Germany's quest for a New EU industrial policy: Why it is failing

Abstract

German Chancellor Schroeder has expressed publicly the desire for a fundamental revision of European Union industrial policy to conform more closely with the changing needs of the German political economy. What is the nature of this challenge? To what extent has the German government been able to alter EU industrial policy? And to the extent it has not been able to do so, why not, given the scope of Germany's power in Europe? Using the process of Economic and Monetary Union (EMU) as a paradigm for assessing German power in Europe, I argue that the German quest to remake EU industrial policy is likely to fail for three reasons: (1) emulation: Germany has not been a model for EU industrial policy; (2) timing and sequencing: EU industrial policy became institutionally embedded from the late 1980s to the early 1990s, when the influence of the German industrial model was waning; and (3) path dependence: for nearly two decades, the overriding goal of the European integration project has been to advance the single market. As this has taken place, policies toward industry have been constructed on the premise of ‘competitiveness through competition’, a notion at odds with the prevailing German conception of an industrial policy that differentiates between sectors according to conditions in global markets.

The author presented an earlier version of this paper at the Second Pan-European Conference on EU Politics of the ECPR Standing Group on the European Union, Bologna, Italy, 26 June 2004. The author thanks Leila Simona Talani of the London School of Economics and University of Bath for insightful comments. A subsequent version appeared in the working paper series of the BMW Center for German and European Studies, Edmund A. Walsh School of Foreign Service, Georgetown University, August 2004. Thanks to Richard Deeg for valuable comments on this revision.

Notes

1. Gerhard Schroeder, ‘Shaping Industry on the Anvil of Europe: Economic Policy should Boost Competitiveness among the Industrial Companies that Drive the European Union’, Financial Times (London), 29 April 2002, p.21.

2. Giovanni Federico and James Foreman-Peck, ‘Industrial Policies in Europe: Introduction’, in Giovanni Federico and James Foreman-Peck (eds.), European Industrial Policy: The Twentieth Century Experience (Oxford: Oxford University Press, 1999), p.3.

3. See André Blais, ‘Industrial Policy in Advanced Capitalist Democracies’, in André Blais, Research Coordinator, Industrial Policy (Toronto: University of Toronto Press, 1986), pp.1–53.

4. Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton: Princeton University Press, 1990), p.30.

5. Matthias Kaelberer, Money and Power in Europe: The Political Economy of European Monetary Cooperation (Albany: State University of New York Press, 2001).

6. Ibid., p.3.

7. Kathleen R. McNamara and Erik Jones, ‘The Clash of Institutions: Germany in European Monetary Affairs’, German Politics and Society 14/3 (Fall 1996), pp.13 and 7.

8. Ibid., p.10.

9. Ibid., p.11.

10. Kathleen R. McNamara, The Currency of Ideas: Monetary Politics in the European Union. (Ithaca and London: Cornell University Press, 1998), p.6.

11. Ibid., p.62.

12. Ibid., pp.157–8.

13. Ibid., p.155.

14. Peter J. Katzenstein (ed.), Tamed Power: Germany in Europe (Ithaca and London: Cornell University Press, 1997), p.47.

15. Simon J. Bulmer, ‘Shaping the Rules? The Constitutive Politics of the European Union and German Power’, in Peter J. Katzenstein (ed.), Tamed Power: Germany in Europe (Ithaca and London: Cornell University Press, 1997), p.51.

16. Ibid., pp.50 and 67.

17. Ibid., p.50.

18. Ibid., p.68.

19. Jeffrey Anderson, German Unification and the Union of Europe: The Domestic Politics of Integration Policy (Cambridge and New York: Cambridge University Press, 1999), p.191.

20. Ibid., p.13.

21. Ibid., p.208.

22. McNamara and Jones, ‘The Clash of Institutions’, p.22.

23. For the tension between Schroeder's reform agenda and the unions, see, for example, Maike Rademaker and Karin Nink, ‘Schröder und Gewerkschaften auf Konfliktkurs; DGB dringt beim Spitzengespräch im Kanzleramt auf Abmilderung der Agenda 2010’, Financial Times Deutschland, 2 March 2004, p.9. For the tension with the SPD's left, see Heribert Prantl, ‘DGB-Chef macht dem Kanzler Friedensangebot; Michael Sommer will Widerstand gegen Agenda 2010 aufgeben, falls die Regierung die Arbeitslosen besser stellt’, Süddeutsche Zeitung, 21 June 2004, p.1, both accessed at http://web.lexis-nexis.com/universe.

24. See RAPID Press Release IP/03/1477, 29 October 2003, ‘Chemicals: Commission Presents Proposal to Modernise EU Legislation’, http://www.europa.eu.int/rapid. For the full text of the Commission's proposal, see http://europa.eu.int/comm/enterprise/chemicals/chempol/whitepaper/reach.htm.

25. For example, Juergen Strube, chief executive of BASF, asserted that Commission estimates of a total cost of 2.8 to 5.2 billion euros underestimated the costs by 8 to 12 times (‘Industry Lashes Out over New EU Chemicals Rules’, Agence France Presse, 29 October 2003; lexis-nexis academic universe). The German Chemical Industry Association (VCI) attacked the high levels of bureaucracy and cost associated with the regulation for the sector (Dede Williams, ‘Germany's VCI Slams EC Chemical Policy Proposals’, Chemical News and Intelligence, 8 May 2003; lexis-nexis academic universe). The BDI, the Federation of German Industry, warned that more than 1.7 million jobs would be endangered in Germany as a consequence of the legislation (AFX.COM, 16 September 2003; lexis-nexis academic universe).

26. ‘Joint position of the German Government, the Association of the German Chemical Industry (VCI) and the Mining, Chemical, and Energy Industrial Union (IGBCE) on the consultation document of the European Commission on the Registration, Evaluation and Authorization of Chemicals (REACH)’, 14 August 2003, see http://europa.eu.int/comm/enterprise/chemicals/chempol/whitepaper/contributions.htm.

27. See, for example, letters from the office of the Premier of Hessen to the European Commission (July 2003) and from the SPD party grouping of the Rheinland-Pfalz Landtag of 10 July 2003, posted at http://europa.eu.int/comm/enterprise/chemicals/chempol/contributions/public.htm.

28. Presse-und Informationsamt der Bundesregierung, ‘Gemeinsamer Brief von Bundeskanzler Gerhard Schröder, Präsident Jacques Chirac und Premierminister Tony Blair an den Präsidenten des Europäischen Rates, Ministerpräsident Bertie Ahern, und den Präsidenten der Europäischen Kommission, Romano Prodi, 18 February 2004, English version, http://www.bundeskanzler.de/Anlage609401/Gemeinsamer-Brief-von-Chirac-Schroeder-und-Blair-englishe-Version.

29. The invocation of Lisbon is hardly limited to the joint French–German–British document; the July 2003 letter from the premier of Hessen to the Commission in response to the REACH proposal, for example (see note 27), asserts that chemicals industry comes squarely within the purview of the commitment of the ‘Lisbon Process’ to strengthen the innovation capabilities and competitiveness of European industry.

30. See, for example, ‘Report of the High Level Group on the future of social policy in an enlarged European Union’, European Commission, Directorate-General for Employment and Social Affairs, May 2004, at http://europa.eu.int/comm/employment_social/news/2004/jun/hlg_social_elarg_en.pdf.

31. Anderson, German Unification and the Union of Europe.

32. See ‘Other Key Indicators: State Aid to Manufacturing’, on the European Commission's competition scoreboard web site: http://www.europa.eu.int/comm/competition/state_aid/scoreboard/indicators/k3.html.

33. McNamara and Jones, ‘The Clash of Institutions’, cite the desire to sustain good relations with these actors as a crucial objective of the federal government's monetary policy regime preferences.

34. See, for example, Kurt J. Lauk, ‘Germany at the Crossroads: On the Efficiency of the German Economy’, Daedalus 123/1 (Winter 1994), pp.57–83.

35. Peter J. Katzenstein, ‘Industry in a Changing West Germany’, in Industry and Politics in West Germany: Toward the Third Republic (Ithaca and London: Cornell, 1989), p.3.

36. Wolfgang Streeck, ‘German Capitalism: Does it Exist? Can it Survive?’, in Colin Crouch and Wolfgang Streeck (eds.), Political Economy of Modern Capitalism (London and Thousand Oaks: Sage, 1997), pp.33–54.

37. Bulmer, ‘Shaping the Rules?’, p.67.

38. In his article, ‘The Transformation of European Community Competition Law?’, Harvard International Law Journal 35/1 (Winter 1994), p.98, David J. Gerber points out that unlike most national systems of competition policy, EU competition policy has aimed at the objective of ‘unifying the European market’ rather than protecting consumers or promoting technological progress.

39. Albertina Albors-Llorens, ‘Competition Policy and the Shaping of the Single Market’, in Catherine Barnard and Joanne Scott (eds.), The Law of the Single European Market: Unpacking the Premises (Oxford and Portland, OR: Hart Publishing, 2002), p.329.

40. For details of the first two of these processes – how the Commission became bound by its own rules and how a constituency developed for rigorous state aid enforcement – see Mitchell P. Smith, ‘Autonomy by the Rules: The European Commission and the Development of State Aid Policy’, Journal of Common Market Studies 36/1 (March 1998), pp.55–78.

41. See Mitchell P. Smith, ‘How Adaptable is the European Commission? The Case of State Aid Regulation’, Journal of Public Policy 21/3 (December 2001), pp.219–38.

42. For details of these processes, see Smith, ‘Autonomy by the Rules’.

43. The notion of electoral slack comes from Paul Pierson's work on the politics of welfare reform, in which he argues that governments require such political resources as large electoral majorities and divided oppositions to confront concentrated welfare state interests, even if the objective is to create aggregate economic benefits. Even then, ‘calculating electoral slack ex ante is a tricky business, and most governments are likely to proceed cautiously’. Budgetary crises also may create opportunities for governments to stand up to concentrated interests. See Paul Pierson, ‘The New Politics of the Welfare State’, World Politics 48 (January 1996), pp.143–79; quotation from p.177.

44. Peter Karlsen, ‘No Aid for European Shipyards’, EUObserver.com, 6 December 2001; and Michael Mann, ‘EU States Refuse to Back Subsidies to Shipyards’, Financial Times, 6 December 2001, p.6.

45. Helen Hill, ‘Dutch Group Protests over “Spanish Handout”’, Lloyd's List, 9 December 2002, p.5, http://80-web.lexis-nexis.com.ezproxy.lib.ou.edu/universe.

46. ‘Finland Complains to EU over Shipyard Subsidy Plans to Tackle S Korea Rivals’, AFX European Focus, 1 July 2002, http://web.lexis-nexis.com/universe.

47. European competitiveness report 2002, Commission staff working document, SEC(2002) 528 (Luxembourg: Office for Official Publications of the European Communities, 2002), p.83.

48. European competitiveness report 2002, pp.86 and 87.

49. But even DG Enterprise, at the time under Finnish Commissioner Erkki Liikanen, was not entirely sympathetic to the German view. In the aftermath of discussions with the German government, Liikanen noted that all of the large member states confront the Commission with special requests: ‘One wants special regulations to the advantage of their financial services sector, another for their farmers, and Germany for industry’ (author's translation). See ‘EU lehnt deutsche Sonderwünsche für Industriepolitik ab’, Frankfurter Allgemeine Zeitung, 24 May 2002, Wirtschaft, p.15, accessed at http://web.lexis-nexis.com/universe.

50. See, for example, Stephen Castle, ‘Europeans Clash Over the Way Forward’, The Independent, 26 January 2005, p.40, accessed at http://web.lexis-nexis.com/universe.

51. The image of a European Tantalus is inspired by Stanley Hoffman's well-known ‘European Sisyphus’. See Stanley Hoffman, The European Sisyphus: Essays on Europe, 1964–1994 (Boulder: Westview, 1995).

52. The European Commission first announced the concept of a European Research Area (ERA) in early 2000. See Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions, ‘Towards a European Research Area’, Brussels, 18 January 2000, COM (2000), 6. The objective was given renewed impetus by the Danish Council Presidency in 2002. See the press releases of the Danish Ministry of Science, Technology and Innovation at http://www.videnskabsministeriet.dk/cgi-bin/pretty.

53. British Embassy Berlin, Research and Technology Policy R&T note no. 010.04, 9 March 2004; http://britischebotschaft.de/en/embassy/r&t/notes/rt-note04.1010 stagnation expenditure.htm.

54. ‘Statistics on Science and technology in Europe, Part I: Data 1991–2002’. Luxembourg: Office of Official Publications of the European Communities, 2004.

55. See Federal Ministry for Education and Research (Bundesministerium für Bildung und Forschung, or BMBF), Bundesbericht Forschung 2004; http://www.bmbf.de/de/2303.php

56. See eurostat news release of 25 February 2004, ‘EU spent nearly 2% of GDP on Research and Development’, at http://www.europa.eu.int/comm/eurostat.

57. Communication from the Commission, ‘Investing in Research: an action plan for Europe’. Brussels, 4 June 2003, COM(2003) 226 final/2.

58. British Embassy Berlin, Research and Technology Policy R&T note no. 010.04, 9 March 2004.

59. See section III of the 2004 research report, Bundesbericht Forschung 2004, on the website of the BMBF, http://www.bmbf.de/de/2303.php.

60. While this is not made explicit, this seems to be the implication of the position paper of the Federation of German Industry (BDI) submitted to the discussion of the European Research Area in January 2000. While the BDI encourages the expansion of open competition for research funding, it also warns that national patterns of specialization should be left intact and that development of R&D infrastructure, financing of basic research, and promotion of corporate R&D remain national-level tasks that should not be subject to coordination at the European level. See BDI Position Paper on the Communication from the Commission, ‘Towards a European Research Area’, Berlin, May 2000, accessed via the CORDIS European Research Area website, http://www.cordis.lu/era.