What Role for Europe in the New World Order? A Third Player Empowered by Green Productivity

Europe may emerge from the recent crisis stronger than before, as a player with a more sustainable democratic model than China and fewer political divides than the US. What reports tend to neglect is that Europe is currently the largest economic region, leading in exports, foreign direct investment, and most indicators on Sustainable Development. A reason for this downplaying is that Europe is seen as continent consisting of individual small and big countries and not as a political or economic whole. The paper takes an alternative position and carves out conditions for closing divides, to make existing European strengths more visible and extend the quality lead. The Recovery and Resilience Facility as well as the Multiannual Financial Framework must be used for reforms and coherence. A rebounding Europe requires a double strategy of fostering innovation while redirecting productivity towards energy and resource saving, away from its current priority on labour efficiency. This would empower Europe to be a quality player in a multipolar world in which there are no longer only two superpowers, China and the US, competing for attention.

Europe plays no role in these predictions; they refer only to Germany or the UK losing one rank after another over time, and being surpassed by India, Brazil, etc. This article argues that it is very likely that Europe will become a third superpower-assuming that integration continues, and populism-driven renationalization can be countered. Together with its buoyant neighbourhood, Europe can remain the largest power in quantitative terms (on par with China, with a far larger GDP than North America-understood as the US plus Canada and Mexico).

China Will Pass (Leapfrog) the US Soon
Since the breakdown of the Soviet Union, the US has been called the sole "remaining superpower". It intervenes politically and often through military force in conflicts outside its hemisphere. The US has furthermore shaped globalization, trade and investment contracts, and established a finance system with the Dollar as the main reserve currency all over the world, capturing or selecting top positions in international originations. Statistical data like GNI, share of manufacturing, the number of US firms in the top ranks of firms according to market capitalization confirm the US lead over the last centuries.
The rapid growth of China and its resilience in the Great Recession as well as in the COVID crisis have led to the assumption that China as "the Kingdom of the Middle" was on the road to reclaiming the number 1 position. Forecasts by international think tanks predict China to overtake the US in GDP in the next decade (where a recent publication of CEBR predicts this for 2028). The same source forecasts Japan to remain at the third rank for a while before being overtaken by India (Note 3). Germany will fall back to rank 5 or 6 as the largest European country and a loss of rank is predicted for all large European countries, but most of them are not within the top ten.
In this publication, as in most other international forecasts, there is no prediction for the EU, the Euro area or geographical Europe. While this may be justified, since the EU consists of independent states, this is not sufficient for assessing its role as an economic or political power. The "Brussels effect" is a term used to characterize the ability of the EU to set international standards, because of their quality.
The EU furthermore has the sole legitimacy to negotiate trade and investment compacts for its members, and these are qualitatively different from pacts designed by the US or China. In military conflicts like the Ukraine conflict, the conflict about oil and gas around Cyprus or treaties designed to prevent Iran from building nuclear weapons, the EU is a soft power enabling compromise through negotiation (Note 4).
However, let us come back to the numbers. China already has a larger sector of manufacturing, even if it lacks raw materials and high-end products. It uses its export surpluses to invest in the Belt and Road Initiative, which is a network of highways, railway tracks, shipping routes and pipelines. All of these transport facilities predominantly serve Chinese interests, shipping products to markets or raw materials back to China (Note 5). "Made in China 2025", published in 2015, intends to shift China's image from a supplier of cheap goods to an exporter of medium-tech fabricated products. It lists ten key industries in which China seeks to make inroads and approach the top. In the longer and more visionary "China 2050 strategy", president Xi Jingping has set the ambitious goal for China to become 58 www.scholink.org/ojs/index.php/rem Research in Economics and Management Vol. 6, No. 1, 2021 the "first modern Socialist superpower", leading in the political, cultural, ethical, social and ecological dimensions.
As far as ecological goals are concerned, China has successfully reduced urban smog and cut millions of deaths caused by bad air quality. It is developing technologies for small electrical cars. Climate neutrality is set as a goal for 2060, although this looks impossible, as China has not stopped building new coal plants.
After establishing the Asian Infrastructure Bank, China organized a Regional Comprehensive Economic Partnership (RCEP) in 2020. This is an Asian Pacific Free Trade Area consisting of 15 countries including Japan, Australia, and Singapore-but without India; and of course, without the US, which had earlier left the planned TTIP. RCEP is now the largest free trade zone in the world, but this partnership is by far not as deep as that of the European Union, since social or ecological standards are not included. No common currency is planned, nor will a High Court control adherence to the rules, and an "ever deeper integration" is not envisaged.
The US still leads in several important technologies; it enjoys the highest GDP per capita and labour productivity, but after the invention phase its firms "leave the country early", so that the US suffers an import surplus even for high tech products. In other countries, firms remain at home at least for the early innovation stage, profiting from regional clusters and skilled employees. The last administration tried to get rid of the negative balance of payment, redrawing trade contracts and abolishing domestic standards for coal plants, oil refineries, and the horizontal drilling of gas or pipelines. This strategy failed, since raw materials and semi-fabricated products are sectors with low demand growth in a highly industrialized country.

Middle Powers Analysed; Europe Neglected
During the nineties of the last century, Japan was assessed by many analysts as on the road to becoming the technology leader, due to its lead in the car technology, just-in-time management, and catching up in labour productivity with the US. But it did not exploit all the profits from globalization, as it discriminated against imports, preventing their positive competition-increasing effects, and universities did not turn international, while immigration from its neighbourhood was also not allowed.
Consequently, Japan suffered two lost decades, society became petrified, an old boys' network dominated firms, societies and parliament (Aiginger, 2020).
European unification developed gradually, but even reforms effected by "muddling through" transformed a conflict-ridden continent into a region in which military conflicts no longer happen, and the EU helped eliminate conflicts during the accession stage and even in neighbouring not intending to join quickly. For this continuation of the peace-building narrative of its founding, the EU was awarded the Nobel prize for peace. The European unification process started with six members and the intention for free trade (and then for the four freedoms of movement of goods, capital, services, and people). It has a currency for 18 members, and more countries are fixing their currency to it. At least ten more countries want to enter the common market or at least qualify for closer cooperation, partly also outside 59 www.scholink.org/ojs/index.php/rem Research in Economics and Management Vol. 6, No. 1, 2021 of geographical Europe, so that it is a reasonable prediction that the EU will have more than thirty members by 2030.
Turkey was a leading player several centuries ago and seeks to regain a strong position in the region.
Turkey applied for membership in the nineties, but membership was not welcomed by most European countries. Then Turkey changed to a presidential system with autocratic elements, and secularism is now mixed with Islamism. It increased its military spending, fought in Syria against the terror of the IS (with the help and betrayal of the Kurds) and sent troops into other countries. Conflicts over oil and gas resources are now amplifying the unsolved conflict in Cyprus (where the Greek part of the island is a member of the EU). The new resources are difficult to exploit (even if political questions were to be resolved) since the energy will only become available at a time when fossil energy should no longer be in use, assuming climate neutrality is to be reached in 2050. The currency loses value, which is countered by propaganda about external enemies and additional military expenditures (including purchase of weapons from Russia).
Iran is another regional power dreaming of regaining past glory. It in part aims for high technology, including attempts to enrich uranium and build nuclear weapons. Its ambitions are partly to gain local influence, partly to become a countervailing power to Israel, and partly to demonstrate that a country led by old mullahs can be a player in an age of globalization. Policy restrictions connected with adherence to limiting nuclear investment restrict economic well-being and catching up, while sustainable development goals are neglected.
India will surpass China as the country with the largest population, which is still growing, while that of China is declining due to its (former but recently stopped) one-child policy. The remarkable catching up does not translate into in societal progress, due to the high share of informal labour and the division of the population along religious lines. Potential conflicts with China and Pakistan require a strong and expensive military force. Per capita GDP is still far below that of industrialized countries and is less than in China. India was afraid to be swamped by cheap Chinese products and therefore did not sign the RCEP, which will limit the worldwide impact of the trade pact.
To summarize, all middle powers have some potential, including an increasing and young population, but spend more money on military build-up than modernizing the economies. External deficits and devaluation of the currency are necessary, while poverty and hybrid democratic systems persist.
Common to all analysis is that Europe is neither mentioned as a superpower nor a middle power, large European countries are seen as individual entities, with a smaller GDP and political influence than that of Japan or India.

Alternative Assessments by Quantitative Indicators
Estimating the economic and political size of Europe requires two decisions: First, how to define the scope of "Europe", where membership of the EU or geographical Europe are two choices, but additionally also wider Europe-a concept including neighbours in which the influence of Europe via trade or investment relations and technological cooperation is equal to or larger than that of China or the US. Second, which indicator for size we choose; we can take the GDP, population, trade (including surplus or deficit), technology or alternatively qualitative outcomes (like Sustainable Development Goals or a single comprehensive indicator such as life expectancy).   one half of China. Europe is an ageing society which needs inward migration, but its population is reluctant to accept this, even in depopulating regions. This resembles the opposition of Japan to immigration and requires a policy response that addresses heterogeneity as an opportunity, as is done in the business sector. The US has been very open in the past; half of its citizens and a higher share of the children are non-whites in many states, which for a long time was not seen as a problem, neither in left-leaning California nor in right-leaning Texas, but is now declared as a danger (see the proposal of a border wall by the Trump administration, which Mexico should pay for).

Quality Positions Revealed by SDGs and Life Expectancy
If we change from quantitative indicators to quality, we can either take the broad approach of sustainable development goals, offering seventeen categories for evaluation, or alternatively look for one single comprehensive indicator such as life expectancy at birth.
Again, most statistics report on countries and do not report figures for Europe. To get a first assessment, we take unweighted averages over EU countries. This shows that Europe has less absolute poverty or hunger than the US. Both are larger in China and all middle powers, this result extends to relative measures of poverty, and most indicators on inequality (Aiginger & Kreuz, 2020).
As far as ecological sustainability is concerned, areas with organic farming are about 6% in the EU28, and 0.5% in the US and China, CO2 Emissions relative to GDP from fuel combustion in the EU28 is one third lower than in the US and two thirds lower than in China, while a similar picture is revealed by primary energy relative to GDP. Life expectancy at birth is 76 years in China, it is 78.5 years in the US (and falling due to opioids and obesity), but 81 years and increasing in Europe (in the EU as well as geographical Europe).
To summarize, the lead of Europe in the qualitative indicators is impressive. Though the SDGs should give a picture for all UN members, it may not signal performance among the richest countries, an aspect which we address in the next section on research expenditures and productivity.
One shortcoming is revealed by the SDG goal of quality education and is the R&D deficit, both of which are essential for the dynamics of an economy (Note 8). In contrast to the importance of innovation for reaching the frontier, the expenditures on research and development in Europe are still only somewhat higher than 2%, while they amount to 3% in the US. China´s expenditures are also slightly above 2%, and it targets a ratio of 3% for 2025. Europe had succeeded in closing the gap in labour productivity to the US since WW2, but this catching up stopped in the nineties. We will now take up the imperative for Europe to foster research so as to reach the frontier but given the importance of climate change and sustainable development show that a quality leader should also redirect research and productivity towards energy and resource saving.

Research Deficit and Failure to Reach the Productivity Frontier
Modern growth theory stresses that the dynamics and competitiveness of rich countries depends on research expenditures and their quality signalled by productivity. Here, Europe-however its regional scope is defined-has a deficit. The expenditures on research and development in Europe are only a little higher than 2%, while they amount to 3% in the US. China´s expenditures already passed those of the EU in 2012 and it targets a ratio of 3% up to the end of the decade. A corollary of the low expenditures in Europe is that it first succeeded after WW-2 in narrowing the gap in labour productivity towards the US, but this catching up stopped in the nineties (Ketels, Porter, 2020) Consequently, international organizations (like the OECD, IMF, and World Bank) stress that Europe should boost productivity growth, taking for granted that this term is well-defined. Implicitly, they define it as higher output per worker or per hour. In each of these measures, Europe has not up to now been able to reach the productivity frontier, as defined by US performance. We will now take up the advice for Europe to foster research so as to reach the frontier. However, given the importance of climate change, a quality leader should also redirect research and productivity towards energy and resources, and this will be analysed in the next section.

The Dual Character of "Productivity"
Productivity increases can result from higher labour productivity, or by increasing energy and resource productivity (Note 9). These two partial productivities, which I call "grey" versus "green" productivity, have very different policy implications.

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Published by SCHOLINK INC. www.scholink.org/ojs/index.php/rem Research in Economics and Management Vol. 6, No. 1, 2021 Booming labour productivity exacerbates the growth imperative; if labour productivity grows by 3%, output must increase at the same rate. Otherwise, unemployment will ceteris paribus increase and, above all low-skilled workers will lose their jobs (Note 10).
The alternative increase of energy and resource productivity also reduces inputs and stimulates output and cost competitiveness, but at the same time it reduces emissions and reflects emissions from long-distance transport.
Achieving the climate goals requires a reduction of greenhouse gases of 80 to 95% (depending on the speed of output growth). Radical decarbonization is only socially acceptable if low-and-middle-income wages increase and employment is stable. This is possible if the green type of productivity increases much faster than the grey one.
"Redirecting productivity" from labour productivity to energy and resources does not represent an unjustified interference with the market economy. The current focus on labour productivity itself follows from high taxes on labour along with untaxed energy and transport inputs; it does not fall "like Manna" from heaven. Substantial tax reforms, including standardised tax bases and eventually also minimum taxes for emissions and public bads, would limit tax evasion, and base shifting would support green productivity as well as limit expenditures for repairing the consequences of climate change.

Neglect of redirecting need in the Annual Growth Strategy 2021
The European Commission calls for the submission of proposals for the Recovery and Resilience Fund by the end of April 2022 at the latest. These should strengthen economic and social resilience and should follow the goals of the "Annual Sustainable Growth Strategy (ASGS)". Unfortunately, EU forecasts as well as communications-written by some of the best experts in the European Commission-do not discuss the warranted direction of productivity. The importance of "productivity" is stressed in the ASGS many times, but it is only defined in a few paragraphs, and in these cases it is always defined as labour productivity. Nowhere is there a requirement to report or measure energy productivity or resource productivity, or to determine whether this welfare-enhancing type increases to a greater extent than double-edged labour productivity. Therefore, short-, medium-, and long-term forecasts should publish and monitor partial productivities.
And the Annual Growth Strategy as well as the proposals for the RRF should be evaluated based on their effects on climate change, inequality and unemployment. Calling for higher productivity without defining its main component is the wrong advice. The regular publication of figures on energy and resource productivity in all reports is a minimal requirement for this. Redirecting technical progress has is to be monitored in the European Semester.

Other Game Changers Supporting Europe's Position
Europe's size and performance is not mentioned in the international media, since they tend to report on individual European countries. But it also not perceived by European citizens, as National leaders tend not to report on successful European strategy decisions, but rather on what they achieved for the own country after a meeting in Brussels. Neither the European Commission nor the European Council highlight the advantages of the EU in becoming a global player. They do not laud the size of investments in Africa, which are higher than those of China or the US. The advantages of the European socio-political system become visible only indirectly when economic problems in other parts of the world become evident, such as dictatorships, attempts to increase territory, racial discrimination, bush fires and the handling of the health crisis in the US, China, Russia, Iran or Brazil. By proclaiming the new European Commission "geo-political", the EU Commission president, Ursula Von der Leyen (2019) intends to give global problems a greater priority.

We venture a few projects which could support the strength and visibility of Europe
Europe must more often speak with one voice. This is not easy, since the EU is still a community of independent states, with a limited number of fields in which the EU alone can set laws and directives, Europe has to reduce internal inequality between persons and again across regions, as well as between the centres and the periphery (Aiginger & Kreuz, 2020). This would limit nationalism and populism, parts of which are motivated by the feeling of regions being "forgotten". Microeconomic competitiveness, defined as regional bottom-up plans to enhance employment and welfare are stressed

Summarizing and Looking Ahead
The size of a region can be assessed according to different criteria. Forecasts by think tanks and international institutions concur that China will successfully catch up with top countries and pass the US in the size of GDP within the next decade. In most policy reports and forecasts, Europe is not seen as a unit, neither the EU nor geographical Europe. They report on individual large countries, despite Europe´s success of deeper economic and political integration, leading to the four freedoms of trade, services, persons and capital. The EU now has a common currency for the majority of EU member countries, with many non-members pegging to it. The banking system has been stabilized after the Financial Crisis. Measured by its share of world exports and imports, the EU28 is currently by far the largest trade bloc;

Quantitative Size Today and Trends
it is specialized in quality products and enjoys a trade surplus. It will remain an export champion for a long time, far ahead of China and the US. This lead can be further extended, if we look at geographical Europe or wider Europe.

Quality Indicators Tell a Clear Story
The performance of Europe is even more impressive if we use indicators on sustainability, as offered by the Sustainable Development Goals. Europe is clearly on top in energy efficiency, containing greenhouse gases, boosting organic farming, and eradicating absolute poverty and hunger.
A shortcoming is that Europe today does not invest enough in Research and Development (R&D) and consequently has failed to close the remaining gap in labour productivity relative to the leading US.
Think tanks and international organisations therefore recommend that Europe increase "productivity".
While this article agrees that boosting productivity is important, it stresses that the type of productivity is equally important if welfare should be measured not only by GDP. Redirecting productivity from its current dominance of labour productivity to resource and energy productivity would reduce the growth imperative. Since high economic growth is no longer the overarching goal for rich countries and ceteris paribus leads to higher emissions incompatible with limiting climate change, it is no absolute goal.
Boosting energy efficiency and lowering the emphasis on labour productivity would be a double-win strategy. Quality of life would increase with new technologies, and GDP would be generated by the greening of productivity.

World Will not Be Bipolar
We conclude that today Europe leads in many quantitative indicators, but even more so when we assess product quality, sustainability, and life chances. These facts are not highlighted by international institutions, think tanks and the media, since Europe is still assessed as a region with mainly independent states. These often cling to suboptimal national decisions, only gradually arriving at common solutions in a process of "muddling through". On the positive side, the ambitions of the European Green Deal and the creation of a Geopolitical Commission can accelerate change. At the same time, the challenges of the COVID crisis, the ongoing autocratic tendencies in China and the political divides in the US could effectively encourage Europe to become more ambitious and self-confident. It could take more responsibility for climate concerns, limiting large income differences and cooperating with its buoyant neighbourhood. The result could be a multi-polar world, with Europe as a quality player offering its model to and learning from its neighbours.