Future industrial policy to focus on competitiveness

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This article is part of our special report Industrial Policy.

Faced with manufacturing output that is still below its peak of 12% two years ago, the European Commission outlined plans on Thursday (28 October) aimed at revving up factories, textile mills and other industrial businesses.

Europe's international competitiveness is weakening, the Commission said in a policy paper outlining its future intentions on industrial policy.

Despite nascent signs of recovery in most sectors and nations, the number of manufacturing jobs fell by more than 4% in the second quarter compared to a year ago.

Europe's international competitiveness is weakening, the Commission said in a policy paper outlining its future intentions on industrial policy.

Despite nascent signs of recovery in most sectors and nations, the number of manufacturing jobs fell by more than 4% in the second quarter compared to a year ago.

"Europe needs to give itself a new model for growth that is founded on the industrial sector," said Antonio Tajani, commissioner for industry and entrepreneurship, presenting his initiative yesterday.

The automotive business is not expected to return to pre-crisis levels until 2014, and auto parts suppliers are bracing for a painful wave of consolidation. There is no sign of recovery in the construction industry, particularly in Spain, Romania and the Netherlands. And tight-fisted lenders are squeezing small pharmaceutical and biotech companies, according to Eurostat data.

There are a few bright spots, notably steelmakers and shipbuilders. Textilemakers also are slowly turning up the speed. All thanks largely to strong orders from overseas.

But overall, the industrial recovery has slowed in recent months.

"What we're trying to do here is have a tangible response," Tajani said. "A new boost to our industrial policy."

Moving away from R&D focus

The plans appear to be a reversal of the Commission's strategy in the late 1990s, which focused on research and development and marketing.

Thursday's proposal is one of the seven flagship initiatives in the Union's 2020 strategy for jobs and growth. Called 'An industrial policy for the globalisation era,' the communication outlines the Commission's plans to improve the business environment, especially for small- and medium-sized enterprises (SMEs).

In total, an estimated five million manufacturing jobs could be created over the next decade; three million in SMEs.

Highlights of the proposal include:

  • "Competitiveness proofing" of new legislation. The impact on competitiveness of all policy proposals will be properly analysed and taken into account.
  • "Fitness checks" of existing legislation will focus on reducing the cumulative effects of legislation so as to cut the costs for businesses in Europe.
  • An annual report on member states' competitiveness, industrial policies and performances.
  • A new strategy on raw materials will be presented before the end of the year.
  • Early next year, there will be a proposal to promote common EU standards.
  • Before future trade agreements are signed, they will be analysed to assess their impact on competitiveness.

Mixed response

Tajani said his proposal would not replace the industrial policies of member countries, but rather provide better coordination.

"Europe has to show itself united if it's to compete," he said.

But German MEP Bernd Lange (Socialists & Democrats), author of a European Parliament report on the issue, said the proposal "falls short in addressing key issues," including the consequences of policies in trade, environment and structural policy on industry in Europe.

Nevertheless, business groups seemed largely in favour.

"This initiative must now be given concrete follow-up," said Philippe de Buck, director-general of BusinessEurope, a trade association representing large companies.

Tajani said the ''competitiveness proofing'' would begin almost immediately, and he would be travelling to national capitals to promote the proposed legislation.

The Alliance for a Competitive European Industry (ACEI) sees in the document recognition of the major role that manufacturing industries play in the European economy.

Philippe de Buck, director-general of BusinessEurope, the European employers' organisation, welcomed the renewed attention given to industrial policy and told EU policymakers that this now needs to become concretely visible in all upcoming EU policy initiatives. 

''It is a useful roadmap for more specific actions," stated Arnaldo Abruzzini, secretary-general of EuroChambres, the association of European chambers of commerce. "Services and industry are of course heavily interconnected, so we welcome that industry is not considered in isolation anymore but as a central element of the value chain."

Andrea Benassi, secretary-general of SME association UEAPME, said "the Commission rightly steered well clear of proposing any kind of protectionist measures in the text, which is another point that we particularly appreciate".

The European non-ferrous metals industry (Eurometaux) urged the European Commission to adopt an horizontal view of industrial policy and "take into account the challenges and opportunities of EU policies for various sectors and regions by means of a more micro-economic impact assessment".

Europe's economy has increasingly come to rely on the services sector in recent years, as heavy industry relocates to lower-cost economies. The economic crisis has prompted political and industrial leaders to take stock of such long-term trends amid a growing jobs crisis.

In addition to solving the rising employment crunch, policymakers must grapple with demographic challenges, climate change and global competition for energy and raw materials.

European governments have introduced a raft of measures to prop up ailing industries and protect jobs over the past two years.

However, this level of state intervention has come at a cost and most governments are now running hefty deficits. Business groups want a return to normal market conditions but are urging governments to phase out support measures.

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