Chapter 6

European Industrial Policy

Competitiveness

• EU share of global economy• Ability to generate growth and sustainable

employment• Based on efficient, innovative businesses• Competitiveness is not static – change is

key• Role of industrial policy is to aid this

process

What is industrial policy?

• All those policies which impinge on the structural adjustment of industry with a view to promoting competitiveness

• Provision of a horizontal framework in which industry can develop and prosper by remedying structural deficiencies and addressing areas where the market mechanism alone fails

Approaches to industrial policy

• National versus supranational policies

• Interventionist versus liberal

• Clash of cultures– France - national champions– Germany - state as a catalyst– UK - ultra-free marker

Types of industrial policy

• Horizontal or generic - affects all sectors

• Negative - slows process of structural change

• Sectoral specific - steel, textiles, IT, etc

• Positive - accelerates process of change

Evolution of EC policy - 1980s

• Policy shift - emerging liberal consensus

• Impact of SEM - integration as a cure– create environment for firms to compete and

restructure– increase rule enforcement– re-commitment to free and fair trade– limits to national champions - rise of

European champions

Evolution of EC policy - 1980s

• Supremacy of markets

• collaboration and co-operation (consistency with market?)

• greater horizontal emphasis

• emergence of network economy

• dilution of national policies - convergence of liberalism at state levels

Industrial policy in the New Millenium

• Policy more passive and based on:– promotion of permanent adaptation to

industrial change within open, competitive markets

– coherence with other measures– horizontal measures

• Key theme: improved functioning of markets to stimulate private sector investment

New themes

• Industrial policy has become explicit industrial competitiveness strategy

• investment in human capital

• non-mobile factors of production

• co-operation at pre-competitive stages of production

• impact of globalisation

Porter (1990)

• Competitiveness is determined by intensity of competition

• This is aided by clusters

• EU policy has directly sought this

• Put firm at centre of strategy

• Policy addresses market failure

Maastricht and industrial policy

• Explicit EU competence for the first time• Industrial policy aims to:

– accelerate the adjustment to structural change (i.e. positive industrial policy)

– promote business development initiatives - SMEs

– promote co-operation between enterprises– dissemination of outcomes of research and

development policies

Examples of industrial policy instruments

• Research and development policy

• Competition policy• Trade policy• Export promotion• Education and

training• Inward investment

schemes

• Fiscal policy• Infrastructure

development• Environment• Labour market policy

Rationale for EU intervention

• Will the market deliver?

• High costs and risks of R&D

• Avoids duplication

• Europe falling behind

• R&D per head in Europe - half that of Japan and 60% of US

• Reduce problems arising from different standards

Problems of EU and collaborative strategy

• Competition problems?

• Different working methods and cultures

• Higher costs at early stages

• Bureaucratic procedures

• Role for SMEs

• Marginalized by globalisation

• Value of outcomes?

Globalisation

• Limits role of state to:– supporting scientific and technological

infrastructure - e.g. dissemination– support competition and fair play– alleviate institutional failure - education and

training– support for strategic technologies where state

lags behind– negotiation of common trade rules

Globalisation (cont.)

• Requires policy which aims to develop locations in which industry can flourish rather than policy to develop national industry - i.e. ownership not important

• national champions irrelevant

• horizontal-generic policies dominant

Evidence

• In areas EU is emerging as success:

- mobile phones (Nokia and Ericsson)

- Pharmaceuticals (losing fragmentation)

- Aerospace (Airbus is challenging Boeing)

But more work needed in hi-technology and information industries