Unlock Free Access to FT’s Editor’s Digest: Insights on Europe’s Economic Potential
David Bach became president of IMD business school in September. He holds the Nestlé chair in strategy and political economy.
Many see Europe as an aging economic power, outpaced by the US and China. Critics highlight Europe’s declining GDP share, heavy regulation, and low investment as signs of a crisis. However, this view overlooks Europe’s significant untapped potential. If Europe fully utilizes its strengths in competitiveness, talent, innovation, and sustainability, it can reshape the global economy.
Smaller nations like Denmark, Finland, the Netherlands, and Switzerland demonstrate what is achievable. They consistently rank high in competitiveness, according to IMD’s World Competitiveness Ranking, showing the benefits of nurturing talent through education and cross-border mobility.
In Europe, 15 percent of students study abroad, while only 1 percent of US and 2 percent of Chinese students do. This focus on global experience creates a more interconnected workforce. The number of EU citizens living in another member state has increased by 60 percent in the last two decades, reflecting Europe’s commitment to a global citizenry.
At the highest business levels, half of the CEOs of Europe’s 20 largest companies are not from the country where their companies are based. In contrast, only 20 percent of US CEOs fit this description, and none of China’s CEOs do. This diversity positions Europe well to address today’s geopolitical challenges.
Europe leads in the energy transition, generating 40 percent of its power from renewables, compared to 30 percent in China and 21 percent in the US. Public support for green investment remains strong, minimizing political risks. Europe’s goal to become the first net-zero continent is accelerating, particularly after Russia’s invasion of Ukraine.
In artificial intelligence (AI), Europe has the chance to set a global standard. Critics argue that Europe regulates too much while the US and China innovate. However, Europe’s measured approach, represented by the EU AI Act, shows that it can lead on responsible AI practices.
How does David Bach envision the role of education in driving innovation and sustainability in Europe?
Exclusive Interview with David Bach, President of IMD Business School
News Directory 3 had the privilege of speaking with David Bach, the newly appointed president of IMD Business School and holder of the Nestlé Chair in Strategy and Political Economy. With a wealth of experience and a fresh perspective, Bach discusses the current state of Europe’s economy, its potential to reshape the global landscape, and the role education plays in nurturing talent.
ND3: David, congratulations on your new role at IMD. Your appointment comes at a time when many are questioning Europe’s economic viability. What’s your take on the prevailing perspective of Europe as an aging economic power?
David Bach: Thank you! It’s a privilege to lead such a prestigious institution. While it’s true that Europe faces challenges—and that critics often point to our declining GDP share, heavy regulation, and low investment—it’s crucial to recognize the significant untapped potential that lies within Europe. We have a unique opportunity to leverage our strengths in competitiveness, innovation, and particularly in sustainability. If we embrace these aspects, Europe can not only cope with but actively reshape the global economy.
ND3: You mentioned sustainability. Can you elaborate on Europe’s position as a leader in the energy transition?
David Bach: Absolutely. Europe is at the forefront of the energy transition, with 40 percent of its power sourced from renewables. This is significantly higher than both China and the US. What stands out is the robust public support for green investments, which minimizes political risks. The urgency created by geopolitical events, such as Russia’s invasion of Ukraine, has only accelerated our commitment to becoming the first net-zero continent. This focus on sustainable practices will be a significant driver for future economic growth.
ND3: Smaller nations like Denmark, Finland, and Switzerland are often hailed as models of competitiveness. What lessons can larger economies learn from them?
David Bach: Smaller nations typically excel due to their emphasis on education and talent cultivation, along with a strong focus on cross-border mobility. For example, they consistently rank high on IMD’s World Competitiveness Ranking. European countries need to recognize that investing in education and encouraging global experiences—like the 15 percent of students who study abroad in Europe—can enhance a nation’s competitive edge. This interconnected workforce will become increasingly valuable in a globalized economy.
ND3: Speaking of interconnectedness, you’ve pointed out the significance of diversity in leadership within European companies. Can you provide more insights on this?
David Bach: Certainly. It is striking that half of the CEOs of Europe’s 20 largest companies are not from the country where their corporations are based. This high level of diversity at the executive level positions European companies uniquely to address contemporary geopolitical challenges. By bringing various perspectives to the table, companies can develop more innovative solutions and navigate complexity more effectively. In contrast, the US has only 20 percent of CEOs in similar situations, and China does not have any.
ND3: where do you see Europe rising to the challenge in the field of artificial intelligence?
David Bach: Europe has a tremendous opportunity to set global standards in artificial intelligence. Critics often claim that Europe is lagging behind in tech development, but we have a chance to lead in ethical AI, ensuring technological advancements align with our values and promote societal well-being. By fostering collaboration between academia, the tech industry, and policymakers, we can carve out a robust position for Europe in this critical sector.
ND3: Thank you, David, for sharing your insights. We look forward to seeing how your leadership at IMD will contribute to Europe’s competitive strategies in the coming years.
David Bach: Thank you for having me! I share your excitement for Europe’s future and the role that education and innovation can play in shaping it.
David Bach’s insights highlight the dual narratives surrounding Europe’s economic future: one of challenge and another of untapped potential. By harnessing its strengths in sustainability, diverse leadership, and education, Europe can thrive in the global marketplace.
Europe has previously risen against the odds, such as during the launch of the Single Market in 1986 and the introduction of the euro. The region recovered well from the global financial crisis, demonstrating resilience. Today, with shifting geopolitical tensions and an unpredictable US, Europe faces another pivotal moment.
To capitalize on this opportunity, Europe should leverage its smaller economies, adopt an inclusive approach to sustainability and AI, and focus on nurturing talent. Mario Draghi’s report on European competitiveness recommends an ambitious €800 billion investment. However, the key step may be to establish a single European capital market.
The difference between US and Chinese companies versus European ones lies in access to capital. This access allows for innovation and market expansion. Without financial integration, Europe risks leaving much of its potential untapped. An integrated capital market would improve funding access, empowering innovative businesses across Europe to compete globally.
Creating this capital market would enhance cross-border investments, increase liquidity, reduce costs, and improve resource allocation efficiency. It would foster an environment conducive to investment, support local champions, and attract foreign interest.
Improved access to capital would benefit startups and small businesses, promoting innovation in clean energy, digital technology, and advanced manufacturing. This would further strengthen Europe’s position as a leader in sustainability and technology.
Europe stands at a crucial point. Effective financial integration can unlock its strengths and boost its competitive stance in the global market.