Opinion

New EU industrial policy can only succeed with focus on completion of single market and public procurement

France and Germany recently unveiled a manifesto for a European industrial policy fit for the 21st century, sparking a lively debate across the continent. The fundamental idea underpinning the manifesto is a good one: Europe does need an industrial policy to ensure that EU companies remain highly competitive globally, notwithstanding strong competition from China and other big players. However, the Franco-German priorities are unsuitable for the pursuit of this goal.

By: Date: March 18, 2019 Topic: European Macroeconomics & Governance

This article was first published by Le Monde.

Le Monde logo

France and Germany recently unveiled a manifesto for a European industrial policy fit for the 21st century, sparking a lively debate across the continent. The manifesto is based on a simple idea: at a time of increasing global competition, Europe must pool its strengths to remain a global manufacturing and industrial power.

To do so, the manifesto calls for a new EU industrial policy based on disruptive innovation funding, as well as a revision of EU competition rules and implementation of protective measures for European technologies and companies.

The fundamental idea underpinning the manifesto is a good one: Europe does need an industrial policy to ensure that EU companies remain highly competitive globally, notwithstanding strong competition from China and other big players. There is a real need for better coordination of EU countries’ respective national industrial policies, to prevent market distortions and to allow synergies and economies of scale. However, the Franco-German priorities are unsuitable for the pursuit of this goal.

First, it should be noted that the focus on disruptive-innovation funding echoes a long-lasting industrial policy narrative in both France and Germany, driven by the US experience of the Defense Advanced Research Projects Agency (DARPA). As an agency of the US Department of Defense responsible for the development of emerging technologies, DARPA has significantly contributed towards many technologies embedded in our computers and smartphones, from microchips to GPS, from voice recognition technologies to the internet itself.

The DARPA experience should be carefully handled; simply transposing it into the EU context might not work. The success of DARPA indeed relates to the overall US economic ecosystem, which strongly favours innovation, and to its capability in translating disruptive innovations into marketable products – also through public procurement.

That is, public funding for innovation alone does not guarantee industrial development. DARPA’s limited budget, around $3 billion per year, shows that creating the conditions for making innovative products marketable – also through public purchase of goods and services – can be more important than public funding itself. After all, in both the US and China the bulk of investments for innovation comes from the private sector.

The fragmented EU single market in services prevents innovative European companies from scaling up in the way that US and Chinese competitors do in their own domestic markets

The European fascination with DARPA is not new. Back in 2005, the French government established a DARPA-like agency aimed at investing in disruptive technologies such as nanotechnology and biotech. Notwithstanding the initial endowment of €2 billion, the initiative proved not to be successful and quickly vanished. In 2018, the German government set up the Agentur zur Förderung von Sprunginnovationen, an agency aimed at promoting breakthrough innovations, again modelled on DARPA.

To create the conditions for innovative European companies to flourish, a new EU industrial policy should be focused on two elements.

First, the completion of the EU single market is paramount. This continues to be fragmented in services, preventing innovative European companies from scaling up in the way that their US and Chinese competitors do in their own domestic markets. It is vital to develop a solid regulatory framework, focused on ensuring competition and access to a truly single market with common standards. To do so, national industrial policies need to be coordinated – otherwise they create distortions that lead to further fragmentation of the EU single market by, for instance, influencing companies’ location decisions.

Second, Europe must make use of public procurement to promote its innovative companies. In the EU, the public purchase of goods and services has been estimated to be worth 16 per cent of GDP. Given its size, this represents a unique tool to foster innovation. For example, mandating clean mobility solutions in public procurement tenders could provide a solid boost to the demand of electric cars and buses, propelling the transformation of the European automotive industry. After all, to become the global leader in electric cars China did not focus on public funding for innovation, but rather on creating demand for them through supportive government policy, including public procurement programmes.

The completion of the EU single market for services and the strategic use of public procurement to create a market for innovative products each represent fundamental steps toward creating the right ecosystem for innovative European companies to grow in a receptive market. This should be the core of a new European industrial policy fit for the 21st century.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic
 

Opinion

An equity fund for a zombie-free and EU-wide recovery

Four guiding principles can help ensure a well designed EU equity fund.

By: Julia Anderson, Simone Tagliapietra and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: May 26, 2020
Read article More on this topic More by this author
 

Opinion

Reading tea leaves from China’s two sessions: Large monetary and fiscal stimulus and still no growth guarantee

The announcement of a large stimulus without a growth target indicates that China’s recovery is far from complete.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 25, 2020
Read article More by this author
 

Podcast

Podcast

China’s financial system: opening up and system risk

China is opening up its financial sector- What does that mean for China and the world?

By: The Sound of Economics Topic: Finance & Financial Regulation, Global Economics & Governance Date: May 22, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: China’s financial system: opening up and system risk

China is opening up its financial sector? What does that mean for China and the world?

Speakers: Alicia García-Herrero, Gary Liu and Giuseppe Porcaro Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 19, 2020
Read article More on this topic More by this author
 

Opinion

The message in the ruling

The German Constitutional Court's ruling on the ECB's asset purchase programme is open to much criticism but it can hardly be blamed for raising an important question.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: May 12, 2020
Read article More on this topic More by this author
 

Blog Post

Banking regulation in the Euro Area: Germany is different

Despite progress in recent years towards a single banking policy framework in the euro area – a banking union – much of the German banking system has remained partly sheltered from uniform rules and disciplines that now apply to nearly all the area’s other banks. The resulting differences in regulatory regimes could generate vulnerabilities in the still-incomplete banking union, which is being tested in the context of the COVID-19 pandemic.

By: Nicolas Véron Topic: European Macroeconomics & Governance Date: May 7, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: China’s economy after COVID-19

This episode of The Sound of Economics Live will explore the short and medium term prospects for the Chinese economy after COVID-19

Speakers: Alicia García-Herrero, Yiping Huang and Giuseppe Porcaro Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 6, 2020
Read article More on this topic More by this author
 

Opinion

Building a Post-Pandemic World Will Not Be Easy

Both the COVID-19 crisis and the climate crisis highlight the limits of humanity’s power over nature. But while both remind us that the Anthropocene epoch may jeopardize our continued existence, and that benign everyday behavior can result in catastrophic outcomes, such similarities must not obscure crucial differences.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: April 30, 2020
Read about event More on this topic
 

Past Event

Past Event

An alternative mobile operating environment?

Walking the wire: we discuss risks and benefits involved for the EU should it embark on developing a new smartphone operating system.

Speakers: Hosuk Lee-Makiyama, J. Scott Marcus, Renato Nazzini, Peter Stuckmann and Andreas Zimmer Topic: Innovation & Competition Policy Date: April 29, 2020
Read article More on this topic More by this author
 

Opinion

Depression, and not stagflation, could haunt China in 2020

This opinion piece was originally published in Asia Times and Medium China’s GDP in the first quarter of the year has surprised nobody but the devil is in the details. Local retail sales continued to fall in March (-16%), marginally better than during the peak of the Covid19 outbreak in January and February. The continuation […]

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 17, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

Mythbusters: debunking economic myths

Economics seems to be full of myths that are hard to debunk. Will robots take our jobs? Are trade deficits bad? Is China such a big economy simply because of the size of its population? This week, Nicholas Barrett, Maria Demertzis, Marta Domínguez-Jímenez and Niclas Poitiers put on the detective cap and become Bruegel's own economic mythbusters.

By: The Sound of Economics Topic: Global Economics & Governance Date: April 3, 2020
Read about event More on this topic
 

Past Event

Past Event

European Industrial Policy in times of coronavirus with Thierry Breton

At this livestream event by Bruegel and the FT Brussels Briefing we were joined by Thierry Breton to discuss the the challenges posed to Europe's Industrial Policy by COVID-19. This event is ONLINE ONLY

Speakers: Thierry Breton, Sam Fleming and Guntram B. Wolff Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 19, 2020
Load more posts