Tuesday, October 16, 2007

Eastern Europe risks never catching up with western states

Central and Eastern Europe states are in danger of never catching up with Western Europe, as the long term economic growth potential in the region is undermined by a widening human capital gap with the west of the continent, a report has warned.

The report – called the European Human Capital Index – ranked eastern EU members and candidates on their ability to develop and sustain their human capital, and was released by the Brussels-based Lisbon Council think tank on Monday (15 October).
Since the collapse of communism, economic growth in the former communist states is far above growth seen elsewhere on the continent, narrowing the difference in economic wealth between the two halves of the continent.

But researchers now fear that a continuation of this performance is unlikely, unless certain problems are urgently addressed.

"The entire study shows a closing of the gap in the last 15 years, but now it could widen again," Peer Ederer, the lead author of the study warned during the report's presentation.

"An economy does no longer only have to be efficiency-driven. If you want to be able to compete with Western Europe and Asia, you have to become an innovation-driven economy," he said later on.

In particular, the report highlights the region's shrinking population, continuous brain-drain, chronically high unemployment and inadequate investment in education and skills - especially in workers aged 45 or more – as the main problems.

"Stop early retirement schemes, reduce unemployment, stimulate part-time employment. Keep them in the job, get them in the job, in every way possible," Dr Ederer said.

"The demographic outlook is [also] not good," he added. "In Eastern Europe, you can find the lowest birth rates, basically in each of these countries. (...) Combine the demographic data with the brain-drain that continues to happen, and you have a very bleak picture."

The report also criticises Eastern European policy makers for failing to invest in people older than 45 years – about one-thirds of the population, thereby creating a "lost generation".

Examining the school systems, the report praised central and eastern European countries, but warned that they are still far away from the best.

"Secondary schooling systems are more or less on par with Western Europe, but when compared to [South] Korea and Finland, most Western European countries should also perform better."

Still a chance
The EU members that are doing well – Slovenia, the Czech Republic, Estonia and Lithuania – still have a small chance of achieving Western standards of living within the next two decades, according to the report.

Slovenia is roughly on a par with Greece, Italy and Portugal, which were measured in a similar report last year.

But the members that trail the index' ranking – Slovakia, Bulgaria and Poland – are likely to remain stuck in relative poverty for a very long time when compared to the EU average.

Turkey, a candidate member, is the only country with a young and growing population, something which could, according to the authors, play a key role in addressing Europe's human capital needs.

They mentioned that by 2050, an estimated 19% of the European active workforce would be Turkish, almost equal to the working population of all other Mediterranean countries taken together.

Croatia, another candidate member, trails the list, just behind Bulgaria and Poland.

Human capital is considered an important factor in determining whether the EU will become a knowledge-based economy, an economic goal it has set itself.

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