Utter the words ‘industrial policy’ in Europe’s boardrooms, and you’ll likely get a frosty reception. Older executives will recall with a shudder Mitterand’s disastrous dirigisme, and the slow death of British manufacturing. But we believe that the challenges facing Europe necessitate an urgent re-imagining of a new industrial policy, focused on investments and innovation and achieving European competitiveness in the new world economy.
Our starting point is that industry remains the fundamental building block for Europe’s continuing prosperity. We need to celebrate Europe and bring industry back in the fold of society. While industry makes a smaller contribution to European GDP than in the past, its economic and social importance is undimmed. The roots of value creation are jobs and prosperity. Industry brings cohesion in society, through real jobs for real people, in many cases in regions without much alternative employment. It is not a coincidence that European countries which had preserved their industrial bases, such as Germany, recovered more rapidly from the financial crisis.
Indeed, there is a growing recognition that industry’s role in future growth and innovation will be even more important than it has been in the past. Industry remains an engine of research, innovation, job creation and exports. Industry today is also closely integrated with the service sector, increasingly hi-tech and internet-embedded, meaning that the benefits of industrial innovation ripple throughout the economy. And industrial activity is so embedded in value chains and wider business ecosystems, that we may need to revise our definition of it to reflect this modern reality.
Industry must therefore be at the heart of Europe’s response to its wider economic challenges. We know we are not alone in thinking that we still under-exploit our huge internal market and fail to punch our weight internationally as well as we could. Notwithstanding its strengths, in a rapidly changing world economy, Europe’s industrial economy has for too long been conceding competitive advantage to other regions, and its long-standing reform agenda has not been effectively delivered. Creating the right conditions for industrial investors to take risks and generate the rewards that governments can then help fairly distribute remains unfinished business. Growth in the EU has been anaemic since the global financial crisis and temporary currency weaknesses cannot hide the risk of competitive decline if we do not invest in the industries and companies of the future.
But if we want to win the global competitive advantages from the new economy in Europe, then a truly innovative mindset must treat these as opportunities as much as challenges. European industrial competitiveness needs to be understood in the context of 21st century megatrends such as demographics, digitization and decarbonisation. We too often fail to do that!