Progressive industrial policy in Europe

Roland Kulke

Presentation of the ‘What is to be produced? The making of a new industrial policy in Europe’ study

We presented the study titled What is to be produced? The making of a new industrial policy in Europe at a public event on the evening of 6 April 2017 and discussed it with numerous guests. Mario Pianta, Matteo Lucchese and Leopoldo Nascia wrote the study for the “progressive industrial policy” project of the European Office of the Rosa-Luxemburg-Stiftung in Brussels to clarify what scope the current legal framework of the EU provides for a progressive industrial policy.

Martin Schirdewan, Director of the European Office of the Rosa-Luxemburg-Stiftung in Brussels, opened the event by asking what scope the current EU treaties provide for a progressive industrial policy. He noted that Mario Pianta and his co-authors, Matteo Lucchese and Leopoldo Nascia, had found that there is considerable scope – provided that astute use is made of it. The available options are far from perfect, but cities, regions and countries can certainly take action to provide their industries with proper support. Martin Schirdewan noted that the aim of the public event on 6 April was to discuss the details on how the EU’s economy can be reformed and boosted.

Johanna Bussemer, moderator of the first panel discussion and head of the Department of the European Section of the Rosa-Luxemburg-Stiftung in Berlin, thanked Mario Pianta for his study, which she said would serve as the basis for the discussion that evening.

Mario Pianta (Professor at the University of Urbino, Marche, Italy) presented a brief overview of the findings of the study.

“It is clear that today we cannot return to an industrial structure like the one that existed before the crisis in Europe. We need to radically restructure industries in the EU, otherwise they will be incapable of responding to the challenges of the future. The climate crisis calls for a totally different industrial structure. At the same time, technological progress, which has been negotiated in Germany under the term of ‘Industry 4.0’, poses major challenges for the peripheral countries of the EU in particular. Austerity policy needs to end so that the periphery of the EU can finally be helped. The decline in demand would push industries and economies into the abyss. In the context of austerity policy, there was a dramatic decrease in the production capacities of the countries on the periphery, he said. It is important to note that this is clearly not a result of competitiveness, but of a misguided austerity policy. The data clearly show that countries such as Spain and Italy are able to find buyers for their products abroad (where competition is fiercest and can cause ‘pain’), but not within their own countries, where an austerity policy is in effect!”

Wenke Christoph (European researcher at the Centre for International Dialogue and Cooperation of the Rosa-Luxemburg-Stiftung) reported on protests in Belgrade on the previous day, at which over 10,000 citizens protested, including with the slogan: “We don’t want to be your cheap labour!” This clear perspective on the economic plight can be explained by the fact that the countries of the former Yugoslavia are still producing fewer goods than in 1989. In Bulgaria, half of the population are living in poverty, according to official data. What about the situation in Romania? “Unemployment there is ‘just’ 8%, while Romanians on average have to spend 85% of their income on their basic needs – a consumption structure that is more familiar from the third world,” he noted. Where is the development vision of the EU?

“These few figures show that we need many more studies like those by Mario Pianta, especially with respect to the economic policy instruments of a progressive industrial policy. Naturally, the countries on the periphery of the EU are important in this respect, but so too are third countries in the immediate proximity of the EU. The textile industry in Serbia is required to pay its workers* a minimum salary of EUR 350, while the textile industry in Romania only has to pay EUR 150. As a result of such low wages, the textile industry accounts for some 25% of Bulgarian export revenues, corresponding to 150,000 jobs. It is not a question of whether the industry has modern equipment, which it partly does. Regardless, cheap wages are paid nonetheless. The fundamental problem of this region is structural heterogeneity (Stefanie Hürtgen). When discussing the (re-)industrialisation of Europe, we need to address not only questions of technical upgrading, but also pay particular attention to the issue of working conditions. The left wing needs to work together across Europe, since transnational links between trade unions are indispensable in this respect,” Wenke Christoph said.

Ingmar Kumpmann (German Trade Union Confederation, DGB), Department for Structural, Industrial and Services Policy, in charge of industrial and services policy) welcomed the discussion on progressive European industrial policy and referred to the 2012 ‘Marshall Plan’ by the DBG as an economic, investment and development programme for the whole of the EU. “Such thinking has always been strongly represented at the DGB,” he said. According to Kumpmann, even the EU elite has realised that there needs to be an investment drive in the EU, resulting in the Juncker Fund (European Fund for Strategic Investments, EFSI). “The fundamental idea that more funds need to be pumped into investments is absolutely right, but implementation leaves something to be desired,” he said, noting

“There is a clear tendency to divert money away from the structural funds and other conventional EU instruments (such as Horizon 2020) to the EFSI. The problem is that the two types of funds operate according to completely different principles. The structural funds are intended to enable the long-term recovery of regions and therefore disburse funds according to numerous regional and social criteria. Through collaboration between the Commission, the respective national government and the region, projects are selected that are designed to enable the long-term growth potential of the regional economy. With the EFSI, by contrast, only the immediate, short-term commercial possibility of generating profits is considered, without the use of regional or other criteria. The EFSI has a strong focus on private-public partnerships (PPPs or P3s). As a result, political planning is more difficult and regional imbalances may be exacerbated. That conflict between the necessary industrial restructuring and the EFSI is set to pose problems for the EU, since it is clear that the ecological aspect of our economic systems needs to be at the focus of our actions. Although the label of ‘EU industrial policy’, as it is used by the EU, is actually just another expression for deregulation, the wide-ranging economic programmes of the EU include a number of positive approaches that need to be made use of, such as Europe 2020, which contains environmental targets.”

The discussion addressed the question of whether what is described in Mario Pianta’s study as industrial policy does not in fact represent a broader socio-ecological transformation. Mario Pianta made reference to Piketty’s new book about the democratisation of the euro area, as part of the wider debate. The discussion addressed links between progressive industrial policy and Industry 4.0 on the one hand and between the EU and nationalities on the other in the context of questions of a genuine and comprehensive progressive industrial policy. Maria Pianta said that Industry 4.0 is heading on the completely wrong path.

“The way in which Industry 4.0 is currently conceived of and most likely also being pursued by the interested parties will simply result in an even stronger concentration of power within the EU. According to government estimates, in Italy only 2% of companies can play a part in Industry 4.0. Only companies belonging to that 2% have the technological capabilities to do so. Italy’s industrial structure is totally unsuited to Industry 4.0. However, what we need throughout Europe are green industries and not just high-tech companies that dominate the whole economy,” he said.

Wenke Christoph added that the poor starting situations in many countries make the EU exceedingly important as a space for debate, because since 2015 all accession candidates to the EU have to present their economic programmes to the EU, just as Greece has to do today.

“During the accession process, i.e. during the period that states are supposed to be ‘brought closer’ in line with the EU, the EU has incredibly strong influence, which is only comparable with the influence of the troika. Progressive forces need to intervene to ensure that such influence is used not for neoliberal reforms, but for reshaping of societies with ‘Capitalism without Capitalists‘ to economic systems that benefit all citizens.”

Ingmar Kumpmann emphasized the issue of additional investments, since in the case of the Juncker Plan (EFSI), “it very much seems that barely any new investments are being made despite all the fanfare,” he said.

“In fact, most of the investments that are now attributed to EFSI would have been made in any case. What does EFSI achieve, apart from deadweight effects for companies? With respect to the discussion about Industry 4.0, one must take a close look and question who is actually conducting research and bringing about decisions – namely managers, engineers and, above all, academics,” he said. “It is important for the focus to be on research that is more socially-minded and more geared to the working world. The process as such can only be shaped if the development is influenced at its roots. It is clear that a progressive industrial policy that can serve all EU citizens can only be achieved if it is oriented toward social and environmental objectives. Growing nationalism in Europe could also be counteracted by the vision of a European progressive industrial policy,” he noted.

In her talk, Sarah Godar (economic scientist and coordinator of the ‘Netzwerk Steuergerechtigkeit’ (German Tax Justice Network) focused on the question of state revenues, since they are a prerequisite for an active industrial policy. Sarah Godar expressed her opposition to a particularly popular form of funding for innovations, namely ‘patent boxes’, allowing companies to deduct the costs of successful patents from their taxes. “That is unnecessary ex-post funding,” she said, noting that

“Multi-national companies can use accounting tricks to secure massive tax rebates. Moreover, the economy is becoming increasing ‘virtual’, i.e. increasingly geared to patents and intellectual property. If, however, as a result of the aforementioned needless form of ex-post funding, state revenues from this key economic factor keep on decreasing, then countries’ revenue side will come under increasing strain. It is clear, however, that greater public revenues need to be available for an active industrial policy in structurally weak regions. An increase in the EU’s own resources would be an alternative to fiscal transfers between economically strong and weak EU Member States. In the scope of the Fair Tax Project, various types of tax are discussed that could be collected at the EU level or shifted to the EU level. An aviation tax, the Tobin tax and a uniform business tax would be conceivable. Taxation of capital income is the right approach, since such income is set to increase. Multinational companies should be taxed more heavily in particular. The Member States are hardly in a position to act alone, so the EU needs to take action in this respect. According to estimates, the EU Member States lose some EUR 50 to 70 billion each year due to the tax evasion by major corporations.”

Martin Schirdewan, who moderated the second panel discussion, referred to ‘Europa Neu Begründen’ (Re-establishing Europe) as “an important organisation that addresses the contradictions within the EU. One of the main problems is wage restraint in the centre of the EU, which manifests itself as wage dumping on the periphery of the EU,” he said. He addressed the question of how we can escape that problem.

Maximilian Waclawczyk criticised the fact that normally only sector-specific studies are conducted, such as on the diesel scandal or the steel industry, which has been hit hard by China’s steel dumping. “Studies of macroeconomic structures are needed, and the Brussels study by Mario Pianta is exceedingly important in that respect, because it addresses the dogma of the single market. Macroeconomic interventions and control of the economy tend to be rejected, but that achieves nothing,” he said. According to Maximilian Waclawczyk, “it is patently clear that Greece, in the words of Hans-Jürgen Urban, needs ‘dosed protectionism’ against the centre of the EU, since only that will provide a protective space for the development of regional economies. In other words, ‘regional protective spaces for industry’ are needed, as well as ‘technological protective spaces’ for matters of green technology. The EU has again missed a chance to do so with the Winter Package,” he added.

“The ‘Winter Package‘ is another manifestation of the market dogma; the funding of renewable industries has almost entirely been eliminated. In particular, the only real support mechanism, priority feed-in, has ultimately been removed. What about the Just Transition in Germany to date? While there were 110,000 jobs in the photovoltaic industry in 2011 in Germany, today there are fewer than half that number. The reason is the targeted cutting of funding in favour of large electricity providers. Wind power faces similar cuts in Germany. We therefore need to arrive at ‘enlightened protectionism’ for all world regions – in an era of structural over-production, it is hard to conceive of any other way.”

Are there any topics that could have been elaborated on further in Mario Pianta’s study? We need to address two questions even more intensively in future. First, how can we provide for ‘good jobs’? Second, how can we develop trade unions on the periphery of the EU since it will never be possible to implement a progressive industrial policy without the support of trade unions? Re-industrialisation of the EU will only be possible if employment is re-collectivised. In order to achieve that, European public procurement needs to be changed. A collective agreement compliance law should be introduced with the aim of tenders only being awarded to companies with collective agreements.

Axel Troost (financial policy spokesman for the “Die Linke” – The Left – group in the Bundestag) focused on the political feasibility of a progressive industrial policy in the EU. That will require a change of government in Germany. However, the chances of that happening are slim. During the last general election campaign in 2013, both The Greens and the Social Democratic Party of Germany (SPD) spoke about the necessity of tax increases, but have been silent about that question this time. If the ‘debt brake’ remains in place, governments will not be able to fulfil their duties without increased tax revenues. The major challenge for the left wing is to convey the advantages of state debt in the mass media. So far, it has not succeeded in getting the message across to the public. Debt can be a good or a bad thing. New debts are helpful if loans are used for the purpose of investments. The current increase in the debts of countries on the periphery of the euro area, however, is due to a Schäuble-style austerity policy having stifled economic growth, resulting in lower state revenues and therefore higher debt. Axel Troost sees the uneven development of European industries as a major challenge. While there has been broad discussion in Germany about the term ‘Industry 4.0’ and the changes to the economy it entails, in France and Italy the debate about this new development phase of capitalism has been largely restricted to experts in France. That needs to be actively counteracted by a joint EU policy to avoid further exacerbation of the imbalances between the Member States.

Martin Schirdewan asked Maximilian Waclawczyk (IG Metall (Industrial Union of Metalworkers), Department of Industrial, Structural and Energy Policy) about IG Metall’s position on the ‘Just Transition’, i.e. safeguarding jobs in the course of the transition from fossil fuels to sustainable energy generation. Maximilian Waclawczyk expressed his conviction that the topic will be treated as a priority at IG Metall and will receive support. “The greatest challenge for trade unions is the coming climate crisis. That problem is an even greater challenge for the German trade unions than developments such as ‘Industry 4.0’ and similar,” he said.

“The need to develop and then produce environmentally-friendly products will have a major impact on the labour market. The next-generation cars will be electric vehicles. They will require a totally different technology from the technologies that form the basis for the success of German industry. In addition, there is reason to fear a major loss of jobs due to the technology becoming far simpler. The drivetrains of electric motors have a much simpler design. Instead of 1,400 parts for the engine and transmission system, an electric motor has only 200 parts. As a result, whole supply chains in Germany might be eliminated. That would impact precisely on the much-praised SME sector in Germany, with whose help Germany halfway made it through the last global economic crisis. Unfortunately, it must also be seen as a failure of German businesses and industrial policy that Germany so far has missed the opportunity for its own production of fuel cells. We should think of the necessary progressive industrial policies as a triangle consisting of the ‘economy’, the ‘environment’ and ‘good jobs’. It is indisputable that we need a change of direction, if only because of the challenges posed by the climate crisis. However, that means a change of approach to economic development, and it is clear how difficult it is to abandon paths of socio-economic institutional development that have already been embarked upon and take a new, rational path in line with long-term planning. The federal government needs to play an active part in shaping that change of approach.”

During the discussion, Axel Troost noted that the funds for regional development in the EU urgently need to be increased. “In the short term, the industrial policy that we so urgently need to keep the EU together can only be implemented through such funds,” he said. “A genuinely progressive industrial policy is the only political instrument that we currently have. Given that situation, the analysis of Jacques Généreux, one of the economic advisers of Jean-Luc Mélenchon, is highly welcome,” he said. “We will only have a stable union that can help everyone equally if the economic governance structures of the euro area and the EU are reformed.”

What is to be produced? The making of a new industrial policy in EuropePDF file