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European Industrial Policy 1. Defining industrial policy

Summer School Koloceb 30/8 -2/9/ 2010 Guido Nelissen

Defining industrial policyTheoretical rationale behind industrial policy

Tackling market failures (externalities): r&d, infrastructure, education, public goods, long pay back periodsTackling market barriers:

information gaps (for launching new products, about cost structures of new activities, in case of long-pay back periods), coordination problems :

setting-up a new activity requires the creation of new supply chain, Standards, ipr’s

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Definition.All micro-economic instruments with a structural impact on companies and on the regulatory framework in which they operateNot static

Past decades: very narrow interpretation Evolution from interventionism to just creating the right framework conditionsToday a wider understanding of the objectives of industrial policy has emerged

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Industrial policy as a policy process in support of strategic collaboration between the private and the public sector mainly based on soft toolsWith the inclusion of environmental, energy (European climate plan), social policies (training, skills gaps, social management of change)

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The building blocks0.Industrial policy is NOT (although these policies affect industry)

Macro-economic policyIncome distributionWage policiesIndustrial relationsLand-use policiesPrice controlsEnvironmental policies (generic)Sustainable development (generic)Cohesion policy (generic)Liberalisation of services

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1. Creating the right framework

conditions

Establishment of companiesEfficient public servicesRegional economic policiesCompetition policies (state aids – network industries)Internal marketCorporate taxationCompany financeEnvironmental policies with direct impact on industryTransport and LogisticsEnergy

2. Horizontal industrial policies

Research and developmentInnovationIPR’sEntrepreneurshipRisk capitalSkills & human capitalManaging restructuringPublic procurementTrade policiesEnergy (competitiveness aspects)Sustainable productionIndustrial infrastructureStandardizationImpact assessments

3. Sectoral policies

Sectoral policies/action plans (sectoral applications of horizontal tools)Cross-cutting policies: defense, ICTRegional policies (sector-specific)Cluster policiesLead marketsInnovationTechnology platforms/JTI’sActions for a low-carbon industry and green jobs

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Old and new interventionismToolkit for industrial policy doesn’t include anymore

Central planningNational champions‘Buy national’-campaignsSoft loans and debt reschedulingTrade protectionism (quota/tariffs)Public equity which does not respect the rules of the internal marketAbuse of anti-dumping proceduresBarriers to FDI-takeovers by foreign companiesGolden shares

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New ways of public interventionPPP’s (joint technology initiatives)Public technology(green) procurementPublic investment funds and risk capital financingLead marketsBig projects: Airbus, Ariane, Galileo, Eurocopter, ITER, ULCOSPublic equity when public partner behaves as a private investor

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European Industrial Policy 2. The history of European industrial policy

Summer School Koloceb 30/8 -2/9/ 2010 Guido Nelissen

The History of European Industrial Policy

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2.1.The phasing out of industrial policy in Europe

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1960-70an entire range of sectors were subject to European industrial policy of the old style (relaxing of state aid supervision, explicit protectionism, special regulations, anti-dumping): cars, aircraft, railway rolling stock, shipbuilding, textiles, telecoms equipment, consumer electronicsNational rescue plans for sectors/companies in restructuring

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Eighties: waning importance of (national) industrial policy

Heydays of neo-liberal thinking: industrial policy is only hindering the dynamics of free markets

Industrial policy became a dirty word because equal

to artificially keeping afloat ‘sunset’ or ‘chimney’’companies and sectors at a very high price for societyLobbying by mighty mno’s for scarce public resources

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1985: launch of the White Book on the creation of the internal market

The creation of the internal market limited the room for national policies dramaticallyFocus on the creation of an internal market and the EMU(dominating role for competition policy)

But at the same time emergence of first tools for a horizontal industrial policy at the European level(FP1 in 1984, Esprit in 1983)

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1990: first communication on industrial policy: ‘industrial policy in an open and competitive environment – guidelines for a European approach (Bangemann):

Ruling out state interventionism Stressing framework conditionsEmphasizing economies of scale, harmonisation of standards and norms, open public procurement, liberalisation of protected sectors, researchSector policies only to support structural change and capacity reductions (communications on ict, shipbuilding, automotive, textiles)

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Confirmation that main policy focus was to dismantle national barriers and the elimination of subsidies (dominance of competition policy)

Industrial policy turned into company policy and promotion of entrepreneurship

And moved from national intervention to European promotion of framework conditions

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2.2. The search for a horizontal industrial policy at the European level

Nov. 1993 the Maastricht Treaty

art 130 provided legal basis for industrial policy: the EU should guarantee the necessary conditions for a competitive industry without disturbing free competitionText of art. 173 of the Lisbon Treaty is much more detailed

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Quasi-constitutional ban on interventionist policies Start of renewed activism of the Commission/council:

Innovation, standardization, sme’s, structural adjustment, ICT

1993: White Paper on Growth, Competitiveness and Employment: link between industrial policy with macro-policies (report Delors)

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1994: new communication on industrial policy about the way industrial policy and macro-economic policy could mutually reinforce each other

Promotion of immaterial investmentsstressing the qualitative aspects of competitiveness: training, quality, work organisation,service component of goods, innovation

Develop industrial cooperation (TEN’s)Development of new markets (health, biotechnologies, ict, environment)From free to fair competition

The social dimension of free trade (social clauses)Tackling counterfeiting

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A modern role for governmentsBetter use of the structural funds for managing industrial change

Sector policies within the framework of horizontal tools (mainly for modernizing traditional sectors although no concrete implementations)

1997-2001: industrial policies=ict-policies (creating the ‘new’ economy)

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Communications of 1994 not followed by action programmes but

it was the first attempt to develop some kind of active horizontal industrial policy to replace competition disturbing national industrial policiest gave a new boost to the slow but steady development of horizontal policies at the European level

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2.3. Re-invention of industrial policy: sustainable, sectoral but horizontal, soft, non-ideological

2000: Strategy of Lisbon2001. Strategy for sustainable development (Gothenburg): the three pillars of sustainable development 2002: Barcelona-objective of 3% R&D2002: Creation of the Competitiveness Council (combining the Councils for the internal market, research and industry)Aho- and Sapir-reports

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December 2002: ‘An industrial Policy in an enlarged Europe’:

The challenges for industrial policyinvestigation of the instruments for industrial policyRe-defining the boundaries for an industrial policy in an open marketOpening the door for a revisited sectoral approach

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November 2003: ‘some key issues in Europe’s Competitiveness – Towards an Integrated Approach’

Assessing the risk of de-industrialisationScreening of the potential contribution to industrial policy of related policies as: sustainability, regional policiy, education, trade, competition, R&D, Information society, environment, taxation, employment, transport, energy

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April 2004: ‘Fostering structural change: an industrial policy for an enlarged Europe’: stressing the need for structural change in order to respond to the risk of de-industrialisation and relocation

Seizing the opportunities of enlargementIntegrated approach to competitiveness in 5 areas (knowledge, cohesion, sustainable development, globalisation, internal market)Better regulation and consultation, impact assessmentsPromoting structural change (disappointing EU productivity growth resulting in slow overall growth) and fighting the risk of de-industrialisationIncrease in funding of RDI and cohesion

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October 2005: ‘Implementing the Community Lisbon Programme: A policy framework to strenghten EU manufacturing – towards a more integrated approach for industrial policy’

‘A new industrial policy’Stressing the vital role of manufacturingScreening of 27 industrial sectors and a number of sectoral competitiveness studies Rebirth of sector policies: 6 sectoral initiatives

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ConcretelyOne-stop-shop regulationsERACohesion policy as a tool for horizontal industrial policyTEN’sCluster policiesIncentives for green tech, clean energyFurther development impact assessments

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EU 2020: 4 out of 7 flagship initiatives concern industrial policy

Digital agendaInnovation UnionLow-carbon, resource efficiënt EuropeAn industrial policy for the globalisation era

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Mid-term review of industrial policy: a contribution to EU’s Growth and Jobs Strategy (2007)Simplifying the regulatory environmentLead market InitiativeStandards InitiativeClusters InitiativeFuture of Energy Intensive IndustriesAccess to natural resources and raw materialsExternal aspects of competitionIndustry/services InitiativeNew sectoral initiatives: food, Electra, Galileo

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Wave of regulations since 2002

Must be viewed as new attempts to reconcile industrial policy with the requirements of the internal marketIn order to address structural challenges

Sustainable developmentIntegrate rapidity of technological developmentsthe evolution to a knowledge economyThe new international division of labour

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2.4. Main elements of the ‘new’ industrial policy in Europe since 2002’

Re-invention of sectoral policies at the European level

mainly based on soft tools: high level panels,technology platforms and technology roadmaps, lead markets, cluster policies, a sectoral application of horizontal tools (sector-tailored)LeaderShip, Star 21, Cars 21, EnginEurope, Elektra, HLG Defence,Textiles and Chemicals, Metals communication,task force on ICT Competitiveness

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Strong emphasis on the knowledge society

innovationInnovation action plansBetter innovation governanceTechnology transferCompetitiveness and Innovation programme

IPR and counterfeitingAccess to finance for innovative sme’s

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Increased efforts for R&D3% Barcelona objectiveStrongly increased budget for the7FPCreation of a ERATechnology platformsDevelopment of new technologies: biotechnologies, ict, nanotechnologies, new materialsCreation of EIT

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Sustainable development: Disconnecting economic growth from environmental degradation

Eco-efficient production in traditional sectorsSupport to the development of eco-industriesDevelopment and diffusion of clean technologies and renewable energyStrong global dimension : global sectoral aspects, emission trading, carbon leakage, …

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Implemented by: Ecotechnologies Action Plan (ETAP), Integrated Product PolicyEMASEco-design directiveGreen public procurementAccess to raw materialsthe action plan for sustainable production and consumption and for a sustainable industrial policy

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EnergyHigh level group on competitiveness, energy and environmentImportant industrial dimension in the implementation of the European Climate PlanFuture of energy intensive industriesEnergy securityStrategic Energy Technologies Plan (SET)

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TradeTackling the external aspects of competitiveness and market accessRespect of core labour standardsBilateral agreementsTrade defence instruments

Promoting productivity and economic growth by promoting ICT’s

E-demand (e-government, e-health,..)Broadband policies: as a tool to enhance competitiveness (eEurope)Integration ict’s in established industrial sectorsI2010 and the European digital agenda

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Better regulationOne-stop servicesInternal marketImpact assessmentsStandards

Infrastructure: TEN (transport, energy, broadband)

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Integration of a social dimension: Managing structural change

Restructuring Task ForceGlobalisation Adjustment FundCohesion policy in support of industrial change and innovationPromotion of CSR

Intangible assets and human capitalKnowledge diffusionOrganisational innovationTackling skills gaps (improving sectoral skills)Lifelonglearning

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Public interventionPPP’s: Joint Technology initiatives: Artemis (embedded systems), Eniac (nanoelectronics), hydrogenStronger role for the EIBInclusion of demand-side policies

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Improved governanceImproved use of the Open Method of CoordinationImpact assessmentsEstablishment of the Competitiveness Council Integrated approach: better exploiting the synergies between different policiesBetter coordination with macro-economic policiesYearly competitiveness reports as a scientific basis for policy-makingImproved social dialogue: Creation of the EMCC and the CCIC, improved sectoral dialogue

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2.5. Some conclusionsDuring last 3 decades the scope and nature of industrial policy has drastically altered

Dominance of neo-liberal thinkingMacro-economic discipline imposed on MSPro-competitive logic of ever deeper market integrationAs a result

the toolkit for industrial policy has shrunk considerably: industrial policy may not hinder free movement of goods, capital, Move from national interventionist industrial policy to horizontal policies at the European levelNew views on industrial policy have emerged although very slowly

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Return of industrial policy since 2001 is resulting from the failure of liberalisation and privatization in addressing structural challenges. Also the creation of the internal market didn’t contribute to growth and jobs as expected. It became clear that a more balanced strategy was needed.Wave of communications since 2001 show the renewed commitment of the Commission to protect and strenghten the industrial basis of Europe and to take into account the specific needs and characteristics of individual sectors

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Finally, industrial policy became broader, softer and less ideological with close links to energy policies, sustainable development and social policies

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European Industrial Policy 3. The building blocks for a sustainable industrial policy

Summer School Koloceb Koloceb 30/8 -2/9/ 2010 Guido Nelissen

1st Industrial Revolution (1780)

2nd Industrial Revolution (1890)

3rd Industrial Revolution (1990)

Dominant technology and raw material

Steam engine, power loom, iron processing

Electricity, chemistry, combustion engine, assembly line

ICT, microelectronics, new materials, eco-industries

Dominant Energy Source

Coal Coal, oil Renewable energies, energy efficiency

Raw material Steel Plastics Renewable raw material, biotech, recycling

Transport/communication

Railway,telegraph Car, plane,radio, tv High-speed railways, internet, mobile telecom

Society/state Liberal state, freedom of trade, constitutional state, property rights

Welfare state, mass production, mass society, parliamentary democracy

Civil society, globalisation, global governance, environmental state

Core countries UK, Belgium, Germany,France

USA, Japan,Germany

EU, USA?, China?Japan?

46Source: Jänicke and Jacob, 2009

Principles Production models based on innovation and knowledge rather than on cheap resourcesDevelopment of new more sustainable consumption pattersTransformation of current industrial sectors into sustainable structures Alls this will have enormous social and financial implications There will be no broad societal acceptance of a green transformation without a broad mobilisation of society

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Characterics green industrial revolution

Each industrial revolution leads to a new balance between the economy and the institutional framework:new institutions (the sustainable welfare state?), new production methods, means of transportation, raw materials, energy basisFirst industrial revolution required free trade, property rights, market development and division of labour: this increased the pressure for the creation of the rule of law and political participation (‘liberal revolution’)

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Second industrial revolution with the transition to mass production led to a minimum of social standards and income distribution, purchasing power (welfare state), key role for social partners Green industrial revolution

Impressive potential for innovation but also for redefining societal systems/structuresResource-intensive growth patterns of the second industrial revolution cannot be sustained: new sustainable patterns of consumptionSectors based on the exploitation of natural resources will see their existence threatened:

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New functions for the stateLiberal state: core functions were economicWelfare state: social core functions were added to the economic functionsEnvironmental state: sustainable functions are included (supporting sustainable infrastructure, consumption, taxation)

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Consequences for industrial policyA green industrial revolution needs an appropriate industrial policy by

Extending the scope of traditional industrial policy to integrate the challenge of sustainable development: eco-efficient production, climate change, protection of natural resourcesExtending the array of tools: regulations to promote sustainable production and consumption, educational instruments to change behaviour, tools for the internalization of external costs, need of a global approach

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Shifting away from the narrow focus on competitiveness:

Adjustment of industry to the upcoming lead markets and technologiesPreparation of the industry for scarcity of energy and other resourcesDevelopment and diffusion of more eco-efficient technologiesSustainable industrialisation in other parts of the world

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Dynamic/intelligent environmental Regulations/standards/benchmarks/minimum mandatory targets (top runner approach)Internalisation of external costs by market-based instruments: taxes,subsidies, emission trading, carbon taxActivating the public sector as an innovation-driving demand factor: Green public procurementFostering of the emerging markets for sustainable goods and services (lead markets)

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Developing global markets for sustainable productsSupporting eco-innovation by developing strategic roadmaps for new technologies/activities and including institutional and societal dimensionsAction plans for the eco-industries: waste management, water treatment, eco-construction, renewables, energy-efficiency

Identify barriers to their expansionFinanceCreate a friendly regulatory environment

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Integration in traditional industriesIntegration of ict’sGlobal sectoral agreements to reduce greenhouse gases

Not only supporting eco-innovation in the green tech sectors but also fostering structural change in the traditional industrial sectors

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Integrated product policy approach: Voluntary agreementsStandardsEMASEcodesign directive, eco-Labelling, ….

Boosting resource efficiencyEnhancing the environmental potential of industry

EMAS/ISO14000Greening workplacesCSR

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GovernanceBalancing issues as climate change, energy, resources with economic growth, jobs, welfare: at the same time being mindful of conflicts while capitalizing on synergies and opportunitiesIntegrated policy approach: policy coordination between industrial policy and sustainability strategies (inclusion of departments for environment, research, energy, employment in the development of industrial policy)

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Addressing the social dimension: the restructuring of industrial sectors into sustainable structures needs broad social acceptance and may not negatively impact the distribution of welfareNeed for global governance in support of sustainable development

Promoting trade in sustainable productsInternational development assistanceDiffusion of sustainable technologiesCDM and JI

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A green revolution is taking place, be part of it. Thanks!

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