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Is Industrial Policy Now on the Front Line of Policy-Making?
The first in our series on Globalization and Innovation as Drivers of a New Industrial Policy in the EU and Germany

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With our upcoming study “Can we learn from Trump and Xi? Globalization and Innovation as Drivers of a New Industrial Policy”, we will highlight potential learnings for Germany and the EU from the US and China. During the following weeks, we will disseminate the study in our blog – giving you a closer look at the industrial policy approaches of the US and China and possibilities for future industrial policy-making in the EU and Germany. 

During the last decades, industrial policy faced reservations in Germany and the EU. Now it seems to be in the front line of policy-making. Is it worth it, and can it foster innovation?

Industrial policy is having a renaissance. In Germany and the EU, there are growing discussions about the usefulness of a strategic industrial policy as an answer to sustainable innovation and competitiveness. As a result, the German Federal Ministry for Economic Affairs and Energy (BMWi) published a first version of a national industrial strategy (“Nationale Industriestrategie 2030”) in February 2019, followed by a more detailed second version (“Industriestrategie 2030”) at the end of November 2019. Furthermore, together with the French Ministry of Economy and Finance, the BMWi published “A Franco-German Manifesto for a European Industrial Policy Fit for the 21st Century” in February 2019.

Reservations towards industrial policy

While industrial policy is getting increasingly more political attention in Germany, the EU, and in many other countries around the world, not everyone is convinced of its appropriateness. One recurrent criticism is that the state does not have sufficient information to make the best decisions for the development of the economy. Especially the establishment of ‘national champions’ causes faces wide scepticism as governments would need to suitably identify well-performing companies in sustainable and future-orientated business fields. Such a policy of ‘picking the winner’ could come at the risk of making wrong decisions and promoting special interests – to the detriment of the national economy and taxpayers. From this point of view, the state should leave the development of cutting-edge technologies to companies that will do so through competition in innovation.

Potential gains from industrial policy

However, history has shown that industrial policy can work well in cases where liberal approaches could fail. South Korea, Japan, let alone Western countries in the 19th century would not have seen the development they did without active state-measures to build a national industry. On the other hand, the liberal approach of Haiti towards industrial policy did not have the same result. Proponents of industrial policy, therefore, argue that private companies are hesitant to engage in the highly uncertain and expensive development of basic technologies and that the state can play a meaningful role in dealing with knowledge externalities.

We are looking forward to contributing to this debate.

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