GE Says Europe Should Embrace Risk, Avoid Stagnation

Europe needs to encourage more risk-taking because playing it safe could do long-term damage to its economy, said Marco Annunziata, General Electric Co. chief economist.

Cultural barriers are holding back European innovation and need as much attention as regulatory bottlenecks, funding crunches and other limits on productivity, said Annunziata, who is in Brussels today to present a new GE report on European innovation trends.

To catch up with the U.S. and other faster-growing economies, the European Union should rethink its approach to false starts, Annunziata said. This may mean making bankruptcy simpler and speedier, so that companies and entrepreneurs who don’t initially succeed can dust themselves off and try again.

“How do you create a culture of moving quickly, failing fast and then moving on?” Annunziata said in an interview yesterday. “Stagnating and not even trying is a form of failure. It might feel safer but it’s as much of a failure as trying and getting it wrong and then trying again.”

The European Union’s economy has sputtered over the past five years, buffeted by the euro area’s sovereign debt crisis. With inflation close to the lowest level in five years and euro-area growth at 0.2 percent in the third quarter, the European Central Bank is preparing to add to unprecedented stimulus and has urged governments to act.

GE called on Europe to leave behind its “shared poverty” approach to government spending, which widely disburses low levels of funding throughout the economy. In its innovation report, the Fairfield, Connecticut-based technology and financial services giant said EU nations should find ways to make their economies more nimble and better placed to support research and development.

Four Areas

“There are four key innovation areas where Europe falls short compared to other regions, according to Europe’s executives: collaboration, the ability to attract private investment, the quality and level of government support to innovation, and the ability to attract and retain talent,” the report said, citing a 2014 GE survey of innovation conditions.

Europe needs to face up to the structural reforms needed to jump start its biggest economies, Annunziata said. Productivity numbers are “disappointing” in France and “dismal” in Italy, while Germany needs to reduce its reliance on exports, he said, calling on nations across the euro zone to step up their tolerance for change.

“In the reaction to the financial crisis, there has been almost a temptation to demonize risk,” Annunziata said. “The gut reaction to the financial crisis was that there was excessive, reckless risk-taking and this needs to be curbed. And in that context, that was true, but without risk, there is no reward.”

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