Comment

EU industrial policy and where to find it

Oscar Guinea / May 2021

Photo: European Union, 2021

 

On 5 May, the EU relaunched its industrial strategy, publishing a new communication and three staff working documents. These outlined a series of actions to make the EU single market work better in times of stress and to make the EU less dependent on foreign suppliers.

While preparing this industrial strategy, the EU found 137 products for which the EU is dependent on foreign producers. Out of these, 34 were considered to be particularly vulnerable for the EU. These products were selected based on a thorough analysis of the data, however, the EU itself sets the thresholds that define what dependency is and what it isn’t. No one can doubt that this was an exercise in evidence-based policy making, but moving the goalposts of what constitutes dependency makes a substantial difference on the number of products which are deemed vulnerable. Moreover, the strategy continues betting on Important Projects of Common European Interest (IPCEIs) as one of the EU’s industrial policy tools where EU member states assume the role of venture capitalists, supporting a specific technology and the companies behind it.

However, finding alternative suppliers for these 137 products or playing roulette with future technologies is not where the bulk of EU industrial policy lies. The public policies that aim to change the structure of production to be more efficient can be grouped together under the title ‘industrial policy.’ Investments in education, science, and infrastructure, or the support of some economic sectors over others, are all industrial policies, because they have the potential to make the economy more productive. Therefore, real EU industrial policy is not to be found in the actions outlined in the documents published on 5 May but in the national recovery and resilience plans where EU member states have promised to make their economies more productive, digital, and greener.

From the Lisbon Agenda to the European Semester, the EU has wanted to steer reform in EU member states, and for the very first time, the EU has the funds to actually do it. The national recovery and resilience plans are like bilateral contracts between the European Commission and EU countries, where member states agree to reform their economies and invest in digital and green projects in exchange for grants and loans.

But with great power comes great responsibility. The bilateral nature of the scheme, where the European Commission is the only counterpart to each member state, together with the lack of transparency, creates risks that the EU must handle with care, particularly when it comes to industrial policy.

Audits, checks, and clear methods for evaluation will go a long way to lower the risk of cronyism in industrial policy, but transparency is also a powerful and less burdensome tool. It is true that EU member states have just sent their plans to Berlaymont but the European Commission must work fast to produce and publish a framework that elicits the information from the national plans in a way that can be assessed and compared.

The lack of transparency and comparability heightens the risk that member state may decide to invest in similar or identical industrial projects and Europe would end up, for example, with too many factories of electric batteries. In addition to the risk of duplicities, the European Commission needs to ensure that funds lead to additional investments and are not used by member states to outcompete themselves when luring multinationals looking for a location to make the investments that were already planned.

Moreover, the national plans are like individual pieces of a jigsaw puzzle without a board to put the pieces together. There were guidelines for member states to write their plans but there is no overall vision of how individual member states’ reforms fit into an EU strategy that encourage EU competitiveness and the deepening of the EU single market.

It sounds overly cynical but if industrial policy has a bad reputation, it is because, sometimes, it has been used as a tool for handing over funds and favours in a discretionary way, boosting cronyism rather than productivity. The European Commission must bring to light this process, building a transparent framework that not only assesses and compares each national plan against a common set of objectives, but brings forward a renewed agenda on competitiveness to the core of NextGenerationEU.

Oscar Guinea

Oscar Guinea

May 2021

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