A new European industrial policy that puts innovation at its heart will help us face up to the economic challenges of the future, argue Máire Geoghegan-Quinn and Gary McGann.
Máire Geoghegan-Quinn was the European Commissioner for Research, Innovation and Science from 2010 to 2014. Gary McGann is group CEO of Smurfit Kappa and chairman of the Confederation of European Paper Industries (CEPI).
Utter the words ‘industrial policy’ in Europe’s boardrooms, and you’ll likely get a frosty reception. Older executives will recall with a shudder Mitterand’s disastrous dirigisme, and the slow death of British manufacturing. But we believe that the challenges facing Europe necessitate an urgent re-imagining of a new industrial policy, focused on investments and innovation and achieving European competitiveness in the new world economy.
Our starting point is that industry remains the fundamental building block for Europe’s continuing prosperity. We need to celebrate Europe and bring industry back in the fold of society. While industry makes a smaller contribution to European GDP than in the past, its economic and social importance is undimmed. The roots of value creation are jobs and prosperity. Industry brings cohesion in society, through real jobs for real people, in many cases in regions without much alternative employment. It is not a coincidence that European countries which had preserved their industrial bases, such as Germany, recovered more rapidly from the financial crisis.
Indeed, there is a growing recognition that industry’s role in future growth and innovation will be even more important than it has been in the past. Industry remains an engine of research, innovation, job creation and exports. Industry today is also closely integrated with the service sector, increasingly hi-tech and internet-embedded, meaning that the benefits of industrial innovation ripple throughout the economy. And industrial activity is so embedded in value chains and wider business ecosystems, that we may need to revise our definition of it to reflect this modern reality.
Industry must therefore be at the heart of Europe’s response to its wider economic challenges. We know we are not alone in thinking that we still under-exploit our huge internal market and fail to punch our weight internationally as well as we could. Notwithstanding its strengths, in a rapidly changing world economy, Europe’s industrial economy has for too long been conceding competitive advantage to other regions, and its long-standing reform agenda has not been effectively delivered. Creating the right conditions for industrial investors to take risks and generate the rewards that governments can then help fairly distribute remains unfinished business. Growth in the EU has been anaemic since the global financial crisis and temporary currency weaknesses cannot hide the risk of competitive decline if we do not invest in the industries and companies of the future.
But if we want to win the global competitive advantages from the new economy in Europe, then a truly innovative mindset must treat these as opportunities as much as challenges. European industrial competitiveness needs to be understood in the context of 21st century megatrends such as demographics, digitization and decarbonisation. We too often fail to do that!
The outlines of the next industrial economy are becoming much clearer. There is an overarching need for transformative innovation if Europe’s significant industrial assets are to realise their competitive potential, whether these are high-tech, highly resource-efficient, high skills or linked to where these connect to finance and end-markets. National and regional economies need to quickly identify and exploit where they can find competitive advantage in the near and longer term, and consider how they can promote the industrial innovation needed to deliver that advantage.
Europe’s current policy and business structures are ill equipped to address these challenges. Economic policymaking is fragmented and inconsistent. It suffers from a “silo” mentality, where policy responsibility is often split between different levels of governance. The longer term is too frequently sacrificed to short-term considerations. There is no agreed vision of where EU competitive advantage may lie. Policy sometimes seems to forget the competition is outside Europe, not inside. And the platforms to discuss and formulate an agenda for industrial innovation are also lacking.
Developing a new approach to industrial policy that unlocks investments, innovation and competitive advantage is the goal of the new platform we have joined, together with other leaders from business, politics and academia. To be clear, Industrial Innovation for Competitiveness (i24c) is not advocating a return to the corporatist habits of the past. We are instead advocating a new industrial compact, between business, policymakers and civil society at large, that might begin to set out a vision of a European industrial policy focused on job creation, investments and innovation. We seek to answer the question of why a company would want to invest in a Europe with a stable population and limited growth GDP.
As part of our efforts to reach a new understanding of European industry in the global context, we will work to identify the priorities for industrial transition, and we will develop roadmaps for achieving EU industrial success in the new climate economy. At the core of our thinking will be the strengths of Europe: our human capital and innovativeness, and our technological leadership.
We believe we are pushing an open door. Across Europe, increasing political attention is being paid to an agenda that the previous Commission dubbed an “Industrial Renaissance”. A number of member states have shown renewed interest in national industrial policies, such as Germany’s “Industry 4.0” and France’s “Future of Industry”. Similarly, the European Council endorsed the importance of industrial strategy during the Spring 2014 summit, and the EU’s plans for Energy Union, published this March, provide an explicit industrial policy for the energy sector.
The time is right, then, for a re-imagining of industrial policy in Europe. We look forward to engaging in a conversation with leading thinkers across Europe about how best to unlock innovation, create jobs, and put European industry on the path to compete in the new, low-carbon global economy.