«EU INDUSTRIAL POLICY: ASSESSMENT OF RECENT DEVELOPMENTS AND RECOMMENDATIONS FOR FUTURE POLICIES STUDY Abstract Following disregard in the 1980s, ...»
PE 536.320 59 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies barriers to developing a common EU industrial policy. There is a clear historical lineage in industrial policy in these countries, only occasionally interrupted by periods of stronger coordination or synchronisation during periods of crisis. A common policy would at least have to be adaptable or flexible with regard to such differences.
Another influence is the level of development, or how much each country depends relatively on indigenous innovative capacity (West Germany, France, the UK and Northern Italy) visà-vis technology transfer through trade and foreign direct investment (Greece, Poland, East Germany and Southern Italy).
However, there are also signs of policy convergence and spillovers from the technologyleading countries to the technology-dependent and policy-following countries (the latter often also more dependent on EU funding for their industrial policies, such as Poland, Greece, Southern Italy and East Germany). This can be seen by comparing the chronologies of industrial policy in the countries studied.
A certain synchronisation of industrial policy appears to have occurred at certain points in time. This is especially true during or after a crisis (such as the oil crises of the 1970s and 1980s and the present global financial crisis) when most of the Member States have found themselves in a similar situation of declining competitiveness, though currently with Germany as the positive outlier and Greece as the negative outlier. One example is the move towards horizontal policies, which was initiated by Thatcher’s reforms right after the UK became a member of the EU (and could be interpreted in fact as a reaction to that decision by the previous government). There are also most likely national imprints on particular EU industrial policies during a particular country’s governing periods in the Council of Ministers (such as the possible influence of German national policy on the move towards subsidising SMEs in the EU). Hence, spillovers could occur from one Member State to another, from a Member State to the EU-level and from the EU-level back to another Member State.
4.2.2. Domains and instruments Table 4 below shows the main initiatives in place in each country, divided up according to the main policy domains covered by the various arrangements and measures. It shows that both horizontal and sectoral objectives inform industrial policy-making across all the six country cases studied.
The most important domains covered in industrial policy are: 1) Key Enabling Technologies,
2) place-based policies and 3) barriers to innovation with SMEs. Some domains are lagging behind or are almost entirely neglected at present, the domain of labour in particular. A lot of initiatives under the product market domain belong under the Single Market and are not mentioned here as they are the same across all Member States. The presence of the three similar initiatives mentioned above (Key Enabling Technologies, place-based policies and barriers to innovation with SMEs) across almost all the six countries studied suggests that besides those pertaining to the Single Market, there is already a significant element of common and evolving industrial policy in the EU. This is most likely due to the influence of Cohesion Policy on industrial policy and general policy spillovers.
There are two areas of policy in which there is an almost complete overlap among the high innovation performers: the first is in R&D tax incentives (rarely used in the non-innovation performing economies such as Poland and Greece), and the second is across all six countries in the area of land development through special zones or cluster initiatives (even though the underlying objectives that motivate these policies vary significantly). The real difference comes mainly in the spending patterns, which tended to show (when figures were available) that budgeting gives a stronger preference to traditional industrial policies (e.g. in France), or to specific and also quite traditional national priorities (e.g. in Germany).
4.2.3. Concluding remarks Overall, the findings from Member States lead to the observation that industrial policymaking in the EU appears to be driven by the high innovation performing economies of Germany, France, the UK and Italy, and that policy preference is first and foremost driven PE 536.320 61 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies by their economic systems. In the more technology-dependent parts of Europe (including South Italy and East Germany) policy seems currently to be driven by general spillovers and Cohesion Policy. These regions appear to be weaker-positioned in terms of capability for developing their own internally coherent industrial policies (including setting up systems for evaluating these policies).
Another observation is that these particular patterns of policy preference and spillovers drive the domains covered by current industrial policies. The most prominent mechanisms are R&D tax incentives (emanating from the emphasis on innovation in the policy-leading economies), entrepreneurship policies (again emanating from the policy-leading economies) and, finally, place-based policies (emanating partially from policy preference or tradition in some economies such as the UK and France, combined with a heavy emphasis on Cohesion Policy in the EU).
The interviews indicated that the policy-leading countries currently have a low stake in the formulation of a common EU industrial policy because they are already formulating their own version. Instead, the policy-following countries have a very high stake and interest in making the relative influence over such initiatives more even. Their relative dependency on EU funding for industrial policy-spending suggests that they are not likely to take a lead in changing the present situation either via their own national policies or through the EU institutions. In this respect, a recent initiative led by France to bring together “Friends of Industry” (i.e. Italy, Greece, Spain, Bulgaria, Luxembourg, Belgium, Czech Republic, UK) shows the relative inertia characterizing the positions of Member States76. They called for a more active EU industrial policy, but their initiative had no specific concrete influence and no further developments took place.
4.3. The view from outside: scholars and experts This section summarises the results of a mini-survey on certain features of the current EU industrial policy and perspectives for possible development conducted with a Delphi-like approach77 among nine industrial policy experts and scholars worldwide.
4.3.1. Two schools of thought?
As far as their analytical framework is concerned, respondents can be broadly classified into two groups: a) followers of the EU approach and, conversely, b) those that, to varying degrees, are critical of it because it is deemed too biased towards supply-side considerations. In oversimplified terms, those with a neo-liberal economic bias maintain that industrial policy can be justified only in the case of market failures, because otherwise it would disrupt the efficient allocation of resources. Others point to the fact that there is a need to have an industrial policy in place precisely to redress the “missed growth” failures produced by the neo-liberal approach itself and its insufficient recognition of the factors behind growth. Those belonging to the first group agree with the current paradigm, but note that more should be done to monitor progress in key enabling technologies (including eco-innovation) and to foster synergies with education and research policies. They therefore emphasise the lack of a clear overall vision supported by appropriate compensatory measures where necessary (e.g. investing in energy efficiency to compensate for the US advantage with fossil fuels).
Initiative led by France, including Italy, Greece, Spain, Bulgaria, Luxembourg, Belgium, the Czech Republic and the UK (October 2013).
It is a “Delphi-like” survey inasmuch as it does not aim to establish a consensual position among the experts.
The survey was carried out between 14 and 30 October 2014 and its aim was to identify areas of agreement and disagreement among respondents through a quantitative scoring mechanism and a qualitative section where scores could be elaborated upon. See in Annex the list of participants.
62 PE 536.320Policy Department A: Economic and Scientific Policy
The criticism of the second group is much more radical and can be summarised in the following terms. The approach followed by the EU is the product of the dramatic mistakes of the 1970s when demand management policies totally neglected the supply-side. Now the problem is the fact that the current policies are conceptualised in purely supply-side terms.
So, if problems remain unsolved despite policy intervention, this spurs the need for even more of a supply-side approach, which would only aggravate problems in the long run, in a sort of vicious circle. According to this second group, the current strategic approach is lacking an analysis of the reasons behind the failures of past policies (both demand-side and supply-side driven) as a starting point for new thinking. In the words of one commentator, to get out of this conundrum a new articulation of industrial policy language and concepts would be required, because the current one - based as it is on the old supplyside demand-side debate - is intrinsically misleading, or at least, exceedingly one-sided.
4.3.2. Strategy and governance Respondents generally give a low score to the overall quality and clarity of the strategy and related governance aspects, although they might differ substantially in their underlying assessment of the main reasons why. Assessments differ depending on whether the respondent is broadly aligned with the EU approach so far (see Chapter 2), or a supporter of a more radical paradigm shift and a fresher approach. In both cases it is noted that several policy areas that are relevant for setting up a proper industrial policy are being tackled separately within the Commission and the Council of Ministers, which leads to evident inconsistencies. Not only does this extend to obvious examples such as climate change, innovation and taxation, but also to crucial monetary policy aspects (interest and exchange rates) that can represent a sort of precondition for putting any industrial policy in place, because there is general agreement that no industrial policy whatsoever can fix wrong monetary policy framework conditions.
Respondents tend to concede that industrial policy at the EU level is too biased towards horizontal approaches and exceedingly neglects more targeted sector- or segment-based instruments that would allow for more targeted and effective interventions. In current conditions, there seems to be a certain consensus that any horizontal strategy is bound to be vague and limited in the results it can achieve, although, as noted above, any move towards more analytical approaches would require skills not always to be found at the national/local level and therefore faces serious capacity constraints. Ideally, the right balance between horizontal and vertical policies depends on the territorial peculiarities of the different regions, their strengths and weaknesses and their underlying strategic industries, and should be assessed at the local level if the right capabilities are available.
Dissenting views more aligned with the supply-side approach insist that the purpose of policy intervention should be to build enabling conditions and support innovation, although some concede that interventions specifically targeted at certain emerging technologies or specific clusters could possibly be justified, even if the OECD itself has acknowledged a lack of “robust tools to measure whether or not such policies are successful” and warned that Governments should limit support to existing and emerging clusters rather than trying to create them where they do not already exist. There were also instances, as previously noted, where the horizontal-vertical dichotomy was deemed poorly framed and in need of fresh rethinking, and actually a part itself of the problem to be solved. This horizontal/vertical distinction can be blurred in cases where nominally horizontal support has de facto vertical effects – and vice versa. For instance, while support for research and development (R&D) is available to all sectors of the economy, at the end of the day it ultimately flows mainly to R&D-intensive sectors.
PE 536.320 63 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies 4.3.3. Policy instruments The distinction between the two schools of thought identified above can be found in the perceived degree of adequacy of the industrial policy tools currently available. While scholars and experts supportive of the current approach deem them fully adequate and may comment on the way they have been implemented or even suggest more focused education-related tools, critics of the “supply-side biased” policies would like to strengthen and widen the range of tools available that are currently too biased towards horizontal measures, and to reform current competition/state aid regulations as enshrined in the Treaties, by allowing ways to provide more support to strategic/high growth/high potential sectors and industries.
The main constraint to this more proactive approach is recognised to be the lack of a clear theoretical framework to guide European policymakers in creating entrepreneurial possibilities, and the lack of experience of most EU Member States in building organisational capabilities to advance their production capacity, compared to other global competitors. This would require a deep knowledge of production systems - including interEuropean production links - and of the strategies to develop distinguished production capabilities that only the public can provide, as financial institutions in the private sector are not skilled at due diligence to identify early stage technology development activities, and venture capitalists do not have the scale to support the crafting of sector strategies.
So, more generally speaking, tools and active policies would be required to improve the capabilities of economic actors to participate in competitive dynamics.