Current account surpluses require “autonomy in work, high levels of learning, problem-solving, and task complexity”

The Eurozone problems are often explained by bad policy choices of individual countries. The Troika remedy is to cut wages and to make it easier to dismiss people. Is this the way ahead? Do we really have to dumb down labor? Is it all about managerial independence? Not really.

Erik Reinert and Rainer Kattel have a new paper about the historical dynamics of the extension of the European Union, symmetric and asymmetric integration and technology.  One of the methods they use comparing the ‘learning capabilities’ of organizations with the developments of the current accounts of countries. Some excerpts:

Holm et al 2010 use European Working Conditions Survey for their taxonomy of organizations and their learning capabilities. We use here as learning organization those organizations in the Holm et al. taxonomy that are “distinctive for the way high levels of autonomy in work are combined with high levels of learning, problem-solving, and task complexity”

We can also trace these dynamics on the level of organizational capabilities, as a snapshot on Figure 8 does. Again, we do not see converging but rather diverging processes taking place in the core and in the periphery: in the core significantly more companies exhibit learning capabilities than in the periphery. This means shop level discretion to solve production problems is much higher in the core countries, and these capabilities are arguable at the core of Schumpeterian dynamics. It can indeed be argued that this is the key reason behind slow productivity growth in the periphery. Remarkably though, Southern Europe lags behind Central European and Baltic companies in learning capabilities or – to put it bluntly – in Schumpeterian dynamics. But we have to remember that this largely reflects strategic production decisions in foreign-owned subsidiaries or foreign contractors which dominate the productive sector in Central Europe and the Baltic. The low-cost labor in these countries is – just like the Mexican maquila workers – specialized in low-skilled simple tasks. That is part and parcel of specializing in being poor.

Figure 8. Learning organizations and current account, 2005.12

Source: Holm et al 2010 and Eurostat.

If we extrapolate based on Figures 6-8 (6 and 7 not included in this blogpost, M.K.) , one rather obvious evolutionary path forward is that companies in Central Europe and the Baltics – being dominantly foreign-owned and highly integrated into German and Scandinavian production networks – become slowly but surely more productive as they import new technologies and fulfill more complex production service tasks; at the same time companies in the South need to go through an extended adjustment period of lowering costs (mainly wages) and in essence will fall further behind the core and Eastern economies. At the same time, however, because many production companies in the East do not in fact exhibit any serious domestic linkages, industrialization processes in the region remain relatively slow and exhibit clear characteristics of a Latin-Americanization and primitivization. Indeed, the Baltic countries are the European counterpart of the Mexican maquilas, although Estonia assembles goods with a much higher score on the Quality Index (Figure 1) than its Southern neighbors do. In addition, Baltic export companies exhibit the same pattern of being isolated economic enclaves, which was considered a sign of underdevelopment already in the 1930s.