European Industrial Policy after II. World War
In this medium post we are going to look at European Industrial Policy after II. Warld War. To do that we will address four main questions. Questions are asked from the paper called “Industrial policy in Europe since the Second World War: What has been learnt?”
— The first question is that what were the main motivations of EU countries to pursue an industrial policy after Second World War?
Following the Second World War, some sectors received assistance from European governments to repair war damage and incorporate US technology. They funded the steel industry and acquired control of the coal, electricity, and railway industries. This was not industrial policy in the contemporary sense of focusing on particular industries for tactical purposes.
The 1960s saw European governments racing to catch up with US technological advancements while defending their aging industries against low-cost imports. Some industries, including steel and aircraft, received funding and support from them. The energy crisis in the 1970s made matters worse, and certain industries produced far too much. Governments and the EU made an effort to assist them in adjusting.
The two countries that helped their industry the most after the war were the UK and France. They did so for various reasons: the UK had interventionist Labour governments, whilst France had a history of governmental support and wanted to revive its economy. Following the loss of their colonies, both nations also desired to maintain their global influence. After the war, West Germany took a different route. It opted for open markets and minimal government meddling in business. Due to the Allied ban until the middle of the 1950s, it also showed less interest in high-tech industries like computers and airplanes. Politically, these industries were more significant for the UK and France.
After the war, Europe’s productivity increased and surpassed that of the US. Not government assistance for individual industries, but rather trade and global issues, were the key causes of this. Less interference in West Germany was most successful. Despite subsidies, Europe nevertheless lagged behind the US in high-tech industries like computers and aerospace. Government assistance for struggling industries frequently caused delays and incurred high costs. Attempts by European governments to support particular industries were flawed. They didn’t think to ask if their assistance was preferable to letting the market decide. Additionally, they believed they understood how to obtain and which technologies were crucial. They disregarded the advantages of innovation and competition.
Governments in Europe were concerned about losing to the US in a few sectors. But they couldn’t figure out why the US was in the lead. The US possessed a sizable market, significant military expenditures, and an effective financial system. Unlike Europe, the US also backed startup and small businesses. The US lacked a definite and consistent technology policy. Security requirements had a stronger influence than commercial objectives. The US likewise abandoned certain initiatives after learning from its mistakes. Europe spent too much time trying to outdo major US corporations. However, Europe started to notice another instance.
— The second question is that what kind of sectors have been particularly chosen by the countries? why?
a) High-tech industries: Many European nations are working to promote high-tech sectors like aerospace and information technology, which have enormous potential for job growth and innovation. These industries are seen as essential for maintaining competitiveness in the global economy and frequently demand significant levels of research and development.
b) Energy: In order to lessen their reliance on imported energy and address environmental issues, several European nations have given priority to the energy industry.
c) Manufacturing has historically been a strong industry in Europe, and many nations have taken steps to safeguard and strengthen it through a variety of measures, including trade barriers and subsidies. Numerous sectors, including engineering, the manufacture of automobiles, and textiles, are included in this area.
d) Services: The services sector has drawn more attention as a source of economic expansion and job development, notably in fields like banking, technology, and healthcare.
Overall, the aerospace, computer, steel, shipbuilding, and automobile industries were some of the ones that European nations opted to focus their industrial policies on. Political prestige, national security, strategic importance, and technological leadership were the key factors in selecting these sectors. Due to different variables like market failures, government failings, and global rivalry, these sectors did not always function effectively or accomplish their objectives.
— The third question is that please choose one country and list success and failures of the respective country in terms of industrial policy it implemented.
In the first thirty years following World War II, the French government utilized two main tools to modernize its infrastructure and industry: nationalization and a system of suggestive planning. Coal, electricity, and gas are examples of basic industries that have been nationalized under public ownership. Through indicative planning, the government focused on high-priority industries and made sure that funds were made available to encourage new investment, largely through state-owned banks. The government also established new technical organizations to conduct research in the fields of energy, telecommunications, and aviation, and it delegated responsibility for this research to the Commissariat à l’Énergie Atomique (CEA). These organizations assisted in making up for the inadequate university-based research and the lack of major, privately held laboratories that existed in Germany and the US.
The nuclear energy program and the Train à Grande Vitesse (TGV), which were founded on collaboration between government-owned agencies, contractors, and state-owned corporations, were examples of state-led initiatives. In the IBM-dominated computer business, the French strategy performed less successfully. CII (Compagnie International pour l’Informatique) was supported by the government. In order to stimulate the economy through more government expenditure, job creation, and additional benefits for low-income families, Mitterrand’s administration adopted “redistributive Keynesianism”. In an effort to increase the competitiveness of 13 of the top 20 industrial companies in France, including CGE, Thomson, Rhône Poulenc, and Saint-Gobain, on the international market, the government adopted “la politique de filière” and acquired a controlling share in other companies. High inflation and the exchange rate are just two examples of how Mitterrand’s strategy failed to last. Following that, France began to follow orthodox financial practices.
The “ni-ni policy” that socialists embraced excluded either nationalization or privatization.Non-voting shares might be used by state-owned corporations to generate funds, and both public and private businesses could run independently of the government. Many businesses concentrated on specialization and global expansion, frequently through US and European acquisitions, such Alcatel and CGE (a telecommunications company).
— The fourth question is that read carefully the conclusion part of the paper and summarize it in three sentences.
The 1950s to the 1980s saw the majority of blunders, and the main cause of these errors was excessive government intervention in the market.
Increasing business efficiency became crucial during the 1980s and 2000s, a time when businesses got more competitive and the government participated less. In fields with strong barriers to entry, like the example of Airbus, there were also models that the government supported.
Thanks to venture capital, which encourages entrepreneurs, tremendous progress has been made in the production of high technology in the United States. A framework that promotes innovation and competition rather than short-term investment is crucial for industrial progress.
