«EU INDUSTRIAL POLICY: ASSESSMENT OF RECENT DEVELOPMENTS AND RECOMMENDATIONS FOR FUTURE POLICIES STUDY Abstract Following disregard in the 1980s, ...»
PE 536.320 21 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies with specific incentives for a range of key macro-sectors24. This is to reduce the risks connected with intervening randomly in specific sectors and allow policymakers to take into account differences among countries in the EU (as different macro-sectors need different actions and different countries have specialisations in different macro-sectors). In this approach, an industrial policy for Europe should intervene holistically, focus on the environment and on innovation, and aim to generate systemic impacts25. This approach should affect the structure of the economy as a whole, not only the manufacturing sector.
Industrial policy is a series of 'high-road competitiveness strategies' based on advanced skills, innovation, supporting institutions, ecological ambition and activating social policy (Aiginger, 2006).
Focusing on the method of implementation of an industrial policy, the “new” industrial policy approach proposed by D. Rodrik also goes beyond traditional dichotomies (see Box 1 for an illustration of specific implications on the possible methods adopted to carry out such a “new” industrial policy).
Box 1. New experimental approaches to industrial policy One possible approach to industrial policy can be based on randomized trial and error experiments not supported by any other preliminary consideration aimed at identifying strategic priorities. This new approach requires processes of information discovery, policy experimentation and networking. These are partly built on the premise suggested by Rodrik that "...the task of industrial policy is as much about eliciting information from the private sector about significant externalities and their remedies as it is about implementing appropriate policies." These new approaches seek to tackle one of the main challenges in policy, namely the information asymmetry between government and business. In eliciting more information from the private sector, more informed policy-making is made possible.
Examples can be found of the use of techniques such as random assignment in the industrial and innovation policy sphere.
Source: Warwick, Nolan (2014).
In the “old” paradigm, it is assumed that the solutions to problems are known. A set of sectoral priorities are defined, to which specific policy instruments are dedicated. Top-down interventions are carried out, which require high quality bureaucracy. Instead, in a modern model of industrial policy, the dialogue between public and private agents taking place through pragmatic public private partnerships becomes central. It is useful to identify constraints and opportunities, and to find solutions to specific issues on a case by case basis26. This framework justifies an industrial policy at the EU level that is no longer topdown, but based on the interplay among networks, actors and institutions with a continuous interwoven learning process.
2.4. Concluding remarks This chapter shows that in the face of the daunting challenges faced by the EU economy as far as its competitiveness and growth levels are concerned, there are numerous options available in terms of both strategic underpinnings and concrete instruments. Some, however, are possibly more promising routes than others. In particular, a move away from the traditional top-down centralized approach is probably desirable, if only in order to be able to deal with one marked feature characterizing the challenges to be tackled and which For example: food and life science, machine and systems industries, fashion and design industries, basic and intermediary industries.
See Aiginger (2005, 2006, 2007, 2014), Crafts, Hughes (2013), (Malerba, (2004), Carlsson and Jacobs (1997).
See a presentation by D. Rodrik at the First Industrial Economics Day organised by DG Growth in December
2014. See also Warwick, Nolan (2014).
has to do with the extreme variability of national and regional circumstances within the EU.
In such a context, the next chapter explores the actual responses and choices made at EU level to deal with the challenges described above.
3. CONTOURS AND CONTENT OF THE “EU INDUSTRIALPOLICY”
KEY FINDINGS Different phases characterise the strategic framework adopted by the EU in the field of industrial policy. Industrial policy came back in the 1990s pursuing horizontal priorities. In the 2000s renewed expectations were placed on it, and to an even greater degree following the effects of the financial crisis. It comprises a blend of horizontal and cross-sectoral or thematic initiatives. It is now considered to be a central instrument to achieve the modernisation of the European economy. An ambitious target has been set to reach 20% of GDP dedicated to industry by 2020.
The current policies, programmes and initiatives contributing to an EU industrial policy are numerous, covering a wide variety of fields. Some initiatives with a budget envelope are (by order of importance): Cohesion Policy, Horizon 2020, Connecting Europe Facility and COSME, representing slightly less than EUR 200 billion euro. Two recurring priorities across these programmes are SMEs and innovation.
In addition, the EU exercises regulatory power in a number of areas, which
contributes to levelling the playing field and facilitating business in Europe:
competition, internal market, business environment, intellectual property rights, trade and energy.
The objective of this chapter is to provide an accurate and factual account of the shape(s) that an industrial policy deployed at EU level may take. Evidence is provided on strategic orientations, dedicated budgets, initiatives that the EC takes to incite Member States take specific steps and endorse varying approaches, as well as available evidence on the performance of the different policies programmes and arrangements reviewed. All these issues are addressed in a dynamic perspective, i.e. identifying the evolution path that led to the current state of affairs.
This chapter adopts the industrial policy perspective to account for different pertinent initiatives of the EU in this field that would normally be considered separately. Here it is impossible to capture the aggregate effects of the different initiatives reviewed 27, but scattered evidence on the performances of single initiatives is drawn from available evaluation and impact assessment reports. This is to pave the way for an assessment of the different programmes and initiatives seen as forming an “EU industrial policy” as a whole on the basis of perceptions of stakeholders presented in the next chapter.
3.1. The Strategic Framework: development and recent progress Nowadays, the role played by industrial policy at EU level is essentially considered to be the provision of framework conditions for enterprise development and innovation in order to make the EU an attractive place for industrial investment and job creation, taking into account the fact that most businesses are small and medium-sized enterprises (SMEs).
For example a document lists the main initiatives and records economic performance – but does not provide a proper evaluation of an EU industrial policy. See European Commission (2013), Commission staff working document, Industrial Performance Scoreboard and Member States’ Competitiveness Performance and Implementation of EU Industrial Policy: A European 2020 initiative, Brussels.
24 PE 536.320Policy Department A: Economic and Scientific Policy
However, this strategic choice is the outcome of different redefinitions in the history of the EU which are worth recalling, as this helps to shed light on current tensions and evolutions.
In fact, the concept of an industrial policy at EU level became explicit only in the 1990s, although some firsts attempts can be traced back to the Treaty establishing the European Coal and Steel Community (1951) and the foundation of EURATOM (in 1959). Five broad phases can be identified.
The 1951 treaty establishing the European Coal and Steel Community (ECSC) provided a first attempt to implement an EU-wide industrial policy, albeit in an implicit form and focusing only on one particular sector. The ECSC can be seen as the predecessor of today’s EU (J. Jolly, 1978). The principal aim of the ESCS was to improve the provision of coal and steel, which was then in short supply. To reach the objective of expanding supply, during this phase many interventions were allowed in the coal and steel market: minimum prices, quotas and trade protection. When the coal and steel sector later shifted to over-supply, the policy was maintained as a form of community coordination.
Second Phase The European Economic Community (1957) treaty marks the beginning of the second phase. The treaty does not mention industrial policy explicitly; however, this phase is characterized by remarkable interventionism and was labelled by many researchers as the phase of sectoral industrial policy or even “French industrial policy” with reference to the tradition of sectoral planning in France (Darmer & Kuyper, 2000, Owen, 2012). In this phase, sectoral restructuring and policies favouring specific sectors or even ‘grand projects’ dominated the policy scene in most countries. Such developments occurred even though one of the main goals of the 1957 treaty establishing the European Economic Community (EEC) was to increase competition and to promote the creation of an internal market with the free flow of goods. In order to do so, the treaty encouraged the lowering of tariffs and trade barriers alongside a reduction in subsidisation and in national assistance.
The first steps towards an explicit industrial policy at the community level are mentioned in a memorandum on industrial policy dated 1970 consisting of two documents: (1) A first document outlining the principles that guided the Commission and setting out the general guidelines that it proposes; (2) A second document consisting of four parts. The first part describes the situation of industry in the Community. The guidelines put forward in the first document are developed and explained in the following three parts: the improvement of the conditions in which firms operate in the Community, the ability of the Community's industry to adjust, and the promotion of technologically advanced industries.” (Supplement to Bulletin 4 – 1970 of the European Communities, Brussels, 18 March 1970).
Third phase The third phase began in 1990 with the European Commission communication to the Council and European Parliament entitled "Industrial Policy in an Open and Competitive Environment: Guidelines for a Community Approach"28. This communication reflects a convergence of views and an implicit agreement between Member States on the guiding principles for Community industrial policy, namely “openness of markets”, “horizontal approach” and “subsidiarity”. In particular, it pointed out that sectoral Commission of the European Communities (1990), Communication of the European Commission to the Council and European Parliament: "Industrial Policy in an Open and Competitive Environment: Guidelines for a Community Approach, COM(90) 556 final, Brussels, 16 November 1990.
PE 536.320 25 EU Industrial Policy: Assessment of Recent Developments and Recommendations for Future Policies policies of intervention were not effective in fostering structural change 29 and proposed that industrial problems be solved through horizontal measures. This phase seems to mark the end to the sectoral approach (Darmer & Kuyper, 2000), identified as a distortion of competition. The term industrial policy started to be used in a purely functional sense that is very close to general competitiveness or productivity policy. Industrial policy in this sense is similar to growth strategy – or to what used to be referred to as supply-side policy.
The Maastricht Treaty (1992) consolidated the achievement of the communication of 1990, and set up the legal basis for Community Industrial Policy. It established industrial policy explicitly as an area of Community responsibility and calls for the Union and the Member States to “ensure the conditions necessary for the competitiveness of the Union’s industry” (see Box 2)30.
Box 2. Article 173.1 of the Maastricht Treaty “The Community and the Member States shall ensure that the conditions necessary for the competitiveness of the Community's industry exist. For that purpose, in accordance with a system of open and competitive markets, their actions shall be aimed at: i) speeding up the adjustment of industry to structural changes; ii) encouraging an environment favourable to initiatives and to the development of undertakings throughout the Community, particularly small and medium-sized undertakings; iii) encouraging an environment favourable to cooperation between undertakings; iv) fostering better exploitation of the industrial potential of policies of innovation, research and technological development. 2. The Member States shall consult each other in liaison with the Commission and, where necessary, shall coordinate their actions. The Commission may take any useful initiatives to promote such coordination. 3. The Community shall contribute to the achievement of the objectives set out in Paragraph 1 through the policies and activities it pursues under other provisions of this Treaty. The Council, acting unanimously on a proposal from the Commission, after consulting the European Parliament and the Economic and Social Committee, may decide on specific measures in support of actions taken in the Member States to achieve the objectives set out in Paragraph 1.
This Title shall not provide a basis for the introduction by the Community of any measure that could lead to a distortion of competition.” Source: Maastricht Treaty.