14 - Industrial and competitiveness policy

Summary

Introduction

Industrial and competitiveness policy (ICP) can be defined as government policy designed to improve a country’s economic performance. This includes a very broad range of government policies, both horizontal, to provide a supportive environment for business (fiscal, competition, regional, social, labour and environmental policies), and vertical, designed to favour particular sectors of the economy.

ICP has fluctuated over time. From 1950 to 1979 the prevailing orthodoxy was that government could and should correct market failures, so microeconomic intervention in specific industrial sectors was normal. Thus in the 1970s the response to structural change in the world economy was protection of companies and industries in difficulty, and European industrial policies ‘aimed to create European super-firms to compete with the US giants’ (Geroski and Jacquemin 1989, p. 299). The failure of these policies to raise EU industrial performance meant that by the 1980s the effectiveness of government action was increasingly questioned. By the early 1990s, in the Commission’s view, ICP ‘should promote adaptation to industrial change in an open and competitive market’ (Bangermann 1994). So company and sector-specific policies were viewed with suspicion, and ICP supported competitive markets in general. Today the consensus is between these extremes of extensive intervention and relying on market forces: ICP can be a helpful tool to improve economic performance, provided it is used sparingly and carefully (Buigues and Sekkat 2009; Lin and Monga 2010).