Book review, Education and Science, EU – Baltic States, Markets and Companies

It has to be underlined that to analyze a “business-economy” combination in Europe is not an easy endeavor; taking, for example, the notion “business in the EU” one can get from the Commission’s website 85 thousand hits (http://ec.europa.eu/geninfo/query/).

This said, each new research on situation on both sides of the Atlantic is very much praised. This time it is the book by the professor of international business at Smeal College in Pennsylvania State University. *)

*) Guay, Terrence R. The business environment of Europe: firms, governments and institutions. Textbook. - United Kingdom, Cambridge University Press, 2014.- 345 pp. 

The book’s context

The book consists of five parts: first part is an introduction into the “context of European business environment”. The author humbly views his work as an “introductory textbook” while it is definitely a comprehensive and interdisciplinary overview of the European political economy with its inherent connections to business.

The second part provides basic information about European Union’s historic development, enlargement and institutional framework. However, the author “has forgotten” to mention the EU-2020 strategy adopted in 2010, which provide new impetus to business development for the coming decade. Correctly specifying the EU decision-making triangle (the Commission (in which at least 15 Commissioners, out of 28, are responsible for sectoral economy and a vice-president specifically responsible for industry and entrepreneurship), the Council (with ten business-like configurations) and the Parliament (with a specific ITRE committee, which stands for industry, technology, research and energy), the author did not mentioned the role of all seven EU institutions, thus two are out of reach, i.e. the ECB and the Court of Auditors. The latter’s role is important is assessing the use of EU budget for economic integration, which is during last years at the level of €120-140 bln/year. About half of that sum goes to sustainable growth, support for business and innovations, training and education, to name a few sectors, e.g. through European Structural and Investment Funds. For example, the three Baltic states will get during 2014-20 about €18 bln, Latvia – 5,7 bln, Estonia – 4,4 bln and Lithuania – 7,6 bln, which will go to support entrepreneurship.

The third part is about political economy in the EU; the author’s approach to the European business-government relations proceeds through four kinds of capitalism. Thus, in the market capitalism (where the author’s heart and mind is) he dwells on the UK and Ireland; in management capitalism only Germany; in state capitalism France, Italy and Spain; Eastern European states (those that joined the EU ten years ago) are exploring a “developing capitalism”.

In the “government policies and globalization” (part four) –the only part of the book that turns to specific issues in EU-member states “business relationship - the author specifies EU’s business promotional practice (effect of the Single Market, competition policy, the common currency, the old Lisbon Strategy for 200-10, R&D, tax policy and very short the external and trade policy, as well as human and physical capital), regulating business  and the effect of globalization.     

As to “the road ahead”, the book’s fifth part, the author underlines mounting challenges for the European industry, manufacturing and business. It has to be said that dramatic changes are envisaged over the next twenty years: the share of European growth will reduce to 10 per cent of the global (from the present 25 per cent), i.e. about 90 per cent of the world's growth will happen outside of the European Union's borders. Recent studies launched by the EU Commission, contain important lessons for all member states in learning the optimal ways of “thriving in a global economy”.

One methodological remark: the book’s contents do not deliver on the book’s subtitle – “firms, governments and institutions”; i.e. it is too big and unbalanced “triangle”: European firms are difficult “to cover” as there are over 20 mln only SMEs; out of EU-28 “governments”, the author managed to touch upon only six “policy examples”, and out of seven EU institutions taking part in decision-making five are shortly described. Thus, it seems that the book tends to be on European political economy through integration, rather than a guide on “European environment”.   

On recent EU efforts see, for example: Eugene Eteris, Business as the EU and member states’ agenda, here.  

Regulatory burden for undertakings

In the book the author includes a special paragraph on “regulating business” (para. 9, ch. IV). The lack of information is evident on proper “regulations”; this is one of the most important issues for undertakings. Thus this part of the book needs a slight comment.

First, in the paragraphs’ bibliography there is no data on the effect of Lisbon Treaty, LT (in effect since December 2009) on member states’ political economy and business. LT is important, among other issues, as EU’s rulebook and a final say in the division of competence between the EU “bureaucracy” and the member states in socio-economic sectors. Since the LT, European business is “coordinated” among exclusive (5 spheres), shared (about 13 spheres) and supporting (about 12) actions between the EU and the 28 member states. This is what future business people around the world are to know in the first place!  

Besides, author’s examples on personal privacy (p.223), environment (pp.224-230), social and labor policy are too little in numbers to understand the regulatory effect on business in the EU. 

Just to mention: there are 36 socio-economic “developmental sectors” within the range of European integration, which one can call the “business environment”. For any potential state to join  the EU there are over 30 so-called approximation chapters covering 20 socio-economic policy sectors; they are subject to a certain level of “EU approximation” through the EU regulatory instruments (see: http://eur-lex.europa.eu/en/index.htm).  

Among these EU policy sectors - 17 sectors are of a purely social-economic significance, though the “regulatory burden” is different from sector to sector. For example, most complicated of them include: external relations – with more than 3 thousand legal acts; industrial policy and internal market – with about 1,5 th.; general, financial and institutional matters – with more than one thousand; agriculture and rural development – more than 3 th.; competition policy and law – about 1,8 th; health, environment, consumes policy -1,3 thousand legal acts...

There are as well sectors with smaller number of EU rules: about 400 legal acts are in such sectors as: science, information, education and culture (number of acts: 389); regional policy and coordination of structural instruments (number of acts: 370); energy (number of acts: 360); right of establishment and freedom to provide services (number of acts: 236). Around 200 legal acts are in such sectors as taxation (number of acts: 174); legal instruments relating to undertakings (number of acts: 110), etc. 

The EU’s acquis, so-called the body of the EU law, includes presently about 80 thousand pages of legal texts, mainly regulations, directives and decisions. Each year the EU institutions adopt thousands of legal acts (with different competence “power”): e.g. in 2011 there were adopted over 78 thousand regulations, 5,5 thousand directives and over 28, 4 thousand decisions; in total over 112 thousand legal acts for economic policies and business development.

However, one doesn’t have to be afraid of European regulations; entrepreneurs have to understand “the burden” as an instrument towards business efficiency…    

Hence, the European “business environment” is much more complicated than seen from the author’s approach. The main “complexity” lies in the cooperative, coordinative and integrative approach to business arrangements. This legal side of “business environment” has already attracted the reviewer’s attention (see, for example, Eugene Eteris. Modern European Law for Businessmen: Lisbon Treaty in Action. – Riga: Riga Stradins University, 2012. – 202 pp.; here.

The EU’s regulatory effect is analyzed in all member states: some researchers have made an attempt to evaluate the EU “regulatory effect” on national economy and business (see, for example, European Union economic policy and Latvia (Eiropas Savienibas ekonomiska politika un Latvia, - RSU Publ., 2008. - 415 pp.) and European Union: Economic Policy, Textbook.- Riga: RSU, 2007. -225 pp.    

Reference literature

The reference literature on the European sectoral policy and law are numerous: these are, for example, some specific magazines, such as Air & Space Law, Arbitration International, European Foreign Affairs Review or EC Tax Review and Intertax; or so-called general-approach magazines, e.g. Business Law Review, European Company Law or European Energy & Environmental Law Review, European Public Law, European Review of Private Law, Legal Issues of Economic Integration, etc.

Besides, there are magazines covering globalization issues: Global Trade & Customs Journal, International Journal of Comparative Labor Law & Industrial Relations, World Trade & Arbitration Materials, Journal of World Trade and World Competition. These sources are to be used for students in international studies seeking specific information on European policies and economic development.   

On business and European governance

The European Council concluded successfully in 2014 the so-called European semester - the EU economic governance, which is a partnership between EU institutions and that of the member states’ governments. It is a new expression of joint commitment to adopt together common solution for the present and future economic issues.

Besides, the European council endorsed the country specific recommendations, which were put forward by the European Commission. Now, it is up to the member states’ national authorities to accommodate to Commission’s recommendations for the “common European vision” in regional growth. In spring 2014 the member states’ governments in the European Council agreed on common fiscal rules (including the banking union), on stability and growth pact. This is the cornerstone of economic governance in Europe; these rules are precisely designed for boosting growth and jobs, both presently and in future, and they are necessary to provide for flexibility of member states’ actions taking into account specific economic situation in each EU country. That paves the way for more coordinated economic integration with additional stimulus for business, including loans and financial guaranties for SMEs (see http://europa.eu/rapid/press-release_SPEECH-14-516_en.htm).  

There are about 46 thousand employees in the EU’s workforce, i.e. this is the EU’s civil service with the main task to streamline European economic integration and better conditions for business as a driving force for growth. 

European social market economy

Another thing that the author failed to notice is a specific feature of “European capitalism”, which is called “social market economy”. That’s an expensive endeavor, which some think drives European competitors down, but the EU member states decided to pay that price.

For example, one of the “negative” aspects is a higher level of taxation in the EU compared to the US; it is 10-15 per cent higher in the former; besides, several goods and resources are cheaper in the US.

Practice vs. theories

As a clinical professor of international business, the author is expected to deal more with training students’ practical skills, as opposed to theoretical thinking and matters. One would envisage a considerable practical experience that facilitates the EU member states in developing different economic sectors’ goods and services. Instead, about one third of the textbook (pp.75-188) is devoted to different models of European capitalism.

Even a detailed analysis of some EU member states’ political economy (though only 6 out of 28 states and with a sketchy overview of Eastern European members!) would not be of much practical assistance. And obviously, such information is not of great help to future business managers and administrators in finding a proper place for prosperous business facilities in Europe. A much better advice would be to show what actually European institutions (with tens of thousands of civil servants) do to streamline the member states’ business administration while creating “common European business place”. Since 2008, the EU through Small Business Act (SBA) is trying to create a level playing field for SMEs throughout of EU-28 members and improve the administrative and legal environment for undertakings to better release their potentials in creating jobs and growth. These issues need additional attention, as well as, for example, Commission’s efforts in European standardization!

Something more: the authors’ notion of “business environment” might give some confusion to readers in Europe; in the EU, there is a specific portal on “the environment and business”. The message here is that EU businesses need to take environmental aspects into account, not only in order to comply with regulation, but also to grow in a sustainable way and to remain competitive in the global market. A special EU portal provides information on what exactly this notion involves for small firms, and what kind of support business can get for becoming more environmentally friendly.

(see: http://ec.europa.eu/small-business/most-of-market/environment-business/index_en.htm).

Bottom-line, the textbook provide an accessible overview of the EU’s political economy and business facilities with numerous tables, maps and case studies, making the book a valuable reference for students in international/European business administration.

For readers less versed with the radical concepts of EU’s integration efforts, the picture designed by the author could be extremely helpful. Thus, the book is meritorious by at least two reasons: as a sophisticated guide to European political economy and as a selective approach to main actors shaping the so-called EU’s “business environment”. Our university has already ordered several copies and the book is included in the students’ reference materials.