Which European countries put people before profits – and grow anyway?

In order to grow, countries have to be competitive. In order for everyone to benefit from economic growth, countries also have to be inclusive.

Getting both together is what the World Economic Forum calls the “win-win space”. Its recent report, Beyond the Equity-Efficiency Trade-Off, looks at how Europe can achieve this goal.

The paper, whose subtitle is Practical Ideas for Inclusive Growth and Competitiveness in Europe, outlines how competitiveness and inclusiveness can be promoted. The report also gives examples of companies who are shining examples of what needs to happen on a wide scale.

As illustrated in the chart below, good performance on both competitiveness and inclusion is by no means a contradiction.

Those in the top right hand corner of the scatter graph, Switzerland, Norway, Sweden and the Netherlands are performing strongly when it comes to inclusive growth.

How to play for a win-win

The report analyses five ways in which countries can move towards more inclusive growth and competitiveness. The two key drivers, according to the report, are innovation and entrepreneurship. These are enabled by three other factors: strong markets for goods and services, a strong labour force and access to finance.

The report is littered with examples of where some of this is already happening, arguing that the examples show that greater inclusion can indeed be a catalyst for greater prosperity in Europe.

One way to promote both innovation, and its diffusion, is by promoting public-private partnerships, such as that happening at Swedish innovation agency, Vinnova.

Vinnova brings together companies, universities, research institutes and the public sector to determine research priorities and to pool resources. Because these partnerships are multistakeholder, everyone will feel the gains from future innovations, says the report.

But in order for Europe to reach its full potential for innovation, it must unearth the existing talent of the entire population, something which the report says that Europe is weak on.

The report highlights the i.am.angel Foundation as an example of how to diversify the innovator base. The Foundation encourages youth from one of the most deprived neighbourhoods in Los Angeles to discover their potential as technology pioneers.

Other areas that the report identifies include diversifying the innovator base, creating the right conditions for (digital) social innovation to flourish and accelerating the diffusion of innovation among firms.

Business dynamism

Dynamism is the ability of a company to quickly deploy its resources to their most productive use. One of the recommendations made by the report is to facilitate this through appropriate framework conditions.

For instance, the European Regulation on Business Insolvency is a new approach to business insolvency in Europe. It provides legal certainty to cross-border investors and companies operating across the EU.

The new rules will help attract investors, create and preserve jobs, as well as help economies absorb economic shocks, says the report.

Other areas for improvement include kick-starting the entrepreneurial ecosystem with things like access to broadband, helping to scale up start-ups, and building support schemes for migrant entrepreneurs.

There are also cultural issues to address, such as the fear of failure, which can be a significant barrier to entrepreneurship.

Vital infrastructure

But these goals can’t be achieved without an infrastructure to underpin them. For instance, rolling out faster broadband, accelerating investment in smart transport infrastructure, and investing in smart grids will all help bring about the win-win space.

The report highlights the example of Empresa Municipal de Transportes (EMT), the municipal transport company of Madrid, who is using the Internet of Things to make its transport system more efficient.

It has been a pioneer in Europe in collecting, processing and disseminating real-time passenger information. This has allowed it to free up resources for other investments and reduce the costs of congestion, thus improving the overall productivity and competitiveness of urban centres.

Teach young people digital skills

Developed economies are facing a skills shortage. It’s one of the most frequently cited obstacle to investment, according to the report.

But inclusive growth can only be achieved if the population has the skills to make full use of the digital advances of what's being called the Fourth Industrial Revolution. That includes equipping the younger generation.

The report references the work of EIT Digital, which brings together students, researchers, engineers, business developers and entrepreneurs in different locations with the aim of creating the digital talent of the future.

Finally, the report outlines how innovative firms need a wide access to financing if they are to grow. The report recommends, among other things, promoting equity financing and increasing the role of non-bank intermediaries in SME finance, including FinTech and non-bank lending.

One organization that is helping to make this happen is the Start-up and Scale-up Initiative from the European Commission.

Its main aims are to remove barriers for startups to scale-up in the EU Single Market; to create better opportunities for partnership, commercial opportunities and skills; and to facilitate the access to finance.

Addressing these issues could help to significantly improve the competitiveness of European businesses, says the report.

“We will have to move away from prioritizing growth over inclusion and treating them as two separate processes, understanding that long-term growth presupposes an inclusive economic system at the base,” concludes the report.

“While many important initiatives in this vein already exist in Europe, implementation needs to become more systematic.”