The Competitiveness Obsession

This analysis is based on five theses and highlights the problems inherent in the obsession with competitiveness, setting out ways to achieve sustainable development.

Hundreds of containers at the container port of Rotterdam

of picture alliance / Zoonar | Hugo Kurk

Competitiveness has once again become a key issue in European policy. Few economic policy buzzwords influence the current debate as much, whether in national reform programmes or strategies originating from the commission in Brussels. Growth, stability and future viability are promised. Yet the guiding paradigm of competitiveness proves to be illusory.

This study shows that focusing on lower wages, lower standards and reduced social spending does not lead to greater prosperity. In fact, it undermines demand, investment and productivity. For the Member States of the European Union, this implies that, rather than being trapped in a 'race to the bottom', a reorientation of common economic policy is required.

The analysis is based on five theses and highlights the problems inherent in the obsession with competitiveness, setting out ways to achieve sustainable development. At the core of this is high-quality competition, which strengthens productivity, innovation and social stability, and is underpinned by strong collective bargaining, European-level wage coordination, and reduced account imbalances. It is only through such an approach that Europe can rise to the crises and challenges it faces, from climate neutrality to shifting geopolitical power.

5 theses for a productive competition

Thesis 1: It is impossible to raise competitiveness across all economies at once.

Competitiveness is a relative concept; improving one's position necessarily worsens another's. In contrast, sustainable prosperity depends on productivity, which can be increased in absolute terms.

Thesis 2: Living standards can be improved only through higher productivity.

The EU has focused on competitiveness without adopting a coherent strategy for productivity, investment or industrial development. Long-term living standards can only rise with productivity, so competition must drive innovation, efficiency and structural transformation rather than just cost and wage cuts.

Thesis 3: The fixation on competitiveness undermines domestic demand.

A focus on competitiveness encourages large economies to rely on wage restraint, spending cuts and lower standards, thereby weakening domestic demand. As external trade cannot provide sufficient economic stimulus for the EU, domestic demand must be central to securing stability, prosperity, and resilience.

Thesis 4: Europe’s obsession with competitiveness has harmed its economy.

One-sided adjustments, particularly in countries with budget deficits, have slowed investment, innovation, and productivity. Short-term cost cuts have dominated, resulting in weak growth, declining economic dynamism, and long-term harm to Europe’s development capacity.

Thesis 5: Better competition, not just more competition, is the key.

Low productivity and growth stem from a model that pits states against each other. Instead, high-quality competition based on investment, innovation, and structural change — not wage cuts or deregulation — can collectively raise productivity, secure sustainable growth, and strengthen Europe’s global position.

About the author

of Privat

Dr Patrick Kaczmarczyk is an economist at the University of Mannheim and an editor at Surplus. He was most recently Head of Economic Policy at the SPD Economic Forum, as well as a consultant to the United Nations.