Theoretical and Applied Economics (Oct 2006)
Industrial Policy Approaches from Theory to Practice in European Union
Abstract
The main debate about industrial policy consists of the attitude regarding the role of state versus market. The admission of possible market failures was the inspiration source for policies in the field of competition strengthening, supply of public goods, overcoming the deficit of capital etc. The general objectives of industrial policy may vary from the absolute role of the market to the market control. The European Community has applied a diversity of policies, differentiated from one period to another, in connection with the competition pressure on the world market and with the European integration stages. The EC had at its beginning a complete faith in the market mechanism, then a period of protectionism followed, as an answer to the oil shock and to the pressure of competition on international markets, especially coming from large American and Japanese companies. During the period 1985-1990, the European Community began to establish an industrial policy to encourage partnership between European companies and to promote cooperation in the field of research and development. In 1990 the European Commission proposed a new coherent concept of market oriented industrial policy, according to the model of neutral policy. Industrial policy is strongly connected to the competition policy. Especially after 1995, there have been signs of worry about the lower competitiveness in terms of productivity growth rate, expenditures for research and innovation capacity compared to USA and Japan. In addition, the European industry must face the competition pressure coming from the emergence of countries, mainly those from South-East Asia. In this context, the key factor which ensures a favorable perspective for the industry is competitiveness. This also implies expected positive effects of EU enlargement. The decision to sustain competitiveness was already taken in Lisbon, where a modern strategy was presented. Its priorities are the creation of a suitable environment for competition, flexible labor markets, integrated financial markets and economic and social cohesion.
