Industrial policy in the EU: old dilemmas and new options

Abstract

Industrial policy is highly controversial. Supporters claim it is necessary to address market failures. Critics argue that the danger of government failure is often higher and that such failure may lead to greater welfare loss. The EU justifies its industrial policy by pointing to the existence of transnational problems and to its unique ability to counter them. The EU has the capacity to coordinate national policies, to reduce redundancies, to control and limit national subsidies to industry. It also has a mandate for managing EU foreign trade and competition policy. There are five major industrial policy arenas. Technology policy has been relatively successful in certain fields like telecommunications or traffic‐control systems. In other fields, such as micro‐electronics and computers, the results have been mixed at best. Regional policy has had a limited developmental impact. On foreign‐trade policy, anti‐dumping measures have largely been a failure, though they have stimulated Japanese direct investment. A division of labour between the EU Commission and national, regional and local governments should be advanced with a view to formulating and implementing industrial policy. The regional and local levels should formulate policies aimed at strengthening specialized factors. The EU should concentrate primarily on fostering and shaping new lines of technological development and managing capacity reduction in declining industries.