Achieving Sustainable Growth : Will New Europe Fly or Crawl in the 21st Century Global Knowledge Economy?

The goal of this paper is to identify factors that will be crucially important for maintaining long-term sustainable growth in three dimensions: economic growth, social cohesion and environmental sustainability. We document how Central and East European countries score in all three aspects in comparison with the peer group of countries. While a sizeable progress has taken place in all three dimensions, the future prospects will depend crucially on institutional and knowledge infrastructure.Institutional environment in CEE-4 is generally conducive to sustainable economic growth, there are independent monetary institutions, economies are as open and deregulated as in EU-15 member states. However, there is still a substantial gap with the EU-15 with regard to the legal system and property rights. Both the old Europe and the new Europe have much bigger governments than NIEs or the U.S. We argue that old Europe can sustain its standard of living only when it remains of the world innovation frontier. This can be achieved only when Europe's intellectual capital is properly developed. We document that while the old Europe scores well in many measures of intellectual capital, China and NIEs are rapidly closing the gap, or even leapfrogged Europe in some aspects. We present a broad range of indicators showing that the new Europe has very low ability to generate innovations and will not be able to develop intellectual capital unless a dramatic shift in structural policies takes place.Based on our research we formulate policy recommendations. We call on authorities to abolish the quot;destructive creationquot; of the Lisbon agenda, with many contradictory ideas floated and a lost sense of strategic direction. A new long-term vision, of strong and prosperous Europe in 2050 has to be developed. There will be no success in the 21st century without courage or luck. Those who do not wish to make their future prosperity a hostage of pure luck need to show courage to change their policies towards developing proper innovation capacity. It is high time to act!