Industrial Policy Needs to Be at the Top of the European Agenda: A Call to the New Commission

Challenges ahead

Since the Juncker Commission took office on November 1, 2014 we have seen the European economy growing as a result of a general recovery after the ‘Great Recession’ of the years 2007-2013. The upswing has also created 12.6m new jobs, with a positive impact on unemployment: in absolute terms the number of unemployed in the EU dropped from 26m in 2013 to 16m in 2019 while the unemployment rate fell from 12% to 7%. Maintaining the pace of job creation of the previous years would mean that the EU would almost be in a situation of full employment by the end of the mandate of the next Commission.

However, it seems that after seven years of recovery we are approaching the peak in the business cycle. Indeed, European economies have started to slow down. While in 2017 3.5m new jobs were created, this number will drop to only 1m in 2019 Moreover, the financial crisis left deep scars that have yet to be healed: unemployment is still unacceptably high in the south of Europe, income inequality and the number of working poor are on the rise, wage growth has been weak, economic convergence has come to a halt and the divergences between the north and south of Europe as well as between west and east are endangering social and economic cohesion. Manufacturing in particular was hit hard by the financial crisis as it was also only in 2017 that industrial production returned to the pre-crisis level of 2008. Although 1.6m manufacturing jobs have been created since 2013, this is far below the 4m industrial workers that lost their job during the crisis.

But it is not only the short term that matters. For an industrial trade union, it is important to develop long-term visions and strategies so as to find answers for the many structural challenges our industries are facing. Most of the mega-trends we have to confront such as globalization, ageing population, digitalization, a low-carbon economy, the energy transition, climate change mitigation and growing inequality were already there before the beginning of the Juncker Commission. These challenges are still there but we can nevertheless identify a number of new developments:

• The Paris Agreement was signed in 2016 and resulted in more ambitious European climate plans. It was followed by the publication of the Special Report on Global Warming of 1.5°C by the Intergovernmental Panel on Climate Change in October 2018, which was profoundly disturbing. It put the protection of our planet at the top of the political agenda as it stressed the urgent need for action with its conclusion that we have only 12 years left until 2030 to avoid irreversible consequences of climate change.

• The UN Sustainable Development Goals (SDGs) were approved in 2015 and offer a shared blueprint for sustainable development at a global level. The EU has now to face the challenge of integrating them in its decision-making processes.

• Growing concerns about the digitalization of the economy and its impact on jobs. ‘Industry 4.0’ turned into a new buzz word. Artificial Intelligence (AI), the creation of an ‘Internet of Things’ and the roll-out of 5G have become important new challenges for industrial policy.

• The concept of a circular economy has emerged very rapidly.

• Despite many flaws in the design of the EMU, the EU failed to deliver on the ‘deepening of the economic and monetary union’. Although still required, insufficient progress has been made to make the eurozone more resilient to economic shocks.

• The rise of economic nationalism (Brexit!) and looming trade wars.

• At the same time authoritarian populist parties are thriving and their misleading narrative is proving very convincing for ordinary people.

• A growing divide between left-behind regions and well-developed urban agglomerations.

• An increasing segmentation/polarisation on the labor market and the emergence of a new informal economy/‘the precariat’ in the gig economy.

• The growing impact of China on the global economy.

How the EU rediscovered industrial policy

Since the turn of the century the European Commission has re-discovered industrial policy. Throughout a long series of Communications (official policy papers) the European Commission tried to define a contemporary industrial policy for the newly created internal market, while at the same time taking into account new challenges such as climate change, energy transition, digitalization and globalization. This led to a gradual reawakening of the need for industrial policy in Europe and clearly showed the renewed commitment of the Commission – after decades of silence – to protecting and strengthening Europe’s industrial base and tackling the deep structural changes that industry is confronted with. Industry is now recognized as a motor for social, ecological and economic progress. In 2010 industrial policy was a flagship initiative of the Europe 2020 Strategy. In 2012 the then Commissioner for Industry Tajani launched the ambitious objective of increasing the share of manufacturing in GDP from 16 to 20% by 2020. The outgoing Commission further put industrial policy at the top of its agenda as out of ten key priorities it identified six were related to industrial policy.

The Commission focused on key topics such as strengthening the internal market (the capital markets union, the tax avoidance package), preparing industry for the digital age (the Digital Single Market Strategy, the Digitising European Industry initiative), investment (the Juncker Investment Plan), building leadership in the low-carbon and circular economy (the Energy Union, the Circular Economy package), supporting the transformation of industry (sectoral action plans for steel, space, rail supply, automotive and defense), ensuring a global level playing field (the ‘Trade for All’ communication). These initiatives show that the European Commission no longer shies away from industrial policy. There is clearly a renewed commitment to protect and strengthen the industrial base of Europe and to take into account the specific needs and characteristics of individual sectors. The following paragraphs provide an overview of the most important levers that should put the EU on a sustainable road to full employment by the end of the next Commission’s mandate.

Invest in a long-lasting and job-rich recovery

During the crisis the eurozone came close to breakdown. Emergency measures had to be decided to reinforce its resilience, such as deregulation of labor markets, Banking Union or the European Stability Mechanism. ‘Internal devaluation’ was imposed on workers in the countries hardest hit by the crisis. After almost seven years of harsh financial and economic crisis (2007-13), the EU has been in a more lenient macro-economic environment for the past six years. As current economic growth is sluggish and the risk of a new recession cannot be excluded, the foundations for steady growth and long-term recovery must be strengthened. Moreover, market forces, if left uncorrected, lead to a concentration of economic activities and to income inequality. Reducing economic divergence and ensuring upward social and wage convergence should be part of the DNA of the European project. Achieving full employment will require increasing private and public investment (the latter is still far below its historical average), promoting internal demand by increasing wages in line with productivity gains, reducing (in-work) poverty and enhancing social protection. It will also require rebalancing the focus of structural reforms by moving away from deregulating labour markets and by boosting areas of social relevance like skills, collective bargaining systems and secure employment contracts. What’s more, further deepening of the EMU needs to be supported in order to reinforce its resilience to economic shocks and avoid harsh austerity policies in future (e.g. creation of a macro-economic stabilization function). European economic governance (the European Semester) also needs rebalancing by not only focusing on public deficits and cost competitiveness but integrating the social dimension as well. Finally, full employment should be integrated within the mandate of the European Central Bank (ECB).

Support good jobs in a thriving industry

The current economic recovery has created a window of opportunity to restore the fabric of Europe’s industry and to tackle its multiple and unprecedented challenges. Industrial policy has to take the lead in keeping Europe’s industry at the cutting edge of technological progress, providing solutions for societal challenges and defining directions towards new paradigms which do not arise spontaneously from market forces (the Internet, GPS, a decarbonised economy are outcomes of public policy). Developing world-class technological capabilities and promoting an economic growth model based on the SDGs will position industry in areas where Europe is and can be at the forefront globally. All this will require targeted action plans for all sectors that are of strategic value or confronted with structural change. Industrial policy should systematically enhance Europe’s presence in the value chains of the future such as connected, clean and self-driving vehicles, batteries, hydrogen technologies, smart health, low-carbon manufacturing, AI and microelectronics.

Reforming Europe’s competition policy will be key for fostering industrial collaboration along the value chains and in support of our climate objectives. At the same time, Europe’s competition policy should not lead to the destruction of integrated value chains or impede the creation of European champions. Another important challenge for the next Commission is to make green/innovative public procurement a fully-fledged tool of industrial policy. Furthermore, the creation of a real European capital market should make it possible to provide sufficient scale-up funding for fast-growing innovative companies. Especially at later-stage funding, Europe is lagging behind which explains why many of its successful companies are taken over by foreign competitors (of the 40 biggest global companies, only five are European). Finally, we need to promote the regional dimension of industrial policy. The growing gap facing regions with poor development prospects and an increasing ‘no future’ feeling has led many of these so-called 'places that do not matter' to revolt against the economic dominance of the ‘urban elite’. Special attention will have to be given to industrial transition regions, to interregional cooperation in exchanging best practices, to financial and technical support for regional re-development plans and to smart specialization.

Seize the job potential of sustainable growth

Tackling the threats of climate change is high on the agenda at all political levels. The commitments laid down in the Paris Agreement are the legal baseline for reducing greenhouse gas emissions in a cost-effective and comprehensive way in all sectors of the economy. Therefore, helping to create an economy that is sustainable, circular and inclusive is the overarching objective for any industrial policy. And long-term climate plans need to be translated into short-term operational plans if one is to provide planning security to all sectors and value chains concerned. Huge financial resources will be needed in order to finance the transition to a low-carbon economy and the development of new breakthrough technologies (supported by grants, loan guarantees and tax breaks for sustainable activities). However, mobilising investors’ money will only be possible if viable business models for the transition can be developed (e.g. by covering the price difference between low-carbon and traditional products or by creating separate markets for low-carbon products).

Furthermore, an industrialised circular economy that goes beyond recycling waste and instead focuses on re-use and re-manufacturing must be developed. Concrete targets have to be introduced, new technologies developed. New initiatives in this area such as a circular economy around plastics or the creation of a European supply chain for batteries will undoubtedly strengthen the industrial fabric and contribute to the creation of new jobs. Special attention will have to be paid to increasing resource-efficiency, to accessing crucial raw materials and developing well-functioning markets for secondary raw materials. The next Commission will also have to set the initial steps to be taken in the profound decarbonization of energy intensive industries. To guarantee a sustainable future for heavy industry high levels of investment and a complementary regulatory framework will be needed in order to develop low-carbon production processes/products, support their up-scaling to commercial viability and put them in place across European production sites. But even if carbon emissions in these sectors can indeed be reduced, they cannot be completely eliminated because of industrial process emissions that are hard to abate (50% of the emissions of energy-intensive industries such as steel and cement). Developing economically viable methods to capture and reuse carbon becomes crucial. This also requires investment in public infrastructure for the transport of CO2 and hydrogen. Key for the transition to a low-carbon economy will be the availability of sufficient sustainable finance (public issuance of green and social bonds). Finally, the EU must show global leadership in developing and implementing long-term climate policies. Indeed, the EU is not alone and international cooperation to promote the global uptake of carbon-neutral policies is a condition sine qua non. A ‘Clean Planet for All’ cannot be created by a European ‘go-it-alone’ strategy.

Create an Energy Union 2.0

The climate emergency creates huge challenges for energy policy. These are manifold and often contradictory: affordable energy prices for industry and households, delivering on our climate objectives, security of supply, maintaining a leading position in energy technologies. The electrification of transport and the decarbonization of energy-intensive industries will sharply increase demand for electricity and thus require massive investment in power generation and distribution. As energy is a basic public good, public authorities must continue to play an important role in energy production and distribution. Secure, sustainable and affordable energy supplies are key priorities for industry and society. This will require deepening the Energy Union, investing in a substantial rise in the supply of (low-carbon) energy, organising demand response (integrating the energy-intensive industries within electricity grids by using them like a battery to better balance demand and supply of electricity), building a Europe-wide electricity grid to address the intermittent character of wind and solar energy and developing storage systems.

Organize a 'just transition' to a low-carbon society

To ensure the social acceptance of this radical transition, it is of utmost importance to anticipate and assess the impact of structural change, while guaranteeing adequate support to employees, businesses and regions adversely affected. This requires a strong and coherent social dialogue through the involvement of all stakeholders at all levels: companies (training, internal mobility, anticipating restructuring in order to avoid forced redundancies), labor market agencies (organise a smooth transition from one job to another), authorities (regional reconversion plans) and trade unions (‘a solution for each worker affected by restructuring’). Carbon-dependent regions and the challenges they face have to be identified, with a platform created to coordinate re-development efforts. The financial resources of the Emissions Trading System-financed modernization fund as well as all other available EU funds (ESF, EFRD, Globalization Fund, Cohesion Fund) have to be put to work in a coordinated way in order to finance just transition for workers whose jobs are at risk and for carbon-dependent regions. A ‘Just Energy Transition Fund’ (as already proposed by the European Parliament for coal-dependent regions) could provide extra funds. As important as their effect on jobs is the distributional impact of climate measures. The transition will profoundly change our way of living and, unless social cohesion is maintained, it will fail. It must be avoided at all costs that low-income households are confronted with an accumulation of extra housing, heating, electricity and transport expenses, all of them being basic needs (according to the European Energy Poverty Observatory 11% of European households are not able to keep their home adequately warm).

Shaping the world of work in a digitalized industry

Digitalization has the potential to significantly improve the comparative advantages of European manufacturing and thereby protect or even re-shore industrial jobs. European industry will be digitalized, or it will cease to exist, overtaken by more efficient and speedier competitors. Therefore, we have to shape digitalization for the benefit of all members of society, and of all workers. On the other hand, implementation of digital technologies will dramatically change the world of work with a huge impact on the quantity and quality of jobs.

Digitalization also has specific effects, beyond the productivity gains that have been common to all technological transformations of industry in history: it concentrates power and wealth in those companies controlling the platforms, the software or the data, thereby depriving all other companies along the value chain with the capacity to invest, innovate and provide good wages and working conditions. Therefore, the creation of digital monopolies must be prevented. Furthermore, digitalization challenges the foundations of the permanent, full-time employment relationship based on collective agreements, because all functions of this relationship (including the control of the task) can be performed individually, automatically and remotely. Regulating the gig-economy can reduce and/or remove the ‘precariat’. Finally, digitalization opens up unprecedented possibilities for unilateral control over workers. European industrial policy should support a digitalization that favors a broad and fair distribution of its benefits. Such future policies should explore the potential of digital technologies for solving our ‘grand societal challenges’ (energy- and resource-efficiency, climate change, mobility, health), investing in the development of new ICT-sectors like Big Data, cloud computing, AI and advanced manufacturing. Furthermore, huge investment in digital infrastructures (roll-out of 5G) is required in all regions and all member states.

Fighting for Tax Justice

Internal tax competition between governments in order to entice foreign direct investments (FDI) must be addressed urgently. But several member states have built their economic models on such competition which leads to a race to the bottom regarding effective tax rates and thus fiscal revenues.

The many scandals, starting with LuxLeaks, Swiss Leaks and followed by the Panama Papers, Bahamas Leaks and Offshore Leaks, kicked off the Commission’s legislative crusade against tax evasion: country-by-country reporting, automatic exchange of information on tax deals, publication of a blacklist of tax havens and protection of whistle-blowers in the tax field. Undoubtedly, progress has been achieved on the fair taxation agenda. However, much has still to be done to end the steady decline in corporate tax revenues because of tax competition while tax avoidance or profit shifting must be stopped. A society in which the rich have myriad ways of hiding money in secretive offshore tax regimes, while only ‘the little people’ pay taxes, is unsustainable. Moreover, tax avoidance deprives public coffers of multi-billion resources that are badly needed to ensure well-functioning public services, essential infrastructure and social investments in healthcare and education as well as in social security systems. Fair taxation is also essential for financing the investments required to meet the objectives of the Paris Agreement. Finally, tax fraud is often related to money laundering and criminality.

Doing away with the unanimity rule in tax issues and replacing it by a simple majority rule would advance (tax) justice. The OECD Inclusive Framework on Base Erosion and Profit Sharing (BEPS) needs further implementation at a global level. The adoption of a mandatory Common Consolidated Corporate Tax Base should be a first step towards a common effective corporate tax rate. Country-by-country reporting, which is a key tool in tackling transfer (mis)pricing, should be implemented. Fair models of taxation for the digital economy should be introduced. It is also high time to unblock the EU’s Financial Transaction Tax (FTT) negotiations. Furthermore, ‘economic substance’ should become the cornerstone of anti-avoidance policies and legal arrangements that are put in place purely to reduce tax should be discounted by tax authorities. Finally, the creation of an EU Tax Authority to prosecute cross-border fiscal crimes is badly needed, together with an EU-wide ban on dodgy tax schemes (letterbox companies and patent boxes included).

Trade must be fair to benefit the many

Free and fair trade are vital for European economic and industrial growth. Trade policy has to ensure that the imported goods we consume are made by people who are not exploited, receive fair compensation, work in safe environments and are employed by companies that respect global codes of conduct. While constructing a fairer, inclusive global trading system is not easy, sheltering ourselves from globalization and promoting economic nationalism cannot be an option. Instead, in order to tame the excesses of global capitalism, globalization has to be framed by a multilateral, rules-based economic and political order. Rather than promoting competition, trade policy should promote cooperation. People, not profits, should be the bottom line of trade policy. Trade wars should be avoided at all costs. The WTO, the cornerstone of the multilateral trading system, needs reform to ensure a global level playing field regarding FDI, public procurement, forced technology transfer and state aid. Trade agreements should be complemented with enforceable chapters on sustainable development and labor rights. Good governance on a global scale should be promoted by developing legal frameworks for corporate social responsibility throughout the value chain. Finally, the distortionary impact of state-backed or state-subsidized companies on Europe’s industry needs to be addressed: in public procurement, in the case of FDIs, in international trade, e.g. by effective use of the new European trade defense instruments and the recent framework for screening FDI.

Stand up for quality jobs

Europe is finally getting back to work and unemployment rates have started to decline. However, the quality and sustainability of the jobs that have been created give cause for concerns. Many of these are temporary (20% of all jobs) and part-time (14%). At the same time, the transition rate towards permanent full-time jobs is low. Under-employment (involuntary part-time and ‘discouraged’ workers – people no longer available for the labor market), is still much higher than before the crisis. The proportion of ‘working poor’ (household income below 60% of the median income) has risen to almost 10%. Further, the labor market is becoming increasingly polarized because of the sharp decline in middle-skilled jobs, mainly in industry, and the rise of non-standard labor contracts.

After the long years of austerity and deregulation of labor markets, it is now high time to re-establish our European social model, by reaffirming and reinforcing workers’ rights, social dialogue and collective bargaining. The imperative that ‘any job is better than no job’ has to be replaced by the promise of ‘more but better jobs’. Indeed, an innovative, knowledge-based economy cannot be built on a de-skilled, low-paid and precarious workforce. Therefore, the European Pillar of Social Rights should, on condition that it is accompanied by a clear roadmap for the implementation of its 20 principles, become a catalyst to restore the European social market economy, to promote secure jobs and fair wages and to create a reasonable work-life balance. There should be no trade-off between quantity and quality of jobs. In order to allow workers to enjoy a decent living standard and a good quality job full-time open-ended employment contracts must be accessible to all. Labor legislation, welfare systems, social dialogue and collective bargaining institutions must be re-established after their dismantling during the crisis years, the persistent wage gaps between the center of Europe and the peripheral countries must be addressed urgently and an employment guarantee should be introduced for all low-skilled workers. The EU should also establish minimum wage systems that converge toward the 60% of median/average, enforce the protection of posted workers and take action against letterbox companies and bogus self-employment. Finally, the collaborative economy needs to be regulated in order to protect digital, self-employed and non-standard workers.

Equip workers with tomorrow’s skills

Ensuring that everyone is equipped with the skills that are relevant for the labor market is an absolute priority for education and employment policies, but only on condition that high quality training provisions go hand in hand with access to quality jobs. Indeed, a world-class industry heavily relies on a qualified workforce at all levels of skill, knowledge and competence. Building a learning society is therefore a basic condition for building an innovative economy. Globalization forces European industry – which cannot compete with emerging economies on wages – to upgrade. In a fast-changing industry, skills are key for workers not only to increase their employability but also for job security, social integration and better life chances. Currently 70m Europeans lack adequate training and writing skills. At the same time, we are confronted with striking skills mismatches. There will be 825,000 unfilled vacancies for ICT professionals by 2020. But skills mismatches also exist for other technical staff at all levels of education. These are a bottleneck for economic growth. Furthermore, the digital economy is re-shaping almost all industrial sectors. Software, robotization and AI are replacing repetitive routine jobs, not only on the factory floor or for low-skilled workers but also for higher skilled roles in services (translation, analysis of medical tests). Digital skills will be required for all jobs, from the simplest to the most complex. Investing in the promotion of quality education, training and professional development throughout the working lives of the workforce will require a persistent and continuous policy.

During the next mandate of the European Commission (2019-2024) the pace of ‘creative destruction’ will probably increase. The challenge of creating a digital, low-carbon economy will lead to disruptions. Therefore, a predictable regulatory framework combined with social, environmental and economic impact assessments is required. European industry is indeed at a crossroads, but nobody should be left behind as we navigate the challenges facing both industry and its workers. Any European industrial policy will have to manage structural change in a socially acceptable way and support value creation within the EU in a globalized world. The benefits of progress have to be fairly distributed among all those working on the road towards a new industrial future for the EU. Ownership of Europe’s industrial policy at national and regional level should be enhanced. Workers’ involvement from shop floor to strategic decision-making is a key condition for a successful journey towards a sustainable, knowledge-based, resource-efficient and high-performance industry. Industrial renewal and a thriving industry are only possible on the basis of quality jobs, committed workers and a constructive social dialogue at all levels.