7th Munich Economic Summit

No lack of brains here

If, in a globalised world, you cannot compete on price, and quality is becoming increasingly dissociated from the location of production, what do you do to stay ahead? Well, turn your economy into an innovative, knowledge-based, high-technology one. To achieve this, you need talent. If not enough talent is available, you must nurture it or import it. But watch out: talent is highly mobile. So, try your best to become a magnet for the best and brightest.

That is, in a nutshell, the challenge most of Europe faces in the global competition for talent, the subject for this year’s Munich Economic Summit, held at the beginning of this month in Bavaria’s capital. Some 140 decision-makers from politics and business joined renowned academics and media editors to discuss the state of the European talent pool and the strategies to enlarge it.

As Jürgen Chrobog, Chairman of the BMW Foundation Herbert Quandt, one of the Summit’s organisers, pointed out, it is an indisputable fact that Europe will not be able to do without the directed immigration of skilled workers, and that the highly skilled workers needed, for instance, by the German economy cannot be found among its many unemployed.

So, he recommended, it is worth taking a look beyond Europe’s borders: Classic immigration countries such as Canada or the United States are proof of the success of a flexible, directed and transparent immigration policy, which makes them attractive to young talents even in the face of rising competition.

Hans-Werner Sinn, president of the CESifo Group, the other organiser of the Summit, drew attention in his introduction to the fact that, for all its importance, little is actually known regarding talent flows in Europe. The data are scant and incomplete. The one thing that is clear is that people are moving in greater numbers than ever before, what he labelled “the new Völkerwanderung”.
                                                 
But, asked Mr Sinn, does this represent a “brain drain” or a “brain gain”? For Europe, no real gain, actually, given that not many immigrants possess higher education. While in Canada and Ireland nearly half are highly educated and in Ireland, Norway and the UK more than a third, in France and Germany it is barely 19%, and a pitiful 11% in Italy. And, while these “losers” do attract lots of foreign students, proportionally much more than the US, they do not manage to keep them once they graduate, as the US does.

So, in short, many European countries do not attract the most productive immigrants, fail to keep the ones who study here, and lose their home-grown talent to other countries, in particular the US, Canada, Australia and Switzerland. Among the reasons, Mr Sinn cites salaries: in academia, for instance, the differences are staggering. The Anglo-Saxon countries also lose lots of talented people but, paradoxically, they are also the ones that boast the highest rates of brain gain as well. On balance, they clearly profit from their openness.

Brain Drain
The introduction to the Brain Drain panel was provided by Gilles Saint-Paul, a professor of economics at the University of Toulouse. Using data from US censuses and a simple model, he calculated that when very talented individuals leave–those that are crucial for innovation, business formation, and management–inequality in the home country creeps up and GDP per capita comes down. In the best of cases, if one assumes that labor is a collection of homogeneous inputs (i.e. the input of every skill level leads to the same gain in GDP), inequality would increase by up to 3% and GDP per capita would fall by 0.7%. For Eastern European countries, he said, this would be the inevitable consequence of western Europe's attempt at becoming a knowledge-based economic area.

Rimantas Šadžius, Lithuania’s Minister of Finance, pointed out that nearly four-fifths of his country’s emigrants were people under 36 years of age, many with higher studies among them. This is no trivial thing: Lithuania loses around a billion euros in education per year in this way. The big question is how to get this talent back. Tax incentives and improved salaries alone won’t do the trick: culture and art are equally important to regain their lost talents.

This is a view shared by Wolfgang Herrmann, President of the Technische Universität München, who points out some advantages Germany has, for example, over the USA in terms of offering an attractive cultural milieu. Its educational system is not bad at all, either.

Others, in particular business leaders, see the advantages of some of the local talent spending some time abroad. This, said Roland Berger, Chairman of the Supervisory Board of Roland Berger Strategy Consultants, gives them the necessary international experience that is now at a premium in a rapidly globalising world. That’s why he, among others, prefers to speak of “brain circulation” instead of “brain drain” or “brain gain”.

Whether there is such a thing as “brain drain” in today’s networked societies is not all that clear, as Bosco Novak, head of Human Resources at Nokia Siemens Networks, stressed. The advent of the internet and other communications technologies has made the place where a brain sits less relevant. The important thing is its availability.

What is important, though, regardless of where a brain physically resides, is to forge a bond between it and its company or its country. In other words, intensify the degree of engagement. This can be accomplished, at the company level, by promoting and rewarding employees for improving processes and finding new business opportunities, and by giving them the necessary freedom and support to explore and devise innovations. A further, and crucial, factor is lifelong learning and capacity improvement.

In any case, warned Jürgen Dormann, chairman of Adecco, a worldwide temporary worker provider, we tend to look too much America as a destination for talent, but the world is shifting and the mature industries in Europe are likely to shift to the East.

During the gala dinner on the evening of the conference's first day, German Federal Minister of Education and Research, Annette Schavan, stressed the importance of education in replenishing and improving the pool of local talent, and pleaded for losing the fear of immigration and emigration, and instead welcome them.

Brain Gain
The academic introduction to this panel was provided by Tito Boeri, who asked whether Europe is getting the "right" kind of immigration and, if not, what can be done about it. Data show that the EU is not successful in attracting skilled immigration as compared to the US, New Zealand or Canada, to name but three. Among the reasons for the success of these countries he cited such factors as the point system some use to select immigrants, and the skill wage premium offered in others, like the US. (Of course, as he rightly pointed out, these very successful policies for the receiving countries stimulate brain drain in the emitting countries.)

But immigration policies are not the only tool that needs to be tweaked if Europe wants to attract fresh talent: the labour market institutions must be adjusted as well. Collective bargaining, for instance, which rewards seniority rather than skill, should give way to wage bargaining, which links skills to wages.

Lastly, assimilation of immigrants is crucial to profit from their skills more fully.

Olaf Scholz, Germany's Federal Minister of Labour and Social Affairs, pointed out that, while the unemployment figures have improved lately, the unskilled are not the ones getting the jobs. Contrary to what can be heard from many business leaders, there is no shortage of skills in Germany that cannot be filled with the local stock. He put it as something like "immigration from Germany". He pleaded for immigration policy to remain at the national level, not the EU one, and he vowed to keep the restriction Germany has in place for the movement of labour from the new entrants. And, in spite of the figures shown by other panelists suggesting that lower taxation might be useful to attract talent from abroad, he declared German taxation as the right one, in no need of adjustment.

To fill the gaps in the availability of skills, he proposed increasing the amount of skilled people, starting with the schools or even before (something that would be new to Germany and that harks back to what Nobel laureate James J. Heckman has been propounding for many years); updating and upgrading skills; more apprenticeships, ie the vocational training offered as a dual company-school system; and work longer.

Siegfried Russwurm, Member of the Managing Board, Head of Corporate Human Resources with special responsibility for the economic regions of Europe, Africa and CIS at Siemens, cited lack of available skills for the need of companies to move production to other locations. They cannot afford to wait. At present, companies are actually applying for talent; providing a job is no longer an "act of mercy". Migrants are not a threat, but an opportunity, he concluded.

Georges Lemaître, an International Migration Specialist at the OECD Directorate for Employment, Labor and Social Affairs, pointed out that in the near future the cohorts coming into the labour market will be 20 percent smaller that the ones leaving it. So, immigrants are definitely needed. But immigrating brains are attached to bodies, and these bodies have families, which they bring with them. So, it pays to try to make the best not only of immigrants, but of their children as well.

The mastery of languages, he stressed, is also crucial, as is adopting a system of equivalence for qualifications and experience.

Sharan Burrow, President of the International Trade Union Confederation, acknowledging that education and labour mobility are the two crucial factors, called for equal treatment. That, he said, is the backbone of our societies.

Rounding off the panel and the Summit, Hans-Werner Sinn commented that, despite all the political efforts, most of Europe still selects the wrong people. As a result, the highly-skilled locals in effect pay an "immigration tax", while low-skilled immigrants get an immigration gift.

• Visit the official Munich Economic Summit website