Calls for the European Commission to develop a holistic EU industrial policy are a welcome development – and one that was long overdue, writes Adrian Harris. If Europe’s Industrial Renaissance is to succeed, a joined-up policy approach is a must, he argues.
Adrian Harris is director general of Orgalime – the European Engineering Industries Association.
It was not all that long ago that industrial policy seemed to be out of fashion. It was viewed as a throwback to times past, a byword for misplaced government interventionism seeking to steer the market and ‘pick winners’. More often than not, it was equated with attempts to turn back the clock: the use of state subsidies to prop up failing industries was a way to temper technological change and shelter national ‘champions’ from global competitors.
Fast forward to today, however, and there is an increasing awareness that effective support for industry does not mean preserving the structures of the past. Rather, industrial policy should become an enabler for the future and a driver of change. In contrast to the interventionism of days gone by, a forward-looking industrial strategy should focus on creating a framework that encourages enterprises to remain at the leading edge of industrial innovation. And far from insulating European firms from international competition, a modern strategy should equip them with the foundation they need to survive and thrive on the global marketplace.
The EU Competitiveness Council has recognised this need for a comprehensive industrial strategy at European level: in its Conclusions from 29 May, it “calls on the Commission to provide a holistic EU industrial policy strategy for the future in time for the European Council meeting in spring 2018”. And the recent #Industry4Europe campaign shows the broad support for this move across the manufacturing sector.
But why now? First of all, it took a while but it seems policymakers have accepted the simple fact that manufacturing is – and will remain – central to Europe’s economic prosperity. The engineering industry alone directly employs about 11 million people and accounts for an annual turnover of almost €2,000 billion. In the years since the 2008 financial crisis, the countries with a strong manufacturing base were the first to bounce back.
Second, manufacturing is in the throes of a digital revolution: the integration of digital technologies and data analytics into production processes is enhancing efficiency, enabling innovative business models – and creating new and exciting jobs. This transformation is rapidly unfolding around the world. And governments in countries such as the US and China are taking a proactive approach to support and facilitate this change, often as part of a broader industrial strategy. Europe will need to step up to keep pace.
Third, it has become impossible to ignore the link between the post-2008 economic fallout and the rising political unrest of recent years. If citizens do not believe that policies are delivering economic stability and employment, they will lose faith in policymakers. By attracting manufacturing investment back to the EU, a comprehensive industrial strategy can go towards restoring that faith, by creating jobs not only in the manufacturing sector, but across the European economy. Research has shown that whenever a manufacturing job is created, it is followed by on average 1.6 jobs in the service industry – and overall multiplier effects are often much higher.
Moreover, an industrial strategy that establishes a supportive framework for digitisation, technological innovation and new business models won’t just deliver employment and economic benefits: it will create the conditions for European firms to develop solutions to pressing societal challenges – from energy and environment, to mobility, healthcare, and beyond.
These are the reasons why we urgently need to attract manufacturing investment back to Europe and achieve the Commission’s target of 20% industry share in GDP by 2020. So we know where we need to go. But how do we get there? What should this ambitious EU industrial strategy look like?
As the European Council put it back in December 2016, the answer lies in “mainstreaming industrial policy” across EU initiatives. This means taking a holistic approach that connects the dots between all policy areas impacting on the competitiveness of manufacturing firms. It will involve, for example, ensuring the EU regulatory framework is fit to support digitisation – by avoiding an over-eagerness to regulate that stifles innovation, as has happened all too often in Europe in the past. Energy policy, too, will have a key role to play: by pursuing policies that drive energy efficiency and promote EU energy technology leadership, a comprehensive industrial strategy will enhance Europe’s competitive position while facilitating the move to a low-carbon economy. Moreover, a holistic industrial policy approach will aim to maintain and strengthen the Internal Market – the foundation on which European manufacturers have built their success over the last number of decades. And it will be committed to a proactive open trade agenda, reflecting the importance of global markets to EU firms. Plus, R&D&I funding targeted to enhance industrial competitiveness will boost innovation while helping Europe keep its global leading edge.
What happens in these policy fields impacts on European industry – making it easier or more difficult for manufacturers to grow their business, to create jobs, or to develop innovative solutions to society’s challenges. But taken individually, they are just pieces of a bigger puzzle. If Europe’s Industrial Renaissance is to succeed, we must integrate these pieces to create a coherent whole – a forward-looking strategy that sees the big picture. And this is why the Commission, together with the European Parliament and member states, must act now and commit to an ambitious, coordinated EU industrial strategy. If European policymakers can help manufacturers continue to create growth and jobs, it is Europe’s citizens who will reap the rewards.