Industrial Policy and de-industrialisation

Industry leaders and politicians alike have voiced their fears about the EU’s manufacturing base moving out of Europe to benefit from cheaper labour, lower social costs and more flexible regulation in the East. In 2004, the Commission published a communication ‘Fostering structural change: an industrial policy for an enlarged Europe’, which examined the competitiveness of European industry, assessed the existence and scale of the risk of de-industrialisation and proposed specific solutions.

Industrial policy is horizontal in nature and aims at securing framework conditions favourable to industrial competitiveness. The general principles of EU industrial policy date from the Communication '  Industrial Policy in an open and competitive environment: guidelines for a community approach' of October 1990. Its instruments, which are those of enterprise policy, aim to provide the framework conditions in which entrepreneurs and business can take initiatives, exploit their ideas and build on their opportunities. Three key factors of industrial competitiveness deserve particular attention: knowledge, innovation and entrepreneurship. 

Most industrial policy is not carried out at the EU level, but under the competence of the Member States. The open method of co-ordination, set up by the Lisbon European Council, offers a context in which national policy performance can be discussed, developed and improved.

In recent years, industry leaders and politicians alike have voiced their fears about the EU's manufacturing base moving out of Europe to benefit from cheaper labour and lower social costs in countries such as China and India. This trend of 'de-industrialisation' has been blamed on inflexible labour market regulations, high social costs and increasing regulatory burdens on industry in the EU.

In December 2002, the Commission published its Communication on ' Industrial policy in an enlarged Europe' to launch the debate on industrial policy. In order to address current fears about de-industrialisation, the European Council in October 2003 asked the Commission to assess the situation and to present solutions to counteract this trend in order to revive the Lisbon strategy of making the EU the most competitive economy in the world by 2010. 

The Commission on 20 April 2004 adopted a Communication entitled ' Fostering structural change: an industrial policy for an enlarged Europe', which examines the competitiveness of European industry and assesses the existence and scale of the risk of de-industrialisation. It then proposes specific solutions.

The Commission's analysis indicates that "there is no proof of a generalised process of de-industrialisation". The Commission recognises that the EU is facing a process of structural change at various levels, but points out that "the ongoing process of resource allocation from manufacturing industry to services should not be confused with a process of de-industrialisation".

In order to address the danger of genuine de-industrialisation, the Commission maintains that Europe must play the 'knowledge card' by pursuing a shift towards highly skilled sectors where it can benefit from its well trained labour force and high innovation potential.

In this respect, the EU's disappointing performance in terms of productivity, research and innovation are highly worrying. This is underpinned by the fact that delocalisation is starting to occur in intermediate and even some high-tech and services sectors, areas which traditionally constituted the established strengths of EU industry. The strengthening of the EU's knowledge base must therefore be a priority.

In order to support the process of structural change in the EU, the Commission has outlined a set of specific measures:

1. Regulatory framework: Burdens on industry must be reduced to the bare minimum of what is strictly necessary to achieve the objectives of regulation and a balance must be struck between industrial competitiveness and the need for regulation.

2. Community policies: Synergies must be better exploited to improve the policies' impact on industrial competitiveness. The focus should be on developing a knowledge-based economy and strengthening cohesion in an enlarged EU.

3. Combination of policies at sectoral level: The EU must continue to develop the sectoral dimension of industrial policy while ensuring that its sectoral policies are strengthening industrial competitiveness.  

The Commission estimates that EU enlargement presents unique opportunities to European business. Value chains can be reorganised across the continent to benefit from the current competitive advantages of the new Member States. This may enable companies to keep production within the EU that would otherwise have been transferred to Asia, and to maintain their competitiveness.

France, Germany and the UK have voiced major concerns about companies favouring better and cheaper conditions outside Europe. German Chancellor Gerhard Schröder recently attacked employers such as Siemens as "unpatriotic" for planning to close or downsize operations in Germany. 

Experts are, however, divided over the impact of de-industrialisation on European competitiveness and employment. While many, including the employer organisation UNICE, lament the fact that the trend destroys jobs and value creation in Europe, others consider de-industrialisation a necessary evil to maintain the competitiveness of the EU's industrial base. Through outsourcing, goes the argument, companies will be able to keep costs down and thus boost growth which will ultimately benefit and stabilise its European operations.

Other economists argue that Europe's future is not so much threatened by de-industrialisation as by other aspects of delocalisation, including the migration of R&D activities to the US, particularly in high-technology, research-intensive sectors such as pharmaceuticals or biotechnology.

ETUC, the European Trade Union Confederation, has called for a level playing field underpinning competition. Without that, market forces will lead to firms competing on the basis of low quality, low prices and bad and low-paid jobs, says ETUC, blaming industry to use existing problems as an excuse for pushing through a deregulation and the liberalisation agenda. ETUC has also called for more emphasis on social protection and sustainable development.

  • The Commission will continue to examine the competitiveness of specific sectors each year and launch initiatives as necessary.
  • In June 2006, the Parliament adopted an own-initiative report on a policy framework to strengthen EU manufacturing, promoting a more integrated approach to industrial policy. 

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