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Economics & Finance

Are we headed for just another jobless recovery?

Nigel Roberts |

Closing the gap in the budget deficit is old hat: business executives now say the way out of economic turmoil is to close the skills gap and ensure people have what it takes to find real employment in the new economic order.

Since the financial crisis of 2008 the main focus of macroeconomic policy has been deficit reduction and austerity budgets. That’s not enough, European Commission President, Jose Manuel Barosso told the audience of business leaders at the European Business Summit in Brussels in April: austerity alone won’t deal with the European economic crisis.

“Europe's citizens will need an upgrade in their education and skills to be able to meet the demands of the labour market,” he said, painting his vision of a skills-led recovery which would enable Europe to benefit from global market opportunities. “A Europe better equipped to provide sustainable growth: a Europe combining job creation and social inclusion, where people can gain the skills they need to flourish.”

Creating an asset in knowledge

Christian Jourquin, who has just stepped down as CEO of European chemical firm Solvay, is convinced that skills upgrading will have more of an impact on growth than any amount of deficit cutting. “The post-war generation was unaware of the added value they were creating so they created more than they believed. And Europe was very prosperous. Now we have the complete opposite. People believe they still create added value but the truth is that part of that added value has gone and the only way that we can recreate that is to create an asset in knowledge. But that means that we have to educate. We can’t prosper in the 21st century with an educational system from the 19th century.”

At present there are 25 million unemployed people in Europe - nearly 10 percent of the population. Bruno Lanvin, Executive Director of INSEAD eLab, believes that focussing on deficit reduction rather than improving skills will inevitably result in a jobless recovery rather than a job-rich recovery. But he cautions against a strictly vocational approach. “We must look at skills as a pyramid. The middle layer is vocational – the need for engineers, programmers, nurses, etc. Below that is what you do in the primary and secondary education sector to help children deal more with analytical thinking, deductive thinking and with IT literacy. At the top of the pyramid are the management skills of the future for the knowledge economy. How do you create the skills to have more managers able to manage across national and cultural borders – addressing people in virtual teams in different languages?”

Developing a global skills mindset

But Lanvin acknowledges that the market and competition for talent is global. And that companies in Europe need to develop a global mindset. “We have to realise that skills management and innovation are leaky processes. There is no guarantee that the people you invest in today will not be moving to your competitors.”

The CEO of TATA Consultancy Services (TCS), Natarajan Chandrasekaran, agrees that skills and talent have become a global phenomenom. “Talent is always going to be leveraged no matter where it comes from.” TATA Group emerged from India but is fast becoming a global powerhouse employing 238,000 professionals worldwide.

For many years companies like TATA grew rapidly by capitalising on their home-grown skills base and providing “offshore” high end consultancy to companies in developed countries. Global companies were able to employ highly qualified graduates in India at a fraction of the cost of employing similar candidates in their home markets. The downside of this was that white-collar jobs in developed markets were effectively exported.

A two way flow of jobs and skills

Chandrasekaran believes that this one-way flow of jobs is now becoming two-way. He estimates that 60 – 70 percent of global incremental growth is coming from emerging BRICS economies, but is convinced that the economic benefits of that skills-based growth can now be shared by both emerging and emerged countries. “What is important is the movement of labour and the skills development so that people can participate in job opportunities around the world. Job opportunities for someone in Europe need not just be located in Europe.”

According to a recent Eurostat report there is wide discrepancy between level of skills in different countries in Europe. INSEAD’s Lanvin argues that in addition to developing a pyramid of skills, Europe has to make structural employment reforms to allow the skills gap to disappear. “Mobility and flexibility is not as high as it should be. If we don’t make European labour markets more efficient we will not get the benefits from any skills policy we can think of. What we look for is not skills per se but employable skills.” And those skills need to be able to travel freely to plug regional skills gaps. By 2015 it is estimated that in Europe there will be between 400,000 and 700,000 unfilled vacancies in the IT sector alone. “That says a lot about the ability of EU schools and universities to create the skills now needed by various sectors.”

The volume of talent

That point is also echoed by the TATA CEO. “The issue is not just the quality that is there. The issue is the scale – do you have enough of them? Or are they located in the places you need them. Also are we investing enough in education so we can build the scale?”

The scale of a highly skilled workforce is one of the reasons why Chinese conglomerate Huawei has successfully made inroads into global markets so quickly. The European Vice President, Ken Lao, claims that they have the biggest R&D resource in the world with half their 140,000 staff working in R&D in huge centres of excellence in China and India. “We have two advantages. One is a cost advantage but the other is the volume of educated people that we employ. Every year, [we have access to] more than two million engineering graduates. We invite a lot of local talent in Europe to see how we do it [in emerging economies].”

Empowering the younger generation

Jerónimo Calderón is the 27 year-old executive director of Euforia, a social enterprise based in Geneva, which aims to engage adolescents / those early in their career with mainstream business by bridging the generation gap. “I’m very focussed on the individual empowerment of young people. I don’t see a lack of skills. Youth has always been the holder of innovation. The great inventions were always made by people in their twenties. But this innovation is not going to go anywhere unless this youthful innovation is going to tap into the experience of other generations to develop and scale it.”

Euforia is not only facilitating the integration of new skills into the business world, but also harnessing the passion and enthusiasm of a new generation of innovators. “There’s a condescending view that we are the lost generation; that we lack the skills and the motivation. So we are trying to create a framework that enables people to be passionate about social and environmental issues. We show them how they can make a valuable contribution. We also help find the kind of skills that allow them to find a job and the businesses can then benefit from all that creativity and ideas.”

With a quarter of under 25s in Europe unemployed, there is a pressing need to not only create new jobs but also to harness the talent and resources of the younger generation to create new kinds of jobs. The message at the European Business Summit was also clear that Europe has to create sustainable long term links with the emerging economies and develop a flexible global mindset. A sustainable future cannot be achieved by creating a fortress mindset in which the only priority is deficit reduction.

TCS CEO Chandrasekaran, whose group manages a multinational team of 248,000 professionals, believes that a skills led, job rich recovery can only happen if there is a two-way flow of people, skills and innovation between the developed and emerging markets. “Skills and talent have become global phenomena. Talent is always going to be leveraged, no matter where it comes from. With advent of the internet and new tools available today, we’re going to see the global workforce becoming more integrated. So I think boundaries are going to become less relevant.”

INSEAD’s Bruno Lanvin agrees that businesses and governments need to adopt a flexible global mindset. “It’s not just what east or west learns from each other. We have to accept it’s less about brains and more about minds. With the right mind set we should be able to learn from each other and do the right things.”

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