Industrial Policy for the Twin Transformation – Towards a Progressive Agenda
By Werner Raza, Christa Schlager, Viktor Skyrman, Michael Soder
Industrial policy is making a comeback, yet it remains tentative. The EU’s twin transformation requires a careful balance between climate action, digitalisation, and social fairness.
The tentative return of industrial policy marks a pivotal moment for Europe. After decades of marginalisation, industrial strategy has reappeared on the political agenda, yet fundamental questions persist. What objectives should it pursue? How can the ensuing change be managed equitably? What are the respective roles of the state and private sector? The contributors to this eBook explore these issues and offer some initial insights and preliminary answers.
Whilst the primary motivations for renewed EU industrial policy — combating the climate crisis and navigating digital transformation — are evident, rampant protectionism propagated by the Trump administration and perceived security threats from geopolitical conflict have shifted focus towards economic security and competitiveness. Recent initiatives such as the EU's Competition Compass and Clean Industrial Deal exemplify this trend.
However, the pronounced emphasis on competitiveness and deregulation threatens to undermine progress achieved under the Green Deal during the past five years, particularly concerning climate protection and human rights due diligence. Financing remains uncertain, and prevailing austerity policies could dampen necessary economic stimulus. Europe faces the prospect of five lost years for the green transition, accompanied by welfare cuts and further democratic erosion — factors that could fuel the populist right and trigger a full-scale backlash against not only the green transformation but European integration itself.
A Progressive Agenda for Twin Transformation
Successfully implementing the twin transformation — encompassing both green and digital dimensions — is fundamentally a political undertaking. Although technological solutions such as solar power, wind energy, batteries, and heat pumps exist, their deployment faces economic, social, and political risks. Some risks, like geopolitical conflicts, lie beyond the EU's direct control. Others, including social resistance or funding shortfalls, demand decisive political intervention.
The long-term success of this transformation hinges on maintaining legitimacy and social support over the next quarter-century. In today's crisis-marked environment, rebuilding public confidence is paramount. The immediate challenge for the next five years is demonstrating to businesses, workers, and citizens alike that the European Green Deal must not only persist but accelerate whilst becoming more inclusive.
This places significant demands on EU institutions and national governments, requiring them to balance long-term strategic planning with immediate crisis management. Enhanced institutional capacities are essential, yet no government can manage this transition in isolation; broad societal cooperation, if not co-creation, is crucial.
Legitimacy thus rests upon three foundations: greater political participation, equitable sharing of burdens and benefits, and effective implementation. A transformation vision grounded in solidarity must guarantee a stable social safety net through to 2050, reinforced by a pan-European public services agenda. The contributors to this eBook explore these issues and offer some initial insights and preliminary answers.
Six Pillars for a progressive EU Twin Transformation agenda
Pillar 1: Enhancing Spaces of Participation
Deliberative democracy must be strengthened, granting civil society and citizens an active role in shaping transformation. European Citizens' Councils should be empowered to develop proposals on key issues, which would then inform newly established Twin Transformation Councils (TTCs) at both national and EU levels.
Comprising representatives from EU institutions, national governments, businesses, trade unions, NGOs, and academia, these councils would improve policy coordination, establish priorities and adjust policies, and assess progress whilst addressing implementation deficits. At micro- and in particular company level, workers should be given a voice in co-designing and implementing transformation strategies.
Pillar 2: Ensuring Fair Distribution of Benefits and Costs
Structural transformation inevitably creates winners and losers amongst workers, companies, and regions. The existing EU Just Transition Mechanism (JTM) is insufficient to mitigate adverse regional impacts and is scheduled to phase out by 2026. To prevent exacerbating rural discontent, sustained long-term support is necessary.
Furthermore, stronger public implementation capacities are required at national and regional levels. Proposals include establishing the JTM on a permanent footing, expanding cohesion and social climate funds, and strengthening public implementation capacities nationally and regionally. At the micro-level, social conditionalities should impose obligations on companies receiving public financial support to share benefits and costs equitably.
Pillar 3: Accelerating the Twin Transformation Agenda
With the EU at risk of missing numerous climate and environmental targets, urgent action is required across six critical areas:
A stronger focus on reducing energy and material consumption through promoting energy efficiency and accelerating the transition to a circular economy.
A significantly increased EU investment programme for renewable energies, prioritising solar, wind, geothermal energy, and green hydrogen.
An EU mobility strategy centred on massive investment in rail infrastructure, support for electrified public transport across all regions, and measures to reduce private vehicle use, such as promoting car sharing.
A strategic EU industrial strategy identifying productive activities requiring special attention regarding (a) security of supply, including disaster preparedness, and (b) closing innovation gaps in high-technology sectors.
An EU strategy for digital sovereignty that ensures democratic control over the digital sphere via stringent regulation and proactively promotes public digital infrastructure.
A transformation agenda for the European food industry focusing on (a) stricter regulation of unfair competitive practices, including pricing and contractual conditions, and (b) intensified promotion of organic farming.
Pillar 4: Promoting a Governance Framework with Capacities and Capabilities
Public institutions often lack the capacity to steer the transformation process effectively. EU innovation agencies grapple with administrative overload, risk aversion that hinders radical innovation, and an excessive focus on technology at the expense of broader transformative innovation.
To enhance governance, the EU should ensure diverse stakeholder representation in decision-making processes, improve coordination amongst its innovation agencies, and demonstrate greater tolerance for risk and experimental approaches.
Pillar 5: Closing the Funding Gap
The twin transformation necessitates additional public investment estimated at €180–400 billion per annum. Rather than solely prioritising the de-risking of private investment through a European Capital Markets Union and public financial support, a more effective approach involves three key elements.
These include establishing an EU Transformation Fund equivalent to one percent of GDP over 10 years, financed via common borrowing; expanding the EU budget from 2028 onwards, funded by e.g. Emissions Trading System revenues and new EU taxes; and leveraging European Central Bank monetary financing mechanisms, such as green bond purchases.
Pillar 6: Cooperating with Partners on the Global Twin Transformation
Given the EU's significant external dependencies, a new approach to cooperation with partner countries, particularly in the Global South, is essential for a global twin transformation. Shifting global political power dynamics and a relatively weakened EU position necessitate basing external relations on principles of equal partnership and mutual benefit-sharing.
This includes promoting high Environmental, Social, and Governance (ESG) standards in mining and infrastructure projects in cooperation with partners; facilitating EU-backed technology transfer and local industry development; and ensuring fair benefit-sharing in resource contracts and pricing policies.
As a general principle, strategic autonomy means that the EU should maintain an independent stance in international politics and avoid coercion into a subaltern position by world powers, whether the US or China. Regarding relations with China, a realistic assessment of the importance of Chinese green technology for timely implementation of the green transition underlines that maintaining cooperative bilateral relations with China will be pivotal.
Change by Design or Change by Disaster
The European Union stands at a critical juncture, challenged by internal authoritarian populism and external geopolitical pressures. Industrial policy offers a means to enhance economic sovereignty whilst respecting ecological limits. In contrast to prevailing policy discourse, the fundamental issue is not a lack of financial resources or competitiveness — Europe possesses both. Rather, what is missing is the political courage to address the twin transformation decisively through a socially inclusive and proactive entrepreneurial state as pioneered by Mariana Mazzucato.
Progressive political forces, including trade unions, civil society organisations, and academia, must advocate forcefully for such an approach. The choice is stark: change by design or change by disaster.