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«EU INDUSTRIAL POLICY: ASSESSMENT OF RECENT DEVELOPMENTS AND RECOMMENDATIONS FOR FUTURE POLICIES STUDY Abstract Following disregard in the 1980s, ...»

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This report provides an overview of the different initiatives and policies devised at EU level to foster competitiveness and growth, and their assessment by selected stakeholders and experts. In the absence of dedicated evaluations dealing with EU industrial policy as a whole, this report deliberately relies on this qualitative information. Furthermore, the hypothesis is that such positions and opinions are also part of the policy process, so it is important to take them into account to gauge where such a process is headed. A set of key findings emerges from this analysis, and some recommendations are formulated on this basis.

5.1. Key findings In order to extract key findings from the wealth of material collected for this study, we find it useful to distinguish between ideas, institutions and interests, which are key variables characterising the policy-making process in the field of industrial policy at EU level.

5.1.1. Ideas There is renewed interest in industrial policy in general, and at EU level in particular, but there isn’t always a clear-cut and explicit account of what purpose an EU industrial policy would serve. In particular, there seem to be general references to objectives such as competitiveness, growth and jobs, but sometimes without explicit mention of possible tensions or overlaps between such objectives and how exactly an industrial policy can help achieve these very objectives.

For example, it is no coincidence that such a “renaissance” of interest takes place concomitantly with the current crisis and the dramatic impact it has been having on the EU manufacturing industry. At the same time, it is generally acknowledged that an EU industrial policy should not provide short-term responses to the crisis, but more structural and long-term objectives, such as a contribution to reshaping the specialisation profile of the EU towards higher value-added activities where the “good” jobs are. In the short term, this process of structural change could even cause adjustments with negative consequences on employment.

Also, progress in productivity and competitiveness might not be good for jobs if it is obtained through technological developments substituting labour with capital, or through relocating part of the production process abroad. In this respect, it might be a good idea to be clear about the very objective of an industrial policy: is it higher productivity/better paid jobs, or employment in general, including low skilled jobs?

In this report, the argument put forward in favour of a focus on manufacturing is that this is where the good jobs are, besides being a fundamental source of innovation and productivity. The stakeholders (and other evidence) reviewed generally point to the importance of keeping a strong industrial manufacturing base as a key factor of resilience and development. The latter is indeed necessary to apply technological developments, which in turn is a learning opportunity calling for further technological development, etc.

Evidence shows the risk inherent in a strategy concentrating efforts on how to move up the value-added chain, promoting R&D intensive activities, if this is disconnected from the manufacturing base.

At the same time, an exclusive focus on manufacturing could bypass possible alternative or complementary sources of growth and competitiveness, for instance in some services characterised by high productivity. A certain degree of deindustrialisation seems to be inevitable (thanks to structural trends in the share of manufacturing, which is becoming more capital- and less labour-intensive in general, especially for low-skilled labour), and is PE 536.320 69 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies actually welcome if it corresponds to a relocation of low-skilled jobs towards more productive areas of the economy. What counts is the overall picture and whether the productivity of the economy follows an upward trend (corresponding to a most efficient allocation of resources towards higher wages and higher productivity jobs).

Overall, there is a vast consensus among stakeholders that the target of an industrial policy should indeed be manufacturing, but in its relationship to the value-added chain upstream and downstream. There must be considerations upstream for R&D input, but also raw material or energy costs, and downstream for marketing services, not to mention business services that contribute to the production process right across the value-added chain. This accounts for the fact that the boundaries between manufacturing and services are increasingly blurred.

As such, the term “industrial policy” appears to be a misnomer if it is taken literally: by suggesting an exclusive focus on industry, one risks losing sight of the broader picture and objective of improving the overall levels of productivity of an economy. Other names for an industrial policy could indeed be: innovation policy, growth policy, competitiveness policy, productive development policy, structural transformation policy, etc79.

In parallel with some uncertainty around the very notion of industrial policy – its definition, objective and target - there are novel theoretical developments suggesting alternative frameworks of analysis that question old schemes and dichotomies. Indeed, theoretical developments and recent practices point to new units of analysis and action frameworks for outlining an industrial policy, such as industrial systems, production chains, networks, global value chains, “eco-systems”, smart specialisation, etc. They are all notions that offer an opportunity to overcome old dichotomies at the origin of seemingly irreducible and unproductive controversies characterising the debate between proponents of an industrial policy and critics. In particular, they question the validity of the opposition between horizontal and sectoral approaches to industrial policy (also reconciled through a “matrix” approach), and between top-down and bottom-up policy developments.





In this context, new paradigms are proposed like the “new industrial policy” advocated by D. Rodrik. In contrast to the “old” approach characterised by top-down initiatives pursuing clearly defined (sectoral) priorities, the new industrial policy is implemented through a process of trial and error, implying institutionalised dialogue between public authorities and private agents, pragmatic public–private partnerships, and the ability of policymakers to learn from mistakes (which in turn requires monitoring and evaluating). The capacity of both policymakers and businesses acquires a special relevance in this context.

5.1.2. “Institutions”: the policy framework The recent surge in interest in an EU industrial policy relies on a policy framework that the stakeholders reviewed in this report characterise in the following way.

Considerable resources are mobilised, and the policy coverage is extremely wide. This calls for better integration of initiatives and programmes in order to take advantage of synergies. In particular, some suggest better aligning conceptual underpinnings and intervention logics at the root of policy developments in some areas, including, for example, environmental policy and other initiatives aimed at fostering competitiveness. It is acknowledged that, for a long time, competition policy has been providing a prevailing conceptual model influencing policy developments at EU level, which is still at work nowadays, but there is actually little call for a radical overhaul in this respect. Some See the presentation of Dani Rodrik at the First Industrial Economics Day organised by the European Commission on 15 December 2014.

70 PE 536.320Policy Department A: Economic and Scientific Policy

initiatives are considered to be under-funded (e.g. the SME instrument) and achieving a critical mass is generally called for. Also, concerns arise from some strategic decisions like those not to allocate additional funds to technological development or to downsize the budget for the Connecting Europe Facility programme in the current Multiannual Financial Framework80. Finally, the majority of respondents believe that a proper mandate in the field of industrial policy should be more clearly defined at EU level.

5.1.3. Interests Stakeholders appear to place quite distinct expectations on an EU industrial policy. Business associations acknowledge the fundamental role that the EU plays - and could further play – in terms of “levelling the playing field”. Another added value of EU action put forward by EU policy stakeholders is when the EU fulfils the role of knowledge-broker, or knowledge platform. This might be not as anecdotic as it may appear at first sight in a context where the competence and capabilities of policymakers at all levels, and also of businesses (who need to be able to manage technological change and innovation) are decisive.

As to Member States, a review of practices and approaches in six of them shows quite distinct positions. It is no surprise to see how distinct socio-economic institutional features determine different growth paths, and contribute to shaping specific responses to varying types of challenges. The impact this has on the chance of developing an effective EU industrial policy should not be underrated as this constitutes different incentives for Member States to take part in an active EU industrial policy. “Peripheral” Member States dependent on Cohesion Policy, for example, place high expectations on an EU industrial policy. The fact that these countries were hit hardest by the crisis and that they are experiencing relatively more rapid de-industrialisation calls for specific attention and possibly distinct approaches in their cases.

5.2. Recommendations There is undoubtedly a renewed political commitment in favour of industrial policy at EU level. The objective is not to miss this opportunity. Based on interviews with stakeholders and other evidence collected in this report and briefly summarised above, some suggestions on how to make the most of the current policy framework are proposed in what follows.

An important initial remark inferred from the report’s findings is that how to do things appears to have some importance, perhaps even as much as what to do.

As far as the EU is concerned, it should fully endorse its role of knowledge-broker and facilitator of interaction: this is not a retreat or a sign of weakness, but, on the contrary, a way to stress the real added-value of the EU action. Replicating a centralised model at EU level does not fit well with the multi-level governance design lying at its heart, nor with the very prerogatives and specificities of Member States in this field. It is also not very much in line with trends in the “new” industrial policy. Instead, the EU could use its ideal position of a platform as leverage for exchange and learning. It could start by making the most of the mechanisms already in place. For instance, the promotion of pragmatic public-private partnerships could acquire greater and institutionalised importance following the example of the Specialised Partnerships set up in the context of COM 2012 ‘A stronger European industry for growth and economic recovery’. These Specialised Partnerships should be strengthened and multiplied. They aim to bring together relevant stakeholders from different horizons in areas defined along the lines of: sector, market, production chains, It is worth clarifying that the stakeholders were interviewed prior to the confirmation by the new President of the European Commission of an Investment Plan worth more than €300 billion.

PE 536.320 71 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies industrial system, or a specific transversal theme, at the most appropriate level of analysis and action (trans-regional, transnational, cross-border, multinational, EU-wide, etc.). They should address issues at 360° where appropriate, from regulatory issues to energy costs, from trade issues to pertinent policy instruments, etc. This report illustrates other examples of initiatives promoting effective public-private partnerships, generally on a small or local scale (reflecting the local conditions for successful industrial policies) but, if pertinent with respect to the issues addressed, these networks could also be extended to a larger scale.

Another area where the EU could improve current practices is in the field of monitoring and evaluation. There is a lot to be learnt from the experience accumulated through the implementation of Cohesion Policy, which could be extended to the field of industrial policy.

A proper governance setting should be in place at EU level. There is a need to remedy the lack of mandate identified by the stakeholders interviewed. For example, more could be made of the newly established vice-presidency for “Jobs Growth Investment and Competitiveness”. His office could ensure optimal coordination among the concerned DGs by extending and multiplying the mechanisms identified in this report and building on the synergies and complementarities between programmes and initiatives. Efforts should be made to ensure that this also has a counterpart “on the ground” where these programmes are implemented.



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