International Advisory Board

IESE International Advisory Board

"The reform of the Welfare State is urgently needed in order to successfully face the unemployment problem in Europe"

Presided by IESE's Dean, Carlos Cavallé, the IESE International Advisory Board held its annual meeting at the Madrid campus on February 14

IAB Members

The International Advisory Board, created in 1989, advises IESE management in all areas related with changes in the world economy and business management. During the last year, Leif Östling, president of the Swedish multinational Scania CV AB, has joined the Board.

The existence of the International Advisory Board is a reflection of IESE's growing international focus, which is based on research and a direct, close relationship with large business groups. Some of the most emblematic manifestations of IESE's international strategy are precisely its international publications and the International Advisory Board itself.

In the meeting held on February 14, the Board's members have reflected, among other issues, on the lack of new job creation in Europe, the Monetary Union and European opportunities.

Job Creation

The cause of the lack of job creation is considered to lie more with the excessive weight of the Welfare State than in a lack of entrepreneurship or economic and human resources in Europe. The Welfare State needs to be brought down to a size that does not stifle the potential of the private sector and civil society as a whole.

What needs to be done, in the opinion of the IESE International Advisory Board's members, is to create the conditions that directly facilitate job creation and not rely solely on economic growth bringing job creation with it as a direct consequence. To believe that the single market and the single currency will solve the problems facing the European economies is to show a lack of vision.

The situation in Germany with an unemployment rate of 12.5% is an alarm signal that should alert European governments and societies. It would be a mistake to try to maintain the status quo so as not to interfere with destabilizing factors in the path towards the single currency.

Looked at from any angle, there is no doubting that not enough attention has been paid to solving the unemployment problem. Since Delors' White Paper, no coherent plan has been drawn up, neither at national nor European level, to solve this serious problem.

Any serious attempt to solve the unemployment problem must accept that the European Welfare State is not perfect, as neither is the American one. Reforms must be demanded and made urgently. Reforms that cannot ignore what employers think about the legal framework regulating labor relations as, in the final analysis, they are the people who create jobs. We are not advocating free dismissal but we do think that the recruitment and termination system should be made more flexible. In this aspect, it is important to take into account what the SMBs think as they are the primary source of job creation; the large and multinational companies are tending to reduce employment, although it is also true that they generate it through outsourcing.

Given the insufficiency of the reforms implemented to date, the private sector has reacted by replacing labor with capital, which increases capacity and productivity which is good for the economy but limits job creation.

In the opinion of the IESE International Advisory Board, a broad, EC-wide political consensus is required, first, on the urgent need to reform the Welfare State and, second, on such reform's contents. This reference framework should enable each country to act with autonomy and take the steps that its particular conditions and situation require.

Monetary Union

On the subject of Monetary Union, the IESE International Advisory Board considers that its chief advantage lies in the discipline that the Maastricht criteria impose on Governments and the various social actors. It is a grand project with a solid political basis but insufficient economic justification. In this context, it would be useful to compare the attitudes of the United States and Europe. Thus, in the United States, budget discipline is being implemented simply because they are convinced of the benefits it brings, while in Europe, economic discipline is defended on the basis of a monetary goal that is only justified in a political context. Thus, it is not acknowledged that budget and inflation control are good things in their own right and vital for the long-term growth of a healthy economy.

European Opportunities

In recent years, Europe has fallen into a kind of Europessimism. Long gone are the times when it was gearing up to play a recognized role in world leadership, backed by its technological, human and economic capacities. The devastating effects of unemployment, which now affects all countries, including Germany, have led to a loss of confidence in European citizens' possibilities. However, one must not fall prey to pessimism. The world and the major markets of Asia and America are open and avid for products, services and investments that Europeans can provide.

We are not in the 60's, when people talked about the American challenge and the lack of European leadership. Europe can and must regain its rightful position as leader, providing it can lose a little weight and is prepared to compete more and better. The proof is that those companies that realize this and act are very successful. But to go beyond the individual success story to globality, the politicians must also cooperate. An example of this could be the attitude of the Democrat president Bill Clinton, who is channelling the growth of the American economy by restricting the weight of the public sector, with the declared goal of achieving a balanced budget by the year 2002.

What is the International Advisory Board?

In 1989, IESE established an International Advisory Board, composed of Chairmen and CEOs of international corporations from Europe, Asia and the Americas. Their role is to advise IESE management about everything related to the world economy and business management.

KEY POINTS

Job Creation

A broad EC-wide political consensus is needed to reform the Welfare State.

Monetary Union

It is a grand project with a political basis, but lacks economic justification.

European Opportunities

The world and the major markets of Asia and America are open and avid for products, services and investments that Europeans can provide.