A green industrial policy for Europe?

October 7, 2009

Does this sound like “forward into the 1980s”?

True to their dirigiste tradition, the French are cooking up a green industrial policy for Europe which they want to build around Franco-German projects for electric cars, smart energy networks and aerospace technologies.

The idea of industrial policy has been given new life by the credit crunch and a loss of confidence in the efficiency of markets: European Commission President Jose Manuel Barroso has promised “a fresh approach to industrial policy” in his second term in office.

But whether the new centre-right German government will embrace France’s plan when it takes office next month remains to be seen.

President Nicolas Sarkozy wants a European Union programme of high-tech low-carbon projects to help pull the economy out of a slump and drive stronger growth. He plans a big public savings bond in France to fund “the technologies of the future” in life sciences and healthcare, energy and the environment, information and communications.

Public finance and regulation can channel investment, create infrastructure and develop scientific know-how. But the EU has good reason to be wary of trying to pick technological winners or engineer industrial champions.

Paris has long accused Brussels of blocking a pro-active industrial policy by what it sees as dogmatic application of EU competition rules on mergers, public procurement and state aid, and a naively open door to foreign trade.

For example, Sarkozy wants European utilities to pool their purchasing power and negotiate joint long-term gas supply deals with Russian monopoly Gazprom, something France says EU cartel rules currently prevent.

In France, the state’s guiding industrial hand is associated with technological successes such as Airbus planes, Ariane rockets and TGV high-speed trains, which became commercially viable only after years — in some cases decades — of public subsidies. Costly white elephants such as the Bull computer group or a 1970s scheme to develop oil-detecting aircraft, nicknamed “sniffer planes”, tend to be forgotten.

In Britain, industrial policy is associated with commercial disasters such as the Concorde supersonic aircraft, or the loss-making nationalised industries of the 1970s. However industrial policy is making something of a comeback under business secretary Peter Mandelson, who favours using public money to promote electric cars or carbon capture and storage.

Germany sits between the two traditions. It is wary of state intervention in the private sector but supports big industrial ventures by German firms. Chancellor Angela Merkel has given priority to raising investment in research, innovation and higher education, raising French hopes of joint initiatives.

Europe’s post-war economic recovery was built partly on the pooling of the French and German coal and steel industries in the European Coal and Steel Community. Today, both countries are committed to maintaining an industrial manufacturing base.

Pooling scarce public R&D resources in defence and aerospace programmes and clean energy technology makes sense. The French are right to think that if they can get Germany on board, their new industrial policy has more chance of success and of winning EU acceptance.

But they need to remember that it is companies, not governments, that make successful products. The Germans should restrain the French temptation to play “industrial Meccano”.

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