«Original citation: Owen, Geoffrey (2012) Industrial policy in Europe since the Second World War: what has been learnt? ECIPE Occasional paper, 1. ...»
4. THE CRISIS AND ITS CONSEQUENCES: A REVIVAL OF INDUSTRIAL POLICY?
Employment had also been falling in other parts of the manufacturing sector, not because of mismanagement, but because American companies were moving part of their production to countries where labour costs were lower. Offshoring was not a new phenomenon – in labour-intensive industries such as textiles and clothing it had begun many years earlier – but it was spreading to industries such as electronics and affecting the higher-value parts of the production chain. Two economists, Gary Pisano and Willy Shih, writing in the Harvard Business Review, pointed out that outsourcing in electronics had not stopped with low-value tasks like simple assembly or circuit-board stuffing, but had also affected “sophisticated engineering and manufacturing capabilities in a wide range of products”, such as light-emitting diodes, batteries for electric cars and flat panel displays for TVs, computers and hand-held devices.169 They urged the government to reverse the slide in the funding of basic and applied science and to focus resources on “grand challenge problems” such as climate change where collaboration between the public sector, companies and universities could create new industrial opportunities.
This article provoked a lengthy debate in which some economists argued that Pisano and Shih were too pessimistic. David Yoffie, an influential writer on technology, suggested that the loss of manufacturing capacity in a high-cost country like the US was inevitable and should not be a cause for concern. “The future of US competitiveness in high-tech industries such as computers, software, communications and electronics may depend more on the transition to services than trying to retain the country’s manufacturing base”. Yet the PisanoShih line was supported by several business leaders, including Andrew Grove, former head of Intel, and Andrew Liveris, chief executive of Dow Chemical Company.170 41 No. 1/2012
ECIPE OCCASIONAL PAPERThe same theme was taken up by Michael Spence, a Nobel prize-winning economist. Spence argued that persistently high unemployment in the US was due in part to the disappearance of manufacturing jobs and that this trend must be reversed.171 There was not enough incentive for US companies to invest in techniques that enhanced labour productivity in the tradable sectors of the economy. This was not a market failure in the conventional economic sense, Spencer suggested, but it had to be countered by new investment in advanced technologies with public support.
Among European countries France is the one where the deindustrialisation debate has been running most strongly.172 During his second term as President of the Republic, Jacques Chirac invited Jean-Louis Beffa, the head of St Gobain, to make proposals for a new industrial policy which would ensure that France did not fall behind in the industries of the future. Beffa was asked to examine in which sectors and by what methods France could set in train “une relance ambitieuse des grands programmes scientifiques et technologiques” - an echo of the grands projets of the past. In his report Beffa called for “mobilising programmes” targeted at large risky projects which needed a state contribution for their financing.173 These projects would be run by a new agency, Agence de l’innovation industrielle (AII), and would be focused on five main areas: energy, transport, environment, health and information technology.
The new agency was set up in 2005 with a budget of €2bn, and over the next two years some twenty projects were started, most of them jointly financed with French or European companies. One of the first was Quaero, an attempt to create a search engine that would compete with Google in the US. Thomson and France Telecom were the prime movers in this venture, in which German companies also agreed to participate, but it made little progress and the Germans subsequently withdrew. AII was subsequently closed down, after Chirac had left office, and its functions transferred to another government agency, OSEO, which had a wider responsibility for supporting innovation in small- and medium-sized firms.174 Another French initiative during the Chirac presidency was the creation of pôles de compétitivité, or competitiveness clusters, loosely based on the Silicon Valley model. The idea was to bring together in a particular region firms, research centres and training and education facilities belonging to the same industrial sector, and to encourage them to work together on innovative projects. Some 67 clusters were selected, covering a variety of fields including low-technology industries as well as advanced sectors such as nanotechnology and biotechnology. This programme has been criticised on the grounds that the number of clusters was too large, and that public sector officials were ill equipped to identify the sectors and regions that deserved support.175 When Nicolas Sarkozy took over the presidency in 2007, he had already established a reputation as a defender of French industry. His immediate task when the financial crisis hit was to rescue the banks, and this was followed by the provision of low-interest loans to the French car manufacturers to prevent plant closures, together with an incentive scheme to encourage car buyers to replace old models with newer, fuel-efficient vehicles. Sarkozy was also concerned to prevent French companies which had been weakened by the recession from being snapped up by foreign predators. “I will not be the French President”, he said in 2008, “who wakes up in six months’ time to see that French industrial groups have passed into other hands”.176 In 2008 President Sarkozy announced the establishment of a Strategic Investment Fund, with a remit to take minority stakes in French companies with high growth potential which needed additional capital. In its first full year of operation the fund made investments totalNo. 1/2012
ECIPE OCCASIONAL PAPERling €1.2bn in twenty-one companies, including Meccano, the toy manufacturer, and Daily Motion, an internet start-up. Critics of the fund were relieved that the fund was not used to rescue “lame ducks”. Its operations were for the most part similar to those of a private equity group, but with a strong orientation towards preserving French ownership; in at least one case, when one of the companies in which it had invested was put up for sale, the Fund used its votes to ensure that the buyer was French, despite higher offers from non-French companies.177 As Sarkozy explained in a later speech, he was determined to use the power of the state to resist de-industrialisation and to strengthen France’s position in key industries, just as his predecessors had done. Where the government was a shareholder in an industrial enterprise such as Renault, it should use its influence to ensure that the company’s strategic decisions were in the best interests of the country; it was not acceptable, Sarkozy said, that the privately-owned Peugeot had two thirds of its worldwide employees in France, while Renault had only one third.
How far Sarkozy could go in the direction of interventionist policies was constrained both by budgetary pressures and by European Union rules on state aids; there was no question of reverting to old-style French dirigisme.178 Nevertheless, his activism helped to spark a renewed interest in industrial policy in other European countries, not least the UK Some British business leaders were increasingly unhappy with the laissez-faire approach towards industrial policy which had been followed by successive governments. In a widely noted speech Sir John Rose, chief executive of Rolls-Royce, the aero-engine manufacturer, deplored the loss of expertise in such industries as railways, power generation and nuclear power, comparing the continued success of French and German companies like Siemens and Areva with the virtual disappearance of their British counterparts. He urged the government to develop a clearer sense of direction for industry. “We need”, he said, “a framework, or a business route map, to create context, drive focus and help prioritise public and private sector investment. Unfortunately the fear of returning to anything that remotely resembles centralised industrial planning has resulted in even the discussion of such a framework being off limits”.179 Sir John’s remarks appeared to have little impact on government policy; Labour was sticking to the non-interventionist stance which it had inherited from Margaret Thatcher. Towards the end of the government’s term, however, there were signs of a change in thinking. Peter Mandelson, who was brought back to the government in 2008 as Business Secretary, believed that the UK had allowed itself to become too dependent on financial services. Drawing on advice from Rose and other industrialists, he looked for ways of rebalancing the economy, but not by means of old-style intervention. Government needed to help in those areas where businesses “would not or could not take the lead because market signals or incentives were not strong enough”.180 In several speeches and interviews he referred admiringly to the French government’s industrial policy, suggesting that the UK could learn from the way the French government took care of high-technology companies.181 This was warmly welcomed by the Trades Union Congress, which argued that what Sarkozy was doing through the Strategic Investment Fund should be imitated in the UK.182 In a White Paper published in 2009, Mandelson called for a “new activism” on the part of government to help business exploit the opportunities that were becoming available, especially in advanced technologies.183 The government should be willing to consider “targeted intervention” where clear gains could be achieved. In a review of policy published shortly 43 No. 1/2012