The waiting is almost over. March, the European Commission has announced, will see the publication of a new EU Industrial Strategy. This is a long-awaited document: a vast number of industry groups have been calling for an Industrial Strategy for several years, and so has the EU’s Competitiveness Council.
Dennis Kredler is the Head of the Brussels office for Dow, a material science company headquartered in the US and with a significant production footprint in Europe. He writes in a personal capacity, building on almost two decades of experience working for different organisations dealing with different aspects of industrial competitiveness.
Last year, the French and German economic affairs ministers joined the chorus calling for a new approach to industry. But less than one month before its publication, it is still not clear whether the Industrial Strategy will live up to expectations.
There is no shortage of ideas. Multiple business organisations have submitted long lists of suggestions on what an Industrial Strategy could do. When the Industrial Strategy is unveiled, everybody will look at how many of their ideas have been taken on.
But there is a risk that, in focusing on those details, the big picture will be missed. The real question is whether the Industrial Strategy will enable European industry to successfully master the challenges of the massive transformation that is required to make the Green Deal successful.
This is not a foregone conclusion. In a world where this industrial transformation is – for now – mostly limited to Europe, companies’ ability to transform will be constrained or supported by their ability to compete on the world market. Exports to this world market will be a crucial additional source of revenue to finance the Green Deal transformation. In other words, a healthy European industry – one that is able to withstand its global competitors during the transition – is a precondition for the success of the Green Deal.
With some justification, the Green Deal is positioned as a European growth strategy for the next decades. Its multiple measures are intended to make European industry more competitive in an increasingly resource-constrained world that collectively addresses climate change. It is a good plan, but it is predicated on the assumption that the Green Deal will ensure attractive conditions for private investment and that the rest of the world follows Europe’s lead. Common sense would lead us to assume that this will eventually be the case and that as a result, the Green Deal promise of a first-mover advantage for European industry will materialise.
The problem: nobody knows for sure whether the Green Deal will be attractive to investors and whether the rest of the world will follow Europe’s lead – and when.
These are significant challenges. They must not be an excuse not to deliver the Green Deal. But it does mean that while European industry will be required to mobilise massive investments – first, in technological development, and eventually into deployment of the needed new technologies – producers in other parts of the world will have no such financial constraints.
This will affect the ability of companies to develop business cases that justify the much-needed investments in Europe. Even if a way is found to shield the European market from imports from other countries (e.g. through a possible Carbon Border Tax) this does not of itself address export competitiveness
The core question the EU Industrial Strategy will need to answer is thus: how will European producers remain global market leaders through their transformation into carbon-neutral and circular producers, while their international competition is not transforming?
To answer this question convincingly, the EU needs to equip itself with a sophisticated toolbox that allows it to assess and respond to competitive disbalances in a way that does not compromise the success of the Green Deal transformation. A review of competition policy and the availability of significant transition funding, expected to be core components of the forthcoming Industrial Strategy, may be part of the answer, but they are not sufficient. There will have to be a strong element of enabling the Green Deal transformation by attracting private sector investment and boosting domestic productivity. The role of industrial competitiveness as a major factor in determining investment attractiveness continues to be underestimated in Brussels.
One important competitiveness factor under the direct control of policy makers is regulatory cost. Only a few insightful snapshots of the costs borne by industry in specific sectors as a result of regulation exist. But no generalised, ongoing monitoring is carried out of how such costs evolve. Policy makers are effectively “flying blind”. To be clear: regulatory costs should not be used as a blanket argument against regulation. But policy decisions should consistently seek to choose the options with the best cost/benefit ratio. (The Commission’s stated intention to use the “One in, one out” principle will only deliver if it focuses on regulatory cost relief rather than absolute numbers of regulatory acts.) As an added bonus, regulatory cost reduction requires no budget spending,
Successful Green Deal delivery will also require a pragmatic approach to EU decision-making that leaves behind old antagonisms. What is needed is a collaborative approach where all stakeholders are on the same side and share the same final objective. Policy-makers have an important contribution to make: fleshing out the Green Deal in detail must be done collaboratively not only involving different Commission Directorate Generals, but also different Parliament committees and Council formations. The risk of this not happening is that the Green Deal and industrial competitiveness get treated like trade-offs. This must be avoided.
The EU has decided to take the lead in transforming to a new model. The Green Deal will only be an economic success if the EU Industrial Strategy ensures industry competitiveness throughout this massive transformation. This should be a transitional Strategy that will no longer be needed once the rest of the world has comprehensively embarked on a transformative path following Europe’s lead. We just don’t know when that will be.