Industrial policy: time for the EU to do more than fix market failures

How to best ensure the strategic autonomy of Europe's industry was the focus of a debate on industrial policy at the EESC October plenary.

The EESC plenary on 21 October hosted a debate with Padmashree Gehl Sampath, Berkman Klein Fellow at Harvard University, on how industrial strategy can support the twin transition to a green and digital economy, contribute to Europe's recovery and increase its strategic autonomy and resilience.

A leading expert on technology, development and the global political economy, Padmashree Gehl Sampath made the case for a new type of public intervention that does not just focus on fixing market failures, but directs technological change in socially productive directions.

"It is time to rethink industrial policy bold and out of the box", she said. "We should not repeat what did not work in the past."

The first step in designing this new industrial policy should be to recognise that the decline in entrepreneurship, innovation and competitiveness witnessed in advanced economies is constantly reinforced by new technological paradigms and trends across a multitude of sectors and processes. Uncertainty in the post-COVID world is not just a result of the pandemic.  It also ricochets the multiple effects of data-driven networks, the unfair spread of digitalisation dividends over the last 15 years, the pressure of climate change and the energy transition on countries, and the slowdown - even breakdown at times - of global trade and supply chains that have been carefully built since the onset of globalisation in the 1980s.

The second step would be to build a new strategy based on three bold propositions:

1) Acknowledging that there is a greater interconnectedness between the three mega trends of the future – health care/pandemic preparedness, energy transition/climate action and the data economy - and leveraging it. We do not need an industrial policy that prioritises these megatrends simultaneously on different tracks, but one that considers these transformations in a circular model of change.

2) Favouring dynamism in the technology sector by focusing on market retention and market performance, which is a more crucial issue than market entry in all these key sectors, especially in the pharmaceuticals and vaccine sector, where there are currently strong oligopolistic trends.
 
3) Adopting a real sectoral approach to industrial policy, moving beyond common goalposts such as competition policy because, although all these sectors are high-tech, R&D intensive and depend on innovation and rewards, they have completely different characteristics.

For instance, asked Ms. Gehl Sampath, if we really want to promote a healthcare market in Europe based on existing strengths, can the EU support a public purpose programme for a health industry ecosystem of the kind Operation Warp Speed created in the US in the immediate aftermath of COVID? Can Europe facilitate the scale-up of the strengths of its existing biotech firms in similar kinds of public investment programmes that facilitate product development?

Industrial strategy has been a major focus of the EESC's work in recent times. A series of webinars is underway to look at the stress points for today's industry. Entitled The path to our industrial future, the series will wind up in a major conference in March 2022 where the EESC will debate its findings with the French presidency of the EU and the European Commission. (dm)