(Source: European Commission)
“Check against delivery”
It is a great honour to be here, and to receive the Schumpeter Award, which pays homage to one of Austria’s greatest economists, and that is saying a lot!
Proof of greatness is often taken to be how well a thinker’s ideas have stood the test of time. In Schumpeter’s case, this criterion is certainly met. His contributions to the understanding of finance and growth dynamics, of the role of entrepreneurship and in particular the intersection of economics and political science, are as relevant today as they were eight decades ago.
Another proof of greatness is how a thinker’s ideas have impacted on policy. It is not an exaggeration to say that the emphasis Schumpeter placed on innovation has inspired a great deal of the EU’s policy in recent decades.
Innovation at the core of Schumpeterian EU policy
Most immediately, this has created a lasting focus on putting in place the right conditions for entrepreneurship and a culture of innovation to prosper. That strong focus on innovation continues through to today, in the form of our Recovery and Resilience Plans.
Spurring innovation is also about the wider business environment, something we pay a lot of attention to as part of our reform agenda. The European Recovery Plan grabbed headlines for its unprecedented leveraging of funds at EU level, but for us the reform agenda presented by the Member States is an equally important part of overall success.
Austria is a very good example of how a plan can combine reforms and investments. By simplifying and rationalising the tax system, implementing reforms to the pension system and supporting investment in next generation technologies, the Austrian government’s recovery and resilience plan will ensure that its allocation of 3.5 billion euros in grants will really help spur on innovation.
Creative Renewal: market conditions for re-growth
Schumpeter’s idea of ‘creative destruction’ suggests a continuous replacement of the old by the new, of the complacent by the innovative, of the static by the dynamic. What follows is a ‘rebirth’, and it is through this process that innovation takes place, sowing the seeds for the long term growth and progress that makes us better off.
Then the question is how we in Brussels, and also you in Vienna, can facilitate this process. How does this fit in with our language on ‘resilience’?
For me, the answer is that we must strive to create a ‘framework’ in which the process of creative destruction can play out. True ‘resilience’ means our industries are equipped to make the business decisions that are needed under changing circumstances.
As policymakers, our main role in helping this process play out is in preserving contestable markets. After all, here is where the innovators of tomorrow will sow their seeds. Where key markets are threatened by overdependence on one supplier – as is the case in the gas market today – we must steer hard in order to safeguard that resilience. Our new plan REPowerEU, proposes to do exactly this – reduce EU demand for Russian gas by two thirds before the end of this year.
And by establishing Important Projects of Common European Interest, we are creating the kinds of strategic frameworks that can deliver breakthrough innovations – by working across borders and addressing market failures, without creating distortions to competition.
Indeed, it is in preserving healthy competition that are role remains greatest. By protecting the level playing field, we’re creating the best chances for businesses to realise their growth potential, for every cycle of ‘creative renewal’.
Competition policy also has an important social dimension – it creates a fairer distribution of new opportunities, while keeping prices low. In a nutshell, it makes markets work for people, not the other way around.
Never has this insight been more important than today, with the negative effects of inflation and high energy bills impacting the daily life of millions of households in Europe. It is why I have asked my team to set up a dedicated event in the second half of this year; a forum to discuss from different angles the key question of how we can ‘make markets work for people’. You will hear more about this in due course.
New policies for the digital transition
In practice, fostering ‘creative renewal’ means carefully calibrating our policy toolkit. What Schumpeter did not yet foresee, was that after every cycle, there is not only fresh growth, there is also structural change in how the economy functions. In such a world, taming the ‘creative destruction’ to get the most out of this evolving process, means that the tools we employ must also evolve. Just as Schumpeterian growth brings our economy to newer and higher levels of complexity, so must our policy response to manage that process.
If you look at the EU’s body of competition law, for example, it is not hard to see this happening. The breadth and depth of our toolkit has grown steadily. So has the number and complexity of the cases we handle.
This process has begun again, because we are well into a new Schumpeterian cycle of growth – what we call the ‘Digital Transition’. The productivity gains that this cycle has brought with it are already impressive, and the good news is there is much more to come. But the bigger the scope of ‘creative renewal’, the greater the regulatory challenge in terms of safeguarding effective democratic oversight.
That is why, for some time now, we have been hard at work updating our whole regulatory and enforcement approach. This includes the development of new instruments, such as the Digital Markets Act and the Digital Services Act. The DMA is designed to be complementary to existing ex post enforcement of competition policy rules. However, the new approach recognises the reality created by gatekeeper platforms, and the need to regulate their behaviour. At its heart, the logic is the same as for any competition policy instrument: if we allow a few gatekeepers to control access to users and business opportunities, this gets in the way of the process of creative destruction and renewal that drives future growth.
The Digital Services Act will also contribute to this process. Online platforms act as intermediaries for e-commerce, and benefit enormously for that. At the same time, they have managed to avoid the same liability framework that would apply if they were bricks and mortar sellers. By obliging them to invest in due diligence, the DSA will protect consumers and level the playing field for those companies who respect existing regulations.
With these two digital laws, we are really on the frontier of a new kind of regulation, so it’s not a surprise that this has grabbed a lot of headlines.
Honing our existing tools
I would stress, however, that updating and recalibrating our work has another angle to it; one that I consider every bit as important. This is the comprehensive process of review of our existing rules and procedures, which has been ongoing for some time now. It is a sort of ‘spring cleaning’ – taking a hard look at how we work and making tweaks and changes if and when they are needed.
Regulation 1 of 2003 is a good example. This important piece of law sets out our process and procedures in the area of antitrust. For almost 20 years it has served us well. Now is the time for us to do a formal evaluation, listen to stakeholders and see if there are ways to make the aspects covered in the Regulation more relevant for the way companies work today. For example, in fast-moving digital markets, can we take interim measures more quickly? What about inspections? Do we need new powers in this world of increased teleworking, where company information is often stored in the cloud?
We have also just concluded a review of our rules on vertical agreements, and the guidance on how we assess vertical agreements, in line with our competition rules. The evidence showed these instruments needed to be updated, in line with the growth of e-commerce and online platforms. We have recalibrated the rules to reflect today’s market realities. What we call the ‘safe harbour’, where certain agreements are block exempted, has been adjusted to ensure it is neither too generous nor too narrow, taking account of the profound transformation of the way business is now being done. This shift is one part of a wider effort to strike the right regulatory balance between online selling on the one hand, and bricks and mortar on the other.
The same also holds for horizontal agreements, where we are also in a decisive stage of revising the rules. When firms cooperate horizontally, that can bring benefits, especially when it comes to re-gearing for a greener and more digital economy. We want to facilitate that cooperation better, for example in R & D – without of course undermining the Single Market, by allowing cartels to form.
It would be naïve to imagine that our transition to the digital economy will be the final iteration of the process of ‘Creative Destruction and Renewal’; a process that Schumpeter described so well. I do not doubt that in thirty years, policymakers will struggle to curb the excesses of businesses, which today have not yet been created.
They will also face the same challenge we face today: how to lay the ground for yet another generation of creative renewal.
When they do, I imagine they will continue to be inspired by the wisdom of Schumpeter. For now, the timeless quality of his thinking is inspiring in itself. And, to tell the truth, receiving an award in his name is a little bit humbling.