Europe’s New Industrial Strategy Taking Shape

David Gow| 10 October 2019

© 201© 2018 SCER

Strategic autonomy. Digital/technological sovereignty. These are the buzzwords of the new European Commission headed by Ursula von der Leyen (VDL). They are at the core of the EU’s industry strategy that is, what’s more, taking centre stage under the impetus of President Macron of France with backing from Germany.

Industrial policy, a dirty concept in the heydays of neo-liberalism 1975-2005, is back. Allied to a revised trade policy, it is, arguably, the driving force of the VDL quinquennat. It’s easy to see why: just look at the recent new round of tariffs on $7.5bn of European goods being imposed by the Trump administration in the wake of the World Trade Organisation (WTO) adverse ruling against Airbus in its long-running subsidies dispute with Boeing.

Populist protectionism in the US, China and elsewhere is propelling the EU to adopt a more aggressive and sovereigntist industry and trade policy as SCER discussed in its report earlier this year (Chapter 17) – just as the UK is contemplating going it alone and dragging Scotland with it into the unknown, fathomless waters of “free trade”.

The Scottish economy, over-dependent on trade with the rest of the UK (rUK), its manufacturing sector relatively fragile, accounting for just 12% of GDP in 2015 compared with over 20% in 1989, will in all likelihood suffer grievously. There are some noted bright spots in the sector while the Scottish government hopes for a revival via the Scottish National Investment Bank (SNIB) armed with £2 billion of Scottish government funding over ten years. But even services, both private and public and accounting for 80% of employment, are likely to be hit by Brexit.

Who was Sylvie?

VDL had tasked Sylvie Goulard, a French former MEP and deputy governor of the Banque de France who is very close to Macron, with oversight and management of this rebooted industrial policy. Due to report to Margrethe Vestager, scourge of US Big Tech, as executive vice-president for competition and digitalisation, Goulard was put in charge of industrial, digital and defence/space policies until, at her second hearing, MEPs voted 82-29 not to approve her, largely because of concerns over her ethical integrity.

Goulard would effectively have (degrees of) control over three directorates-general: Grow, Connect and Defence/Space (the latter exists on paper so far). MEPs from the industry and internal market committees, grilling her on October 2, suggested she would not have enough time to perform the multifarious tasks this involves properly –She rebuffed that, while admitting: “I’m not going to pretend I’m a superwoman.” She added at the ill-fated second hearing: “This portfolio makes sense and reflects well the complexity of the economic, industrial and human stakes”. But it is clear that MEPs’ worries are warranted, forcing VDL (and Macron) into an embarrassing rethink, though the thrust of the focus on industry and trade is entirely right.

Nevertheless the prime mission of whoever gets the nomination now will be to deliver not only that new industrial policy for the digital age but also to propel the new green (industrial) deal, including in procurement, that accounts for 14% of EU GDP. “We have nothing to be ashamed about our industry and its performance,” Goulard said at her initial hearing. “However, it will have to undergo a profound transformation.”

Europe, she rightly declared, will have to “invest much more and catch up our lag in certain technologies” citing low-carbon manufacturing, green autonomous vehicles, hydrogen, the internet of things, microelectronics, batteries and smart healthcare. The future of Europe’s industry, then, is digital. And, this, it is generally agreed, requires a substantial scaling-up of R & D and corporate performance if the EU is to catch up and match, let alone overtake, the record of US Big Tech (GAFA) or indeed that of China (Huawei et al), Japan and South Korea.

What next?

The age-old European problem is, inter alia, translating knowledge into marketable ideas as the European Policy Centre suggested in a paper at the end of last year. There is plenty of blue skies thinking but too few commercial gains in terms of robotics and AI, say. China is by far the world leader in electric vehicles though these were first produced in Europe a century or more ago. So Vestager, Goulard’s replacement and their teams along with Macron and German ministers such as Peter Altmaier (economy) will be promoting pan-European industrial initiatives such as the European Battery Alliance and Vanguard (clusters in 30 regions, including Scotland that aims to “use their smart specialisation strategy to boost new growth through bottom-up entrepreneurial innovation and industrial renewal in European priority areas.”)

VDL, as a former German defence minister, had also given Goulard responsibility for driving forward defence (and space) industry consolidation via a new DG, armed with a €13bn European Defence Fund. This is an idea that has been at least 25 years in the making aimed at, first, ending or curtailing wasteful duplication in defence procurement (up to €100bn) and arms supply and, second, strengthening Europe’s defence sovereignty (ability to take control of its own defence) in the light of President Trump’s attacks on NATO and America First policy (Nicole Koenig of the Jacques Delors Institut Berlin has a useful guide here).

The European Commission’s own new strategic agenda links this explicitly to the digital transformation and Europe’s need to ensure its “fair share of the benefits of this development” – including in the area of trade where policy must give a “clearer priority to European economic, political and security interests.” The Commission adds: “This means ensuring fair competition within the EU and on the global stage, promoting market access, fighting unfair practices, extraterritorial measures and security risks from third countries, and securing our strategic supply chains. We will continue to update our European competition framework to new technological and global market developments.”

UK and Scotland

This forward-looking strategy contrasts sharply with the current Conservative government’s focus on deregulation and deindustrialisation (Singapore-on-Thames), with market forces (and US interests) pretty well left to themselves. But, equally, it shows how far thinking inside the EU-27 is way ahead of what is being contemplated in Scotland.

Two years ago, the Council of Economic Advisers to the Scottish Government made a strong case for promoting “patient capital” with regard to areas where Scotland lags even behind the UK: upgrading infrastructure, investing in science, research and development (where business investment or BERD is amongst the lowest in the OECD) and supporting businesses to start and grow (with only 6.7% of the Scottish business base high-growth firms).

But Holyrood’s current industrial strategy seems more obviously orientated towards saving old enterprises such as shipbuilders Ferguson on the Clyde, failing steelworks or the BiFab engineering works in Fife by investing tens of millions of public funding. There is lots of talk about a modern industrial strategy (as in Scottish Labour paper here) but despite a series of tech start-ups in cities such as Edinburgh and Aberdeen, there is inadequate evidence on the ground so far. Many feel the new SNIB that was approved in principle by MSPs in September, needs a substantial (perhaps tenfold) increase in its funding. The Scottish government’s digital strategy, relaunched in March 2017, is designed to ensure that digital ” is at the heart of everything we do – how we deliver economic growth, reform our public services, and prepare our children for the workplace of the future.” Similarly, the new CEO of ScotlandIS, the trade body for the tech industry, says: “Scotland has the potential to be the country known for innovation, for an ethical approach to data, an integrated approach to public services.”

So, Scotland’s industrial strategy (like that of the UK) could easily dovetail with that being developed at EU level (see changes here). Both are clear evidence that the neoliberal model is slowly being abandoned. All the more reason for progressive forces north and south of the border to back remaining in the EU. Leaving the EU at this juncture is, yet again, an exercise in self-harm for industry on both sides of the border…It risks pushing Scotland even further to the periphery.

 

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Sceptical Scot

David Gow is Editor of Sceptical.scot, Senior Adviser at Social Europe and Senior Adviser at Acumen Public Affairs. He is former European Business Editor of The Guardian and worked for The Scotsman and London Weekend Television.