Introduction

The Gestaltists, as we saw in the previous chapter, argued against the psychological atomism that was inherent in both classical empiricism, of which Titchener was the modern incarnation, and Kantianism, of which Wundt was the representative. They were not, however, the only ones to find fault with these views: William James also disagreed with atomism. His approach, however, derived not from the Aristotle-influenced descriptive psychology of Brentano but from empiricism itself. For James, as we shall see, classical empiricism of the type exemplified by the likes of Locke and Hume was simply not empiricist enough. It had claimed to be true to the facts of experience, but had failed to live up to its own principles. It had, for example, claimed that experience was made up of atomistic sensations when no such things were ever actually found in our experience. If only, thought James, empiricists had had the courage of their convictions, they would have seen that our mental life does not consist of discrete elements but is an interconnected flux. It was a more radical empiricism, one that really did try to do justice to the facts of experience, that lay at the foundation of James’s approach to psychology. The essence of this anti-atomistic approach to consciousness is exemplified in James’s central idea of the stream of consciousness.

Preface

The business environment of Europe is dynamic and exciting for companies and their managers, and for students of business who learn about them. For scholars, the topic presents interesting areas of research with respect to the region’s strengths and weaknesses relative to other parts of the world. It is also of interest to European policymakers and government officials seeking to improve the economic welfare of their constituents. And of course, the subject is fascinating for the casual but curious observer trying to make sense of newspaper headlines, and tourists who notice different products, currencies, and shop opening hours. In short, there are many reasons why one might want to learn more about business in Europe.

There are several reasons why this book is well-suited to accomplish this task. The first is the unique approach taken to this subject. As will be discussed in more detail in Chapter 1, Europe is a region under pressure to be both homogeneous and heterogeneous. There are tensions between reducing differences across national business environments through the European Union (EU), while maintaining the characteristics that make Europe a fascinating mosaic of people, history, culture, and values. It is impossible to fully appreciate the complexity of Europe’s business environment by focusing on only one of these levels. There are many excellent books on the political economy of the EU and its regulatory impact on business, but they tend to leave country-level analyses out of their discussion. Other books provide in-depth examinations of a particular country or group of countries, but this focus on specific trees leaves out the broader view of the forest, which gives a student or business executive an incomplete picture of Europe’s business environment.

The business environment of Eastern Europe has changed more rapidly than any area in the region over the past quarter of a century. The end of the Cold War transformed the economic and political systems of a vast swathe of countries, from Estonia in the north to Bulgaria in the south. The end of the Soviet Union’s influence over this region allowed individual countries to experiment with different economic models and political institutions, adapting those that best fit their unique circumstances. The path has been bumpy for most countries. Abandoning decades of communist economic policies and political authoritarianism is challenging, since interest groups that benefited under the previous regimes often sought to resist change, and many citizens have yet to enjoy the benefits of economic reform. But to many observers, enlarging the EU eastward is one of the organization’s greatest accomplishments, since it has peacefully integrated a large portion of the continent into a wider community of countries that share similar values and expectations for the future.

Eastern Europe: from World War II to 1989

During the final months of World War II, Soviet troops marched westward toward Germany. Once the war in Europe ended in May 1945, Soviet troops maintained control over the lands they occupied, much as US, British, and French forces did in Western Europe. With a new rivalry between the US and Soviet Union looming, the stage was set for a division of Europe that would last until the Berlin Wall fell in 1989 (see Map 7.1).

The European Union (EU) is the most complex and influential international organization in the world. In no other organization have member countries agreed to yield as much power and share decision-making in so many areas. Since the 1648 Treaty of Westphalia, the notion of national sovereignty has held that nation-states are the primary units in international affairs, and that national governments are ultimately responsible for the security and welfare of their citizens. But the lessons learned from centuries of conflict, culminating in the tragedies associated with World War I and World War II, have driven Europeans to develop a new model of political organization, economic cooperation, and policymaking. Its basic premise is that cooperation across a range of areas is the best way to improve their citizens’ welfare. While the process of European integration has had its share of setbacks, there is little doubt that, over the past sixty years, the region has benefited tremendously – in economic, social, and political terms – from this novel and courageous experiment. An understanding of the origins, rationale, workings, and influence of the EU is essential to fully appreciate the structure of Europe’s business environment.

Why learn about the EU?

At the university-level, courses on the EU tend to be found in political science or history departments. Some law schools offer courses on EU law. Business schools tend to focus on functional areas (e.g. finance or marketing), with material on the EU usually relegated to a segment of an international business course. But even for students of business, having basic knowledge of EU history and structure is useful for at least two reasons. First, familiarity with the organization’s development and the major milestones in its history allows us to understand what the EU is today and what it may develop into in the coming decades. This matters because the EU’s impact on business is significant and growing, not just within Europe, but globally, given the organization’s impact on trade, investment, regulations, and international affairs. Accordingly, this chapter summarizes the main events that shaped European integration: the reasons for the creation of the EU in the 1950s; successes in its early years; the challenges of the 1970s; its resurgence in the mid-1980s; events following the end of the Cold War; and responses to globalization and the recent economic and financial crisis.

The previous eleven chapters examined how past events have shaped the present business environment of Europe. The history of individual countries and Europe as a whole, as well as values and choices, helps to explain models of capitalism and European integration. The policies that the EU and national governments utilize to nurture, promote, and control business today are based on prior experiences, comparing best practices, and the global competitive environment as it presently exists. The previous chapter described the structure and dynamics of several industries in recent years. In this chapter, we discuss some of the issues that will have an important impact on Europe’s business environment in the future. The goal is not to try to predict what will happen. That is a near-impossible task. Rather, the objective is to inform the reader of broad trends that have become increasingly visible in recent years, and which almost certainly provide opportunities and challenges for companies, policymakers, and European citizens.

Europe today

Over a decade into the twenty-first century, Europe’s business environment faces numerous challenges. Media headlines in recent years suggest that European business may be past its highpoint. The economic crisis that originated in 2007 lingers, casting a pall on investment, employment, and business and consumer confidence. The debt crisis in Greece and other European countries raises questions about the capability of governments, the EU, and other institutions to address society’s most urgent problems. The increased economic competitiveness and global political influence of non-Western countries appears to confirm that the twenty-first century will not be dominated by the transatlantic region. And social issues like immigration and aging present challenges to the fabric of European societies. It is easy to succumb to the notion that Europe’s best days, and apex of business influence in the global economy, are in the past.

Chapter 4 described market capitalism and the features of this model in the UK. In this chapter, we examine managed capitalism. This is the most prevalent model in Europe and the most successful in terms of providing steady economic growth, high standards of living, and social stability. Despite its success, managed capitalism is perhaps the most difficult of the three models to be successfully implemented outside of central and northern Europe. The reasons are rooted in the historical experiences of this region, and the values and preferences of the citizens who live there.

Overview of managed capitalism model

Managed capitalism is a second main model of capitalism found in Europe. Unlike market capitalism, managed capitalism relies somewhat less on market forces and more on an enabling role for government. The countries of central Europe (Germany and Austria) and Scandinavia (Denmark, Finland, Norway, and Sweden), as well as the Netherlands, represent variations of the managed capitalism model. These countries are well known for their high levels of taxation and government spending, and gave rise to the notion of the “welfare state.” But these characteristics do not necessarily diminish their ability to compete successfully in the global economy. As shown in Table 4.1, four of the eight top countries (Finland, Germany, Sweden, and the Netherlands) in the World Economic Forum’s 2013–14 global competitiveness rankings typify the managed capitalism model. Four more countries (Norway, Denmark, Austria, and Belgium) are among the top twenty. The economies of these countries tend to be very open with respect to trade and investment. With the exception of Germany, they are too small in terms of population to rely on a domestic market for growth. Companies native to these countries have been forced to look beyond their borders for new markets. Consequently, managed capitalism countries are exposed to a high degree to the competitive pressures of the global economy. The implicit bargain between government, business, labor, and society is that high levels of social protection (in the forms of unemployment insurance, health care, retirement pensions, and other public policies) would be in place to cushion citizens from the vagaries of foreign competition.

Challenges to learning about the business environment of Europe

The business environment of Europe is dynamic and exciting for companies and their managers, and for students of business who learn about them. For scholars, the topic presents interesting areas of research with respect to the region’s strengths and weaknesses relative to other parts of the world. It is also of interest to European policymakers and government officials seeking to improve the economic welfare of their constituents. And of course, the subject is fascinating for the casual but curious observer trying to make sense of newspaper headlines, and tourists who notice different products, currencies, and shop opening hours. In short, there are many reasons why one might want to learn more about business in Europe.

This can be a difficult subject to present clearly and understand well, and so requires a multi-level perspective and interdisciplinary approach. There are several reasons for this. First, Europe is a region under pressure to be both homogeneous and heterogeneous – more similar while maintaining distinctive local characteristics. The tension between reducing differences across national business environments, while maintaining the variety that makes Europe unique, will be one of the region’s greatest challenges in the twenty-first century. In the 1950s, the founders of the European Union (EU) believed that economic integration could be the engine by which closer political cooperation would be achieved, thereby reducing the likelihood of another devastating continental war. Thus, one of the fundamental objectives of the EU is to bring together the region’s countries into a “common market” by, for example, “harmonizing” national policies and regulations and reducing national barriers to the free movement of goods, services, capital (money), and people. The rationale is that, if countries become more intertwined economically and socially, war becomes too costly and unpalatable. But this process is a double-edged sword for business. For competitive companies seeking new markets, the elimination of barriers to entry in neighboring countries is beneficial. It allows them to find new customers, diversify their production and operations base, and secure alternative sources of financing. For less competitive firms, the removal of national barriers will lead almost certainly to an intensification of competition – and perhaps even their own demise.

Most of the information presented in the ten previous chapters describes how economic policies, political systems, country histories, and the EU affect Europe’s business environment. The purpose of this chapter is to show: (1) how several industries in Europe are structured; (2) how specific companies and their strategies have fared in this region; and (3) some of the issues these industries are facing as a result of national government, EU, or international dynamics and decisions. The five industries described here are not necessarily the most important ones in Europe in terms of contribution to economic activity, employment, or exports. However, they are industries that receive significant attention in the media, academia, and policy circles. They also are sectors that have interesting stories to tell. Thus, the reader should get a sense of how “real world” companies navigate Europe’s business environment, and how the issues discussed earlier in this book relate to them.

European business background

Capitalism originated in Europe. It was the growth of the merchant class in Europe during the late Middle Ages and Renaissance period that gave rise to the industrial revolution of the late eighteenth and nineteenth centuries and the loss of influence among the land-owning aristocracy. It was from Europe where much of the early intellectual writing about capitalism, from the likes of Adam Smith and David Ricardo, originated and shaped trade and investment patterns. It was Europeans who began to search for global markets in the fifteenth century by sending ships on the high seas to all corners of the earth. Thomas Friedman, in his best-selling book The World is Flat: A Brief History of the Twenty-first Century, refers to this period as “Globalization 1.0” – a period when kings and queens sought global markets for the greater glory of their countries (Friedman, 2005). Not long afterwards, the early multinationals began to take shape, including the Dutch East India Company (the first stock-issuing company) and similarly named companies from Britain, Denmark, France, and Sweden. Hudson’s Bay Company, English East India Company, British South Africa Company, Massachusetts Bay Company, Mississippi Company, and dozens of other early multinationals played key economic and political roles (some positive, others less so) in far-flung regions around the world.

Many readers on other continents may be wondering how developments in their own country fit in with Europe’s business environment. The world is far more connected in terms of economic, technological, and cultural linkages than was the case when European integration began in the 1950s. It, therefore, would be mistaken to think that Europe’s economy and companies, and the EU-level and national policies that shape them, are impervious to the forces of the global economy. Since the end of the Cold War, numerous changes in global economics and politics have reshaped the competitive landscape – not just for Europe, but for traditional economic leaders like the US and Japan. In this chapter, we examine some of the countries and companies that are placing new competitive pressures on Europe. We also look at the impact that other actors are playing, particularly intergovernmental organizations like the World Trade Organization (WTO) and G20, as well as non-governmental organizations (NGOs). European companies and policymakers must respond to a complex global environment that includes an array of state and non-state actors. As we shall see, it is far from clear how European managers and policymakers should maneuver through this global minefield.

International context

The business environment of Europe must be understood within the context of the global economy. Many European companies do business not only in Europe, but around the world. Likewise, many non-European firms trade with or invest in Europe (or both), and must consider the relative importance of a European presence in their global strategy. With a population of over 500 million people and gross domestic product (GDP) of €13 trillion, the European Union (EU) is the world’s most lucrative market. China and India have more than twice as many people each, but these two countries have nowhere near the average wealth and spending power of Europeans, and are unlikely to for decades. Only the US is comparable, with about 315 million citizens and a GDP of about €1 trillion less than the EU.

In this chapter and Chapter 9, the multi-level governance structure described in Chapter 1 is applied to the promotion and regulation of business in Europe. In this chapter, we see that both the EU and national governments play key roles in supporting a vibrant and competitive economy. Policies administered by the EU aim to ensure that companies from all member states, as well as non-European companies, are treated fairly and in accordance with EU laws. EU-level policies also seek to support Europe’s economy from a broad, macroeconomic perspective that emphasizes stability and global competitiveness. National policies, on the other hand, are implemented by governments to help their companies and workers, even if they come at the expense of firms and citizens of fellow EU member states. While this tension seems contradictory, it is a feature of Europe’s business environment that places some – but not all – power and responsibility over policymaking within the EU, but reserves other tools for national governments.

How and why do governments make policies?

Governments and regulatory bodies impact business in any number of ways – sometimes supportive and sometimes obstructive. In democracies, governments must respond to citizens who, at various times and places, may demand policies friendly toward business and the economy more broadly, or that take into account other preferences such as environmental protection or better working conditions. In the early 2000s, in the wake of the Enron, WorldCom, Parmalat, and other notable corporate scandals, the US passed the Sarbanes-Oxley Act which set new standards on openness in corporate financial reports, and the EU enacted tougher auditing and corporate governance regulations. In the months following the 2008 financial crisis, electorates across the industrialized democracies clamored for policies that punished the bankers blamed for causing the crisis. In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act became law in the US in 2010, and the EU produced a series of directives intended to harmonize financial services regulations among its member countries. On the other hand, as described in Chapter 4, the Thatcher government in the UK implemented policies in the other direction in the 1980s, in an effort to inject more dynamism into the flagging British economy. Chancellor Schroeder of Germany sought a similar goal with the labor market reforms of Agenda 2010 (Chapter 5), as did President Sarkozy’s more moderate measures in France in the mid-2000s (Chapter 6).