«Original citation: Owen, Geoffrey (2012) Industrial policy in Europe since the Second World War: what has been learnt? ECIPE Occasional paper, 1. ...»
The only genuine German success in computers during this period came from an entrepreneurial newcomer, Nixdorf, which specialised in small business systems, a largely uncontested market which Siemens had neglected. Although Nixdorf received some support from the BMFT in the second half of the 1970s, it was not dependent on the patronage of the state.73 In nuclear power the two principal contenders were again Siemens and AEG, both of which entered the industry by obtaining licences from US companies and later developing their own technology. Although they received some support from the BMFT, most of the Ministry’s efforts were devoted to reactor types – principally the fast breeder reactor – which turned out to be of little commercial value. The companies were sceptical about the fast breeder, and reluctant to invest in it. 74 Siemens’s subsequent success in nuclear reactors owed little to government support.
In the aircraft industry, German companies which had been among Europe’s leading manufacturers before the war were eager to get back into the market as soon as the restrictions were lifted. They had a powerful supporter in Franz-Josef Strauss, who as Federal Minister of Defence from 1956 to 1962 and later as Minister President of Bavaria (where several of the companies were based) worked hard to revive the industry. The first step was to negotiate an agreement with the US for the manufacture under licence of the Lockheed Starfighter.
Government support for civil aircraft projects began in 1962, but progress was slow, partly because of the fragmentation of the industry; there were seven independent aircraft builders in the 1960s. One of them, VFW, formed a partnership with Fokker in the Netherlands to make a short-haul airliner, the VFW 614, but it was not successful; the programme was cancelled after costing the taxpayer some DM1bn.
The first moves towards rationalisation came at the end of the 1960s with the creation of Messerschmidt-Bölkow-Blohm (MBB), and it was this group, together with VFW and Dornier, that became the German partner in the Airbus consortium. A new company, Deutsche Airbus Gmbh, was formed, with Strauss as chairman of the board. The German aircraft industry relied on support from the Federal and Land governments; apart from coal mining, it was the most heavily subsidised sector of German industry.
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ECIPE OCCASIONAL PAPERAs Otto Keck has written, “the federal government was hesitant in assuming responsibilities for science and technology, and where it did, as in nuclear power, aerospace and electronic data processing, its programmes for supporting industrial technology were ineffective”.75 But if Germany’s forays into interventionist industrial policy between the 1950s and the 1970s were mostly unsuccessful, they were too small to have much impact on the wider economy. Germany avoided the mistakes made in France and the UK, and its industrial strength continued to be based on medium-technology sectors in which interventionist policy had played no part.
2.4. INDUSTRIAL POLICY AT THE EUROPEAN LEVELThroughout the 1960s and 1970s the industrial policies pursued in the UK, France and Germany were largely national in character. Although there was some cross-border cooperation, as with Concorde and Airbus and the abortive Unidata venture, these were intergovernmental arrangements which did not involve the European Commission. The Treaty of Rome had said nothing about industrial or technology policy. The separate treaty that set up the European Atomic Energy Community (Euratom) was intended to provide a coordinating framework for nuclear research, but virtually all Europe’s research in this area was conducted outside Euratom by national governments.76 The first steps towards a European technology policy came in the mid-1960s with the creation by the Commission of a committee known as Prest (Politique de Recherche Scientifique et Technologique) to explore the possibility of a common research policy among member states. This was a time of growing concern over the failure of European countries to fund scientific and technical research on the same scale as the US.77 Various plans were put forward at this time, including a proposal from Harold Wilson, the British Prime Minister, for a European technological community, to which the UK would contribute its expertise in areas such as aerospace and electronics. Without action on this front, Wilson warned that Europe faced the prospect of an “industrial helotry”, with European industry producing “only the conventional apparatus of the modern economy, while becoming increasingly dependent on American business for the sophisticated apparatus which will increasingly call the tune in the 70s and 80s”.78 Wilson hoped this argument would strengthen the case for British membership of the Common Market, but his application, like that of his predecessor Harold Macmillan, was vetoed by General de Gaulle, and his ideas on research won little support from other European countries.
Some progress was made in the Prest committee, and the appointment of Altiero Spinelli in 1970 as the Commissioner responsible for industry and for research and technology led to more ambitious plans for cooperation in this area. Although nothing much came of Spinelli’s initiative, which involved a greater degree of centralisation than was acceptable to member states, his successor, Ralf Dahrendorf, brought a more pragmatic approach, and by the early 1970s a new framework had been established in the form of COST (European Cooperation in the Field of Scientific and Technical Research) through which European governments, together with the Commission, funded a number of collaborative research projects.79 The principal obstacle to progress was the reluctance of governments, especially in the larger countries, to subordinate their national interests to those of Europe as a whole. As one observer wrote, “European technological cooperation failed in the 1960s because European governments wanted to have their cake and eat it. They wanted the benefits of technological cooperation without paying the political costs necessary for these benefits to be reaped.
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ECIPE OCCASIONAL PAPERThese political costs were the removal of protection for national firms in public markets for ‘strategic’ technologies, an explicit willingness to become more dependent on European neighbours and a revision of the habit of turning to the USA when national technological programmes failed”.80 These obstacles to cooperation were evident in the largely abortive attempt to develop a European approach to space technology. In 1961 six European countries – the UK, France, Germany, Italy, Netherlands and Belgium – set up the European Launcher Development Organisation, followed a year later by the European Space Research Organisation, but there was a lack of clarity about objectives and little progress was made. By the end of the decade “the European space programme was a shambles”. 81 By this time officials in Brussels were beginning to make the case for a European industrial policy. One of the first Commission documents on this subject, the Colonna memorandum of 1970, noted the surge of US investment in Europe, especially in high-technology industries, and warned that European-owned firms could find themselves limited to “traditional”, that is, low-technology, activities.82 The memorandum pointed out that the main beneficiaries of the reductions in tariffs within the Common Market had been consumer goods producers. “Industries which make use of the major new technologies do not feel the same benefit of the customs union inasmuch as – since their development depends on public funds and orders – they cannot so easily break out of their national market”. The report proposed that the creation of cross-national European companies should be made easier through changes in company law.
No concrete action resulted from the Colonna memorandum, but in the second half of the 1970s the case for a European approach to some industrial problems became stronger as a result of the crisis in steel. This was an industry over which the Commission, through the European Coal and Steel Community, had supervisory powers. The collapse in demand that followed the 1974/75 recession created a very difficult situation for the steelmakers to which the Commission had to respond. Under the 1977 Davignon Plan, named after the Commissioner for Industry, Étienne Davignon, the steel companies were made subject to strict controls on pricing, and restrained from adding new capacity. The aim was to stabilise the market and to bring capacity into line with expected demand.
Steel was one of several troubled industries that looked to the Commission for help during this period. As one commentator remarked, European companies and their governments were evidently prepared to look for Europe-wide solutions in the so-called “sunset” industries such as steel and shipbuilding, while keeping firm national control over “sunrise” industries such as computers.83 However, Davignon, a powerful figure on the Commission between 1978 and 1982, believed that Community action to help growth industries was as important as the restructuring of industries in trouble. “In the aerospace industry, in data processing and in other areas”, he said, “opening up markets and pooling industrial capacity will be necessary to reach the scale required by international competition”.84 Davignon was the prime mover in establishing the new framework for technological cooperation which was to take shape in the early 1980s.
2.5. EUROPEAN INDUSTRY AND ITS COMPETITORS IN 1980 The first thirty years after the war saw a surge in European productivity growth; by the mid-1970s GDP per hour worked in Europe was just under 80 per cent of the US level, com
pared to 44 per cent in 1950.85 The improvement owed a great deal to trade liberalisation and a generally favourable international environment, but little if anything to interventionist industrial policy. The country which intervened least, West Germany, did best. Moreover, whether or not the desire to catch up with the US in high-technology industries was a legitimate objective – and on this issue politics and national prestige weighed at least as much as economics - little progress had been made. In aerospace and computers, which had been heavily subsidised by European governments, American firms were still far ahead. At the same time attempts to ease the problems of depressed industries through government intervention had tended to slow down necessary change, at considerable cost to the taxpayer.
The clear lesson from European industrial policy in the 1960s and 1970s was that governments had overrated the risks and costs of market failures and underestimated those associated with government failures. As an OECD study pointed out, an apparent market failure – for example, the reluctance of firms to invest in risky high-technology projects – did not in itself justify government action. “It is necessary to ascertain beforehand that such action can be more effective than the market solution, however imperfect, and that the appropriate means can be mobilised”.86 There had also been a dubious assumption, especially in France and the UK, that there were technologies which a country somehow needed to have and which in the absence of concerted government action it would not acquire; that these technologies could be discovered by administrative process; and that they would be more effectively secured by centralised effort than through the “duplication” and “waste” which characterised competitive markets.87 Anxiety about US domination had been a strong influence on policy-makers throughout this period, but the response failed to take account of the special features of the US market. Part of the explanation for the American lead in computers and semiconductors was that in the early post-war years, when these industries were in their formative stage, US manufacturers benefited from a large demand arising from military and space exploration programmes. In civil aerospace, the size of the US market, and the existence of numerous competing airlines, gave US manufacturers an advantage that was not available to their European counterparts.
No less important were supportive policies and institutions, including a financial system that gave start-up and early-stage firms ready access to capital. Another factor was the willingness of the Federal government and its agencies, including the military, to encourage new entrants, instead of relying on large, established companies as their European counterparts generally did.
American success could not be ascribed to industrial or technology policy. “Historically US technology ‘policy’ has been the outcome of loosely coordinated and often inconsistent decisions made in diverse policy areas designed to further the missions of individual federal agencies. These policies were motivated more by national security concerns than by any comprehensive economic strategy”.88 In general the US government did not try to plan and coordinate broad civilian technologies, and where it did so the results were disappointing.89 Where mistakes were made, the US was usually quick to acknowledge them; for example, development work on a supersonic airliner, begun in direct response to Concorde, was discontinued in 1971 before expensive commitments had been made.90 European governments might have done better if they had focused less on the size of US companies and more on the institutional framework in which they were operating. But towards the end of the period there was another model which was beginning to attract interest in Europe.