Academic journal article Seoul Journal of Economics

An Industrial Policy for Europe

Academic journal article Seoul Journal of Economics

An Industrial Policy for Europe

Article excerpt

I. The Relevance of Industrial Policy in Europe's Growth1

Europ>e's growth after the second world war was supported by an extensive Industrial policy. Its objectives were the development of a large manufacturing base in the emerging industries of the 1950s and 1960s - steel, auto, and chemicals, the typical sectors of "Fordist" production - and, in the 1970s, the development of new activities in electronics, aircraft and biotechnology. At the same time, industrial policy has provided telecommunications and transport networks, a crucial infrastructure for modem economies, and a stable provision of energy which is essential in industrial countries with little energy resources. National policy tools that were adopted included an extensive role of state owned enterprises: support to private firms through financial and investment aid, R&D funds, public procurement, market protection: specific support for the development of new firms, new technologies, major new products. At the European level, an active coordination of such policies took place since the veiy first steps of European integration with the creation of the Carbon and Steel Economic Community (CECA) in 1951 and of a free trade area for most industrial goods in the six original member countries of the European Economic Community (EEC) in 1957, whose fast growing markets were offered a high trade protection from other producers. European industrial policy then evolved with various inter governmental agreements: with a range of support initiatives and common regulations in specific sectors, aiming at the development of markets, industries and regions; with cooperation programmes in R&D and new technologies; with the creation of the Airbus consortium among four EU countries that has now become the largest world producer of civilian aircrafts.2

The rationale for such policies was based on three major objectives and a wide range of policy tools. The aims included:

a. achieving static efficiency, making sure that domestic production capacity and potential demand met;

b. achieving dynamic efficiency, favouring the growth of national industries with strong learning and productivity growth, able to sustain international competitiveness and high wage permanent employment;

c. addressing market failures in natural monopolies.

The policy instruments that were adopted in Europe can be summarised as follows:

a. creation or expansion of state owned firms in strategic industries, key infrastructures and natural monopolies:

b. subsidies and financial aid to private firms, support for their R&D and investment, creation of the necessary infrastructure in order to make sure that a large share of the demand in growing industries was met by domestic producers;

c. trade protection in infant industries (including voluntary export restraints, such as in car exports from Europe to Japan and from Japan to Europe) and use of managed trade and negotiations to open selected export markets, in order to favour the growth of new industries;

d. public procurement of high technology goods, providing an early demand pull to the development of new industries; examples include advanced trains, telecommunications, military equipment, aerospace, biotechnology and health;

e. creation of institutions, forms of coordination, financing and publicprivate cooperation for favouring the development of new industries, organising new markets, setting standards and regulations:

f. the strengthening of national innovation systems, including the development of public education, research and development with close links between public research, public services and public and private firms.3

The case of France is perhaps the most significant example of this strategy. In the post war period, state owned firms in France have been developed in electricity (EDF), telecommunications (France Telecom), steel, autos (Renault), aerospace (Aérospatiale, now merged in the European group EADS producing the Airbus) and several other industries. …

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