“A review of parts of the [EU’s] offensive industrial policy – industrial alliances and so-called Important Projects of Common European Interest – suggests that the policy will not be particularly successful.” This is the conclusion of Harry Flam, professor emeritus of international economics, in a recent report published by the Swedish Institute for European Policy Studies, (SIEPS), in what in the opinion of the Confederation of Swedish Enterprise amounts to a key contribution to the EU debate.
As part of the “European Policy Analysis” series of reports, SIEPS has published a brief but comprehensive paper entitled “EU Industrial Strategy: bound to fail?”. The report is written by well-known economist Harry Flam, currently at the Institute for International Economic Studies, Stockholm University, and SIEPS. Flam believes that EU industrial policy has become increasingly activist in recent years due to increased competition, mainly from China and the United States. The EU is addressing this by creating new rules with the aim of ironing out imbalances in competition, as well as creating so-called industrial alliances. Some of these are Important Projects of Common European Interest, (IPCEI), the structure of which Swedish Enterprise has repeatedly commented on.
Flam believes that industrial policy in this form risks failure. He writes:
“Subsidies for R&D and manufacturing may – but not necessarily – be socio-economically justified. However, the project to encourage the mass production of advanced semiconductors is unlikely to succeed. The vehicle battery manufacturing project seems unnecessary: the increase in production that is planned and privately financed to 2030 is far greater than the expected increase in demand. It is likely that a considerable proportion of these subsidies will go to French and German companies. France and Germany have been proactive, while several smaller countries – including Sweden – have opposed subsidies for manufacturing and other commercial activities.”
The approach of the Confederation of Swedish Enterprise to the EU Industrial policy is clear; projects and initiatives must be founded on clear market economy principles, neither distort competition in the EU Single Market nor have protectionist consequences.
“I really welcome this report from SIEPS, partly because it provides an extremely interesting and accessible analysis of an area that we really need to focus on – especially because industrial policy affects economic activity in Sweden, and of course Europe, to a far greater extent than is generally understood. Harry Flam is a respected and skilled researcher, and his findings therefore make a valuable contribution to the debate going forward,” says Göran Grén, Director Head of Business Policy and Law Division at Swedish Enterprise.
EU industrial policy is significant in its monetary scope and in its impact on European companies. It is therefore important that discussion about its interventionist, and sometimes protectionist features, is focussed on structuring it in such a way that supports all EU countries.
“We need more fact-based arguments, so a report like this is important for a constructive and lively EU debate. This helps to ensure that major issues such as industrial policy can be discussed with a critical eye, while at the same time we dare to defend everything that is genuinely positive about the EU. Trade and economic integration formed the foundations of EU competitiveness, and we all have a responsibility to ensure that these achievements are taken in a forward-looking market liberal direction free from protectionism or unilateral promotion of certain countries or sectors,” adds Göran Grén.
The Sieps-report can be found here.EU Industrial StrategyEU