Â«EU INDUSTRIAL POLICY: ASSESSMENT OF RECENT DEVELOPMENTS AND RECOMMENDATIONS FOR FUTURE POLICIES STUDY Abstract Following disregard in the 1980s, ...Â»
The golden period of industrial policy in France coincides with the fifth republic and the late post-war period (under the De Gaulle, Pompidou and Giscard dâEstaing governments). In particular Pompidouâs rule is exemplary of the state-centred or mixed economy model that was dominant in this period coinciding with quite heavy state intervention in some capitalintensive manufacturing sectors such automobiles and more traditional state monopolies such as energy, infrastructure and telecommunications (Gregory and Stuart, 2004). Grand projects that involved public procurement to serve the needs of the national markets were formulated by the state in nuclear power in 1969, telecommunications in 1974, and high speed rail in 1976 (Cohen and Lorenzi, 2000). In this period the state played the triple role of shareholder, regulator and strategist (Buigues and Sekkat, 2009), following the model that is also sometimes termed Colbertist sometimes called âstate capitalismâ (Groenewegen, 1997).
Austerity hit French industrial policy for the first time in the late 1980s and 1990s (under the governments of Mitterand and Chirac) and there was a significant retreat from the former state interventionist model. Public spending related to productive economic activity in industry was rolled back by at least 50% in the early 1990s (OECD, 1998). The role of the state as a shareholder was also significantly reduced as some waves of privatisation occurred in this period (Megginson and Netter, 2001), even though the state was known to retain control, or a so-called golden veto option, in many strategic enterprises (Pezard, 1995, Bortolotti and Faccio, 2009). Hence, with the shift from sectoral towards horizontal policies there was also an attempt to gradually withdraw the stateâs ownership stakes in the enterprise part of the economy.
In this period sectoral and export aid was reduced to more than half its previous size (from around 51% of the state budget to around 22%), whereas horizontal initiatives such as support for R&D, regional development and SMEs was increased from 21% to around 73% PE 536.320 83 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies of public support towards private enterprise or state aid (Buigues and Sekkat, 2009). There was also a complete shift in focus away from dirigisme and a strategising role of the state towards a very strong focus on competition policy as the main regulating force (Cohen and Lorenzi, 2000).
With Franceâs new industrial policy from the mid-2000s, however, there was renewed interest in the active role of the government in the area of industrial policy (Beffa, 2005).
What had formerly been achieved in the area of privatisation or state withdrawal was partly reversed under recent governments. This stance has only escalated with the Global Financial Crisis (Montebourg, 2013) and many of the new industrial policy initiatives launched back in the mid-2000s under Sarkozy have been scaled up, especially since 2013 (EUROACTIV, 2013). Government funding for private enterprise and/or direct involvement via state ownership has made a significant come back, especially now in the aftermath of the Global Financial Crisis and due to bailouts directly or indirectly via the banking system.
Principal measures and arrangements The new industrial policy was introduced in France around the mid-2000s according to Beffa (2005). Currently it comprises five pillars, the last two having only recently been added with the ambitious 34-plan programme.
The first pillar focuses specifically on innovation policy and in recent years has had a renewed focus on new industrial development. To some extent this is overlapping and complementary to the latest addition and the fourth pillar on public procurement in emerging technologies. Instruments targeting innovation policy include special types of finance for SMEs, but otherwise it is focused mostly on incentivising private R&D (EC, 2014). The French system for innovation support has traditionally had a distinctive focus on so-called hi-tech industries and/or focusing on higher value-added activities.
The second pillar has a regional aim, which to some extent coincides with regional aid under the cohesion objectives of the EU. Since 2000 France has operated quite an extensive scheme for land development in combination with industrial policy objectives named the âPĂŽles de CompĂ©titivitĂ©â (see below for more details).
The third pillar concerns support for small and medium-sized enterprises. Initially the aim was to break down barriers to financing among this group of firms. However, recently there has been a strong overlap between the first and third pillar whereby similar instruments are being used by large enterprises and already existing R&D spenders. Recently R&D tax incentives that were typically focused on the larger firms have been extended to include SMEs under the âYoung Innovative Companiesâ initiative (Lelarge, 2008).
According to some observers, in terms of spending, the first three pillars are still moderate elements of the new industrial policy. For example, Buigues and Sekkat (2009) explain how a lot of aid in France is still sectoral rather than horizontal, that it supports de facto costcutting rather than innovative activities and that often, in practice, it is paid out to largescale not small-scale enterprises.
The fourth pillar, in contrast, has an entirely sectoral aim and is very much a continuation of past public procurement policies, but in the realm of new emerging industries and potential future key enabling technologies. The 34-plan programme consists of a very ambitious plan for industrial renewal in a partnership between the private and public actors (Ministry of Economy, 2013, 2014). The fourth pillar is balanced by a fifth pillar that emphasises the regulatory role of the state.
Overall France conducts both horizontal and sectoral both horizontal and sectoral industrial policy. In one sense the current system is a reflection of a gradualist revision strategy and
a very difficult political economy that has left France today with a dual industrial policy reflecting the ideals of both the mixed and market economic systems (Buigues and Sekkat, 2009).
Example of a relevant policy initiative The initiative on competitiveness clusters in France was first announced in 2002 officially launched with a call for prospective investors in 2004 (Brette and Chappoz, 2004). The budget for the first three-year phase was âŹ4.5 billion (FontagnĂ© et al. 2010). According to the official website: A competitiveness cluster brings together large and small firms, research laboratories and educational establishments, all working together in a specific region to develop synergies and cooperative efforts. Other partners may be brought in, such as public authorities, either local or national, as well as firms providing business services. The aim of the cluster initiative is to foster innovation by building collaborative ties and synergies among different actors in the innovation system â bridging the so-called triple helix of collaboration across industry, universities (including research institutes) and local government.
Originally the intention was to build 15 focused clusters. However, due to the political economy of regional development, the funds have been diluted into what have become in practice 66 different poles or clusters across France. Basically, selection took place via a two-step system of self-selection (FontagnĂ© et al. 2010). While the initiative aims mainly to be a place-based type of policy, targeting land development combined with place-based aspects of the economies of innovation, such as externalities and public goods, it is clear that this type of policy often ends up having a sectoral aim due to its planning character of targeting specific activities towards locating in particular areas in a top-down manner.
This is also very much true of the French cluster programme. Martin et al. (2011) offer an initial ex-post evaluation of the cluster initiative. Their study suggests that the competitiveness clusters are generally located in regions of industrial decline and benefit overtly ailing firms, and that the policy has not been able to meet productivity (innovation) targets, although there has been some effect on employment. However, the research does not address innovation outcomes explicitly, which would appear to be the main objective behind the policy.
PE 536.320 85 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies
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Main policy challenges and guiding principles underlying the formulation of an industrial policy Germany, like the rest of Europe has its own variant of capitalism allowing for a type of competitiveness based on high wages and social cohesion policies (Streeck, 1997). The state is described as facilitating rather than directly intervening in most aspects of industrial policy. The production system that accompanies this is labelled as one of diversified quality production (Vitols, 2004). But Germany still has a somewhat strong policy tradition in this area even though it is more difficult to spot due to the high level of decentralisation that accompanies the stateâs facilitating role and that exists in terms of policy implementation in the federal system of semi-independent states (Buigues and Sekkat, 2009). A specific characteristic of the German variant of capitalism are the special industrial relations that are based relatively more on long contracts (for workers) or long contractual borrowing schemes via a bank-based system (for capital or finance) (Gregory and Stuart, 2013, Vitols, 1997). Another distinctive feature of the German system is the low wage (and productivity) dispersion between skilled and unskilled workers compared to the Anglo-Saxon variant of capitalism. Different issues are worth considering as background information to understand the German position vis-Ă -vis industrial policy.
The first issue is horizontal industrial policy-making at the state or LĂ€nder level. The states themselves are budgetary units for most of the horizontal initiatives. Typically decisions are taken at the federal level, but the responsibility for implementation rests with the LĂ€nder.