Industrial policy and European integration: lessons from experience in Western Europe over the last 25 years

This paper seeks to draw together the work undertaken for the EU (Fourth Framework Programme) TSER project on Science, Technology and Broad Industrial Policy with the experience of the countries of East and Central Europe (CEECs) as it has been catalogued through the papers written for this ESRC Programme on the Emerging Industrial Architecture of the Wider Europe. The former project sought to explore developments in science, technology and industrial/innovation policy in six Western European countries – France, Germany, Italy, the UK, Sweden and Ireland – through the last 25 years of the 20th Century and found a process both of integration (in the sense both of a growing together of economies and a coming together of policies) but also of co-evolution, with national policies co-existing with new strong strands of policy emerging at both EU and regional levels of government. What role for industrial policy? The paper begins by defining industrial policy as a mix of institution building and incentive structures. It emphasizes the importance of institutions to the proper functioning of markets, a lesson that has been learned in other contexts in the CEECs, but also the degree to which institutions both reflect and shape cultures. While the process of accession provides an important stimulus to institution building, it is important that each country listens to its own stakeholders and shapes its own institutions. The non-globalisation of institutions in the member states of the EU helps to explain the degree to which national policy still plays such an important role in the industrial policy area, but it also helps to provide for a wealth of experience from which to draw. It is important to promote flexibility, but not too much – change is a good thing, but in moderation; too much change can be destabilising. Globalisation and Integration The paper then continues by examining changing industrial environment and the degree to which, during the last 25 years, the process of European integration has been played out against a background of globalisation. It suggests that while the 1970s might be dubbed ‘the age of the national champion’, the 1980s was marked by the emergence of a series of large and successful multinational, but European, firms and the 1990s by a series of trans- continental mergers from which a number of truly global companies had emerged. These latter changes had been accompanied by a dramatic shift in control, away from country (and often family) based management systems towards systems run by professional managers and institutional investors. Given global oligopoly in many sectors, these companies operate in a world of intense competition in which costs and innovation are key factors. The search for economy has led to downsizing and outsourcing; the search for new products and new markets had spread operations widely around the globe. Together it makes for a world in which foreign direct investment (FDI) is fickle and seeking to compete on labour costs alone uncertain; in which small and medium sized businesses (SMEs) play an important role in supply chains, but have to be able to meet the quality control and ‘just in time’ requirements of the MNCs; and in which much hope (arguably too much hope) is centred upon the new, but still small, technology based firms (NTBFs) as potential MNCs for the future.