Commission to push for industrial champions

Electric car Reuters final.JPG

This article is part of our special report Industrial Policy.

SPECIAL REPORT / A European Commission paper setting the future direction for industrial policy, to be published next month, marks a departure from the past by setting a clear preference for sectoral focuses. The aim is to avoid the pitfalls of past attempts to create supranational champions.

Industrial policy has historically been defined by levels of state intervention: at one extreme stands the proactive, interventionist state; on the other minimal influence, with a view to preserving the principles of competition and free trade.

This divide is often characterised by France, on the one hand, with its historical preference for picking sectoral winners, or national champions – such as automobile manufacturer Renault and energy giant EDF. On the other side of the ideological divide stands the UK with its laissez-faire tradition.

The European Commission, for its part, has tended to side with the British and has long been the defender of open markets and free competition.

This may now be changing. An upcoming communication to be published on 10 October by Industry Commissioner Antonio Tajani – seen by EURACTIV – earmarks six immediate priority areas including electric cars and 3-D printing, and makes clear that this is the start of a new series of focuses on specific industrial sectors.

“This proactive approach will be extended in the future to cover other key areas such as creative industries, medical devices or security,” the communication says.

Galileo, Airbus: Sectoral focus already in evidence

The increased focus on specific sectors will be welcomed in industrial circles but is by no means a guarantee of success. So far, there have been several attempts to launch sector-specific projects at European level, with mixed success.

These include the hapless Galileo satellite navigation system. Controlled under a separate treaty agreement from the EU, it was initiated with heady ideas of a grand public-private partnership, but is now over budget, delayed, and exclusively funded by European taxpayers.

Airbus stands out as the shiniest example of a successful venture. The company owned by the EADS consortium is renowned for displacing Boeing as the world's dominant commercial aircraft manufacturer. And the company’s sale of 730 aircraft during last year’s Paris Air Show demonstrated that it could emerge as a winner in its ongoing battle for global market share with Boeing.

But the record is mixed. Employing around 63,000 people at 16 sites across France, Germany, the United Kingdom and Spain, the company has also suffered management disputes and a messy structural overhaul between 2006-2008 led to strike action and job cuts.

Unintended consequences of EU policy

The EU has also learned from its mistakes the hard way, such as with environmental policy, which has had unintended consequences on some industries.

The Emissions Trading System (ETS) for carbon dioxide is one example. The EU's decision to limit the ETS to certain sectors has tended to favour those which remained outside the scope of the scheme – such as transport and shipping. Meanwhile, it has also stirred commercial tensions with the EU's commercial partners as demonstrated by the ongonig political spat with China and the United States, which see it as a way to penalise their airline industry.

The ETS remains deeply unpopular amongst Europeans too. Many of the structural measures earmarked by the new industrial policy communication are designed to manage criticisms of silo-based policymaking arising from the ETS.

"The Commission takes numerous initiatives which are unfortunately not coordinated under an industrial competitiveness heading," said François Gayet, from the French industrial lobby the Cercle de l'Industrie. "And it seems that each Commissioner, each directorate-general, has a tendency to act in his corner."

Gayet singled out the ETS as penalising for European industry, because "it requires our businesses to pay additional taxes while their competitors do not have the same constraints."

German industry too has specifically targeted the poor management of the ETS scheme within the EU executive.

“Investments in power plants and low-carbon technologies need stable and predictable framework conditions in which business solutions can develop. Policy measures as the recently proposed 'set-aside' of CO2 allowances by means of altering the ETS Auctioning Regulation are counterproductive in this regard,” a senior German industrialist told EURACTIV, on condition of anonymity.

Call for state aid and competition rules to be relaxed

To remedy those shortcomings, the communication recommends setting up interdepartmental liaison committees and task forces within the Commission to prevent too many policies from affecting industry.

And with a new focus on industrial sectors, many believe there should also be a relaxation of the Commission's stringent competition and state aid rules.

“There must be greater openness to sector-specific state aid where this is intended to encourage a change towards more innovation and new forms of production and/or where it targets competitive and skills-intensive sectors,” says a recent report by the Party of European Socialists.

Gayet contends that the EU's state aid rules should be seen in a wider context, which takes into account the international environment in which European companies operate. "In general, it is clear that many sectors have complained of unfair competition from third countries," he said, citing R&D aid for the automobile sector in the US and China.

"What we see is that the European Commission has a very liberal, very open attitude, and that, conversely, the markets of major emerging countries, the US and Japan are much more controlled and closed," Gayet said.

Picking winners

Meanwhile the EU executive will no doubt come under fire from those sectors that will be excluded from the policymakers’ attention. The UK for instance is unhappy that its creative industries – a national strength – do not appear in the first draft sectoral focus put forward by the European Commission.

Sean McGuire, a spokesman for the Confederation of British Industry, was heavily critical of the Commission's draft. “What the communication is absolutely missing is a focus. Although the six sectors are incorporated, my view is that you have to have the big framework right before you can deliver on the specifics, but those other bigger issues – such as infrastructure – are not addressed,” McGuire said.

To avoid endless bickering, Gayet said the criteria for choosing industrial sectors should be as open and transparent as possible, a process the Commission has already started by identifying a number of Key Enabling Technologies. "These are in particular the promising sectors for future technologies," Gayet said, citing nanotechnology, biotechnology, the electric car, the airplane of the future and energy savings.

"All these sectors have potential for development in the future and are in a real need of help, especially in Europe, to finance R&D and enable our companies to become competitive in these sectors at European level and globally."

Decisions to favour particular sectors should include the actual weight of the sector in European Industry, its growth prospect and its direct/indirect contribution to EU overall economy and employment, the location of production units in Europe, R&D content and the location of R&D facilities in Europe, according to Cercle de l'Industrie.

Policy seeks to unite competing industrial ideas

It would be wrong, however, to see the Commission's tentative policy shift as a subjugation of competition policy.

The ideas that have underpinned the Commission's thinking have ben heavily influenced by new academic research that seeks to unite the old ideological divide between competition and intervention.

“A systemic industrial policy is pulled by vision and pushed by competition,” according to influential Eurocité economists Julien Mendoza and Stéphane Rouhier, whose report on industrial policy was published this summer.

"From the political point of view, the emergence of European champions would strengthen the power of Europe while allowing it to attract foreign capital,” the two said.

"What is true at national levels is valid at the European level: the emergence of European champions would strengthen the European industrial structure with driving companies that would help attract SMEs,” according to a report for the Foundation of European Progressive Studies, a socialist think tank.

In 2010, the European Commission launched a flagship initiative called 'An integrated Industrial Policy for the Globalisation Era', under its 'Europe 2020' strategy for sustainable growth. This set out a new approach to industrial policy emphasising the importance of industry to the economy.

Since then the EU economy has continued to tailspin in the crisis. At the end of June this year, industrial production stood at 10% lower than its pre-crisis levels, and more than three million industrial jobs have been lost.

Following a consultation launched earlier this year, the Commission will publish a new communication – called “Industrial Policy Communication Update – a contribution to growth and economic recovery” – on 10 October.

  • 10 Oct. 2012: Commissioner Antonio Tajani to unveil new Industrial Policy communication

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Cercle de l'Industrie: Recommendations on the Commission's consultation (EN) (FR)

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