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 s 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 s 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