This article is the third in a three-part series on the resurgence of industrial policy in Europe. The first article in the series can be found here and the second one here.
It is clear by now that the European Union (EU), much like the United States across the Atlantic, is pursuing a new, bold industrial policy focused on re-industrialization with the aim of providing greater prosperity at home while reducing concerns above foreign supply chains of critical goods. However, it remains to be seen whether this policy will be successful long-term, and if it is, what that will look like. Much will depend on how both national and European policymakers approach the subject and handle the expectations.
To begin with, one needs to be clear about what to expect from this new industrial policy: the days where industry was the main economic activity of Europe (instead of the service sector) are not going to come back. We are not going to manufacture every single product we consume at our own factories, since modern supply chains and high-tech goods are too complex for any one nation or bloc to fully acquire or replicate within itself without outside imports. Similarly, the wide scale employment of blue-collar workers in factories is unlikely to return: Europe’s re-industrialization, with our high labour costs and standards, will happen through automation and a highly qualified workforce, not large amounts of low-skilled labour.
Instead of a broad approach targeting all industries, industrial policy should (and will) focus on certain “enabling technologies” that act as key links across multiple supply chains. For example: microchips are required for everything from drones and artificial intelligence to autonomous vehicles and dishwashers, and chip shortages can paralyze production across whole economic sectors. By securing production and know-how over those enabling technologies, many other industries can be grown and attracted around them entirely through market forces, in the same way as the idea of “data gravity”
These new industries will employ higher-skilled labour than previously, providing a chance to raise productivity and average wages in non-industrialized areas. However, owing to automation and those high labour costs, employee numbers at modern factories are lower than ever before, which will require social programs and care to ensure the benefits of the new industrial wave to spread to the whole of society.
But, if those key points of enabling technologies and higher productivity are carefully leveraged and implemented, then a few strategic investments can change whole regions’ economies.
Industrial policy: how?
Yet the question still remains: how to implement these new policies to achieve their success? For starters, it is key that the assessment of the strategic technologies whose production and know-how is required is evaluated across the whole supply chain: from the upstream (raw materials) to the downstream (final product), and through topics transversal to whole chains (such as artificial intelligence).
For example, batteries are an enabling technology for electric vehicles, renewable power, robotics, and other high-tech sectors. However, current batteries are based on lithium-ion technologies, and therefore securing a stable supply and processing of lithium is itself an enabling technology of all of the above. Additionally, information technologies are crucial for new technological developments as well as the efficiency of all future supply chains, and therefore a key enabling technology. As such, the European Commission recently launched a European Critical Raw Materials Act, to aid in identifying and securing access to those raw materials that are critical across various sectors of the European economy, and is leading multiple initiatives in artificial intelligence and digital technologies, which Europe is behind the United States and China in. Long-term planning is also needed to see the dangers ahead and plan accordingly. For example, the West made a terrible mistake in letting all microchip production be outsourced and even if it is currently seeking to re-shore production, this could have been predicted five, ten years ago – and thus be five or ten less years behind in semiconductor technologies. These mistakes cannot be repeated for the new European industrial policy to succeed.
And yet, in the case of solar panel manufacturing, European production is absolutely insufficient ever since most manufacturers left for China. In 2020, the difference between solar cells manufacturing and solar panels installation across the Continent meant that domestic solar panel production only accounted for 3.4% of solar panel demand (which grew 34% last year), with the overwhelming share of this demand being covered by Chinese producers. It is not hard to imagine a future where geo-political conflict or market collapse lead to the plummeting of solar panel imports, leaving Europe with little to grow its solar power production, and more dangerously, without the capacity to replace end-of-life panels. This will be a big concern in a couple of decades when solar accounts for a big part of the energy mix and all the panels currently being installed start coming offline and then must be replaced. Therefore, a European Solar Panels Act, in the vein of the European Chips Act, would be a very welcome (and needed) development to secure large-scale solar panel manufacturing in Europe and our future energy security.
But long-term planning involves not only managing products and supply chains, but also the human knowledge and skills that fuel all those high-technology industries. With falling birth-rates across the world and a growing demand for technology knowledge, the global race to attract technological and scientific talent is fiercer than ever. In this, the EU’s main competitor is the United States, a traditional immigrant nation with a long track record in integrating into its workforce foreign workers, to the benefit of all. While Europe probably cannot compete with the US in the raw salaries offered to these highly-skilled workers, it can, and must, compete in offering them better labour and life conditions.
This means keeping our strong work regulations – and giving way for the new generation of labour rights. Europe could become the first continent to widely implement the four-day workweek and partial worker ownership of their companies, through pilot programs, tax incentives, and information campaigns. These measures would make for a happier, healthier workforce more capable to actively participate in their companies, increasing their productivity and initiative. It would also make for a more inclusive economy, improve work-life balance (aiding in halting and reverting birth-rates decline) and make Europe much more attractive to foreign highly skilled workers for our technological and industrial sectors.
In this, the very-high productivity industrial and technology sectors can be the foothold in which to trial these reforms, showing companies how they benefit long-term profitability and productivity in those sectors, easing other lower-productivity sectors into embracing the changes.
Industrial policy: what for?
All of that, of course, requires long-term planning, and key to this is establishing the correct metrics and targets to evaluate how well our policies do in achieving our objectives. For example, while positive in many other regards, the “Scale up Europe” initiative launched by the 2022 French EU Council Presidency sets as its target for Europe to have 10 tech companies valued at more than €100 billion by 2030. This objective says nothing about the real social impact (in terms of quality jobs, taxes and social improvement) of those companies that (one would hope) is the underlying goal. Of course, it could be argued that market valuation is just a simple, easy-to-measure proxy for societal impact. But the currently collapsing tech valuation should bring caution to those arguments (is a trillion-dollar company really worth a trillion?), as should the dubious social value brought by many of these companies. American social media tech giants are one of the main drivers behind Western political polarization, while scooping their users’ personal data with little consent or transparency, and other tech companies such as AirBnB and Uber have their own controversies.
Thus, for the long-term planning and evaluation of Europe’s new industrial policy, we need to have clear performance metrics actually focused on the social and political aims we have (quality jobs created, taxes paid, social impact, technological and industrial sovereignty achieved, etc.), instead of proxy metrics such as valuation that can lead us astray.
Industrial policy: a long-term view
In general, the 21st Century is shaping up to be dominated by two key issues that will drive forward future political and social developments. In the domestic and social arenas, the consequences of anthropogenic climate change and the technological revolution threaten the foundations of Western developed countries and the future opportunities of developing nations. In international politics, the emerging global conflict between democracies (led by the United States) and autocracies (led by an ascendant China) is birthing a Second Cold War, featuring new races for technological and industrial leadership and dominance.
In order to overcome both challenges, Europe needs a strong industrial base that can produce enough goods to power the ecological transition at home and abroad, reduce the threat of international supply chains in strategic areas, and provide prosperity and good standards of living for the European population, both for internal stability and as a moral imperative. To achieve this, the EU must match the United States’ ambition with further funds for research, industrial investment and public-private partnerships to tackle ecological and digital transitions.
These large-scale packages, akin to Next Generation EU, should be funded by new joint EU debt issuance, and come hand-in-hand with reforms to make the EU more democratic and more agile in its internal decision-making, to better manage both its internal affairs and its international presence, finally becoming a true geopolitical power. Only in doing this can the European Union fully stand up for its values and its citizens, tackle the climate crisis, and win the future.
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