely used in the EU with more than 480 million doses inoculated. However, to carry out the largest global immunisation campaign and vaccinate 7 billion people, the production of at least 14 billion doses is necessary. This requires the addition of other types of knowledge. The companies that produce and distribute the vaccine have needed to create their own value chains. From pharmaceutical ingredients and medical machinery to syringes and freezers. To develop these chains, made up of hundreds of companies, material goods have been used, but also intangible ones, especially through human capital that is transferred through services, ideas and intellectual property. This new recipe for international trade denies that globalization is in decline, but it does indicate that it is changing and that it is increasingly characterized by being intangible, digital, and knowledge-intensive. The challenge is that not all countries are prepared to take full advantage of this 2.0 globalization. Problems due to the blockage of supply chains and the fear of shortages of certain products have been the focus of attention in recent months. Avoiding dependence on products produced in other countries has become the mantra of European industrial policy. However, it is a mistake to focus on the concept of dependence. In a world of interconnected economies, the EU, due to its size and population, will have a progressively smaller weight and it is neither feasible nor desirable for the goods and services it consumes to be produced only within its borders. European dependence on the rest of the world is therefore inevitable and must be approached from a positive perspective. The loss of relative weight in the world economy will mean that an increasing part of the innovations and products that Europeans acquire will be generated abroad. In exchange, the different industrial sectors in Europe can specialise in the production of certain goods and services that are more favourable to them and, at the same time, companies and citizens can access and benefit from a growing number of innovations and technologies developed outside the EU. Europe must choose which sectors it wants to excel in and European industrial policy must be developed taking into account that ideas and knowledge are key in the new globalisation. The bad news is that the percentage of European GDP devoted to R&D has stagnated since 2010 and that the European Union only has two universities among the 50 best in the world. The good news is that Europe has the human capital, infrastructure and institutional stability to continue being a leading region in the most dynamic and competitive business sectors. Achieving the recipe for success requires investing in centres of excellence that are at the forefront of knowledge. Only in this way will the European economy be able to earn its Michelin star. Óscar Guinea is an economist at the European Centre for International Political Economy and Isabel Pérez del Puerto is a journalist.

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