Free Market in Its Twenties: Modern Business Decision Making in Central and Eastern Europe

3.2. Crisis, Renewal, and Leapfrog: Contributions of Contemporary Innovation and Business Strategy in Europe’s Periphery

– 187 – CHAPTER IN BRIEF:  Neglecting innovation and business strategy has become a weakness in the EU expansion.   Developing high-value activities is imperative at national, regional, urban, and firm levels.   New managerial thinking offers CEE a pathway out of its crisis, toward renewal and even leapfrog. T he twin impact of the 2008 meltdown and the euro-debt turmoil that followed created a profound sense of disappointment throughout Europe. This upheaval is economic and financial in nature, but not entirely so because it also represents a crisis in confidence over the direction Europe chose for regaining its competitiveness. European integration initially represented a visionary response to the continent ’s disastrous experience during the first half of the twentieth century and CRISIS, RENEWAL, AND LEAPFROG: CONTRIBUTIONS OF CONTEMPORARY INNOVATION AND BUSINESS STRATEGY IN EUROPE’S PERIPHERY Mel Horwitch C h a p t e r 3 . 2 . i6 FM.indb 187 2014.06.05. 12:20 – 188 – the Cold War division of the next forty years. It is understandable that European integration would appeal to a continent ravished by two World Wars, division , genocide, and massive dislocation of peoples. With integration, Europe would assemble unity of purpose and convergence of interest so that it would never relive its deadly and stifling recent past. Priorities for European integration soon expanded to include economic competitiveness , as Europe acquired scale and scope for competing and trading with giant rivals in North America and Asia in the last quarter of the twentieth century and first decade of the twenty-first century. From a competitiveness perspective , the European Union (EU) is now anchored on a long-held point of view that competitive success calls for scale, large and effective organizations, and a regulatory structure that would impose necessary order over its economic base with the resulting mega-economic powerhouse also supported by a continent -spanning common currency. Behind all was a positive and supportive sense of optimism. Rivals and partners outside of Europe—such as America, Japan, and later China—generally favored an integrated Europe, seeing the formation of a large trading partner and common market as beneficial for their own export industries. The fall of communism in 1989, the reintegration of Germany and later the incorporation of formerly socialist bloc Central and Eastern European (CEE) countries into the EU mainstream provided further evidence of the attractiveness and inevitability of the European integration experiment. Despite controversies over the nature and pace of European integration, especially in Norway, Denmark, and the UK, and close votes elsewhere in favor of the EU, the union’s consolidation and momentum marched forward in the 1990s and into the twenty-first century. A reunified Germany became and remains EU’s dominant economic force. In the 1990s, CEE’s newly independent countries generally experienced high rates of outside investment and economic growth. All became part of the EU, although mostly remaining outside of the eurozone. At the same time, the tide started to turn. An initial sign of trouble were roadblocks that prevented Turkey from entering the EU. Initially obstacles were on Europe’s side, over concerns for protecting the continent from inundation of huge numbers of poor people and cheap goods from an unattractive developing part of the world. Later, of course, and vastly more significant, was a realization on the part of Turkey—a fast-growing nation in its own right—that its real priorities lay elsewhere. Does Turkey really need Europe as a partner for continued growth? Perhaps it is the other way around. Meanwhile, the 2008 financial meltdown and euro-debt crisis two years later unhinged, stalled, and created further doubt over European integration. These events became catalysts for a profound rethinking about the European integration experiment—an endeavor that had hitherto possessed large and influential support. Thus far, solutions offered to remedy the euro-debt crisis focus on fiscal policy and monetary reforms. The key policy tension revolves around who would sufi6 FM.indb 188 2014.06.05. 12:20 – 189 – fer and pay the most to stabilize Europe. This policy-balancing act involves a complex tradeoff for determining how much rich northern countries (particularly Germany) must contribute and how much fiscal austerity measures poorer, largely southern, countries must adopt. Is this emphasis on fiscal and monetary policy sufficient and effective? Other possibly relevant factors are comparatively ignored. In addition to economic, macro-financial, and political perspectives, careful consideration of modern developments in innovation and...