The Tanaiste held up struggling California as an example of where "well-meaning legislation" transformed the state from being the most successful US state to number 49 out of 50, as a cautionary tale at an informal meeting of EU industry and competitiveness ministers today.
Addressing a lunchtime press conference at Dromoland Castle, Co Clare, Ms Harney said "lighter regulation" of industry and business was required to allow European industry face the challenges from lower-cost economies in the Far East.
Attending the confernce to discuss Europe's competitive position were ministers for all EU member states, accession states and senior business leaders.
She urged business leaders not to concentrate on job loses to the region and instead to "concentrate on productivity growth". She said European states "have got to do business differently".
She advised that Europe should not be too concerned about leaking low-skilled jobs to low cost economies suggesting that and businesses and States should focus on encouraging added value products and services.
Ms Harney said future investment decisions will be influenced by the business climate in the EU and in individual member states.
Urging a rationalistion of exisiting business legislation and regulation, the Tanaiste said living standards could not improve nor could EU unemployment reduce unless the eurozone becomes more competitive.
"There are so many barriers in Europe to doing business, particularly in the services sector, which accounts for 70 per cent of the jobs and 70 per cent of GDP," she said.