EN Official Journal of the European Union C 327/82

Opinion of the European Economic and Social Committee on ‘A Stronger European Industry for Growth and Economic Recovery — Industrial Policy Communication Update’

COM(2012) 582 final

2013/C 327/14

Rapporteur: Mr VAN IERSEL

Co-rapporteur: Mr GIBELLIERI

On 10 October 2012 the European Economic and Social Committee, acting under Rule 29(2) of its Rules of Procedure, decided to draw up an own-initiative opinion on

A Stronger European Industry for Growth and Economic Recovery - Industrial Policy Communication Update

COM(2012) 582 final.

The Consultative Commission on Industrial Change (CCMI), which was responsible for preparing the Committee's work on the subject, adopted its opinion on 18 June 2013.

At its 491nd plenary session, held on 10 and 11 July 2013 (meeting of11 July 2013), the European Economic and Social Committee adopted the following opinion by 132 votes to 1 with 3 abstentions.

1. Conclusions and recommendations

1.1 The EESC welcomes very much the focused attention to Europe’s industry – manufacturing and services – as expressed in the Commission’s update on industrial policy of October 2012, including the Annexes with articulate analyses about industrial policies and deficiencies in Member States (MS). Many elements are in line with standing views expressed by the EESC (1). The real proof will be in the implementation.

1.2 Industrial policy, one of the seven flagships of the Europe 2020 strategy, should be a building block of an EU Growth Initiative of which there is much talk, but too little effective action. A right mindset and coherent approaches are needed. The political impact is self-evident. The EESC urges the Commission, the Council, and the EP to intensify (coherent!) initiatives and transversal policies that meet the huge challenge of enhancing industrial production across Europe.

1.3 The European Council should take the lead in setting the agenda on industrial policy. The Commission should be fully engaged. A targeted and shared focus is needed in the various Councils – Competitiveness, Research, Environment, Social – in the Commission, and in the EP in mapping and promoting state-of-the-art policies across Europe.

1.4 In order to become a driving strategy for Europe, decisions on industrial policy concerning actions, roadmaps and deadlines must be widely communicated, which is badly missing at the moment.

1.5 Moreover, the EU needs an optimal European convergence of 27 national and EU industrial policies which, according to a broad range of analyses, is no reality today. Diversity is an asset, fragmentation is damaging. Geopolitical imbalances should be addressed.

1.6 Better framework conditions mean, before all, the completion of the EU internal market within a social market economy, ensured by accurate assessments, regulations, and implementation across the Union. Public investments in cross-border links as roads, waterways, ports, airports, railways must support the internal market.

1.7 With unemployment rising to over 26 million people, low growth, and shrinking budgets industry and innovation need stimulating prospects and conditions. The right balance must be struck between fiscal consolidation – austerity measures – national reform programmes and industrial policy to generate investments and job creation, boosting confidence.

1.8 Any EU initiative should underpin Europe's position in global dynamics as competitor and partner. The very ambitious goal of 20 % manufacturing industry by 2020 requires extensive investments and substantial policy adjustments. Improving productivity is very much needed.

1.9 Smart conditions for industry go far beyond technical provisions and adjustments. They relate to the whole environment of the industry, notably a coherent and predictable long-term climate and energy policy in support of a competitive industrial base. Conditions should underpin outstanding performances as well as foster newly emerging industries.

1.10 EU policies must be tailor-made and sector-specific, based on bottom-up assessments which address the technical-economic capabilities and challenges best. These principles should also be applied in carrying out the objectives of the Resource efficiency flagship which aim at increasing efficiency in using raw materials while, at the same time, they are intending to promote innovation and to foster the resilience of European companies.

1.11 Industrial policy has a strong social dimension that affects all layers of society: regions and municipalities, any business, workforces in fast-changing patterns of workplaces – digitisation, robotisation, service-related manufacturing, ICT – the education sector and universities, consumers and citizens. Industrial policy relates both to restructuring and anticipation. It should provide up-to-date education, training and information, and foster technology, innovation, creativity, and entrepreneurship. Demographic change must also be anticipated and reacted to appropriately.

1.12 Ambitious regions are boosting industrial performance. EU and MS should encourage their self-reliant practices, including specialisation and corresponding research, qualifications, and clusters. Here is a world to win.

1.13 Initiatives and projects as well as successful national and regional examples fostering confidence of people and socio-economic actors, must be highlighted. EU-MS Partnerships agreements and networking among MS and regions must be intensified. The annual European Semester yields plenty opportunities for continuous monitoring.

1.14 EU Industrial policy should a process of sharing EU’s and national visions and competences, as well as shared actions, in which business circles and trade unions are full partners. Other stakeholders like the education sector, universities (research), NGOs, consumers, and others, wherever appropriate, should be equally committed

1.15 Despite substantial differences in economic output among MS, all should benefit from best practices and supporting views and approaches.

1.16 The EESC continuously presents proposals on sectors and on industrial policy, see Annex. The present opinion is rather about the coherence of important themes, and effective governance by coordination and fine-tuning.

2. Context

– A/ Worldwide

2.1 In the Commission’s analysis "labour costs seem to be becoming a diminishing part of total production costs" (2). Productivity is an important factor. Some production comes back to Europe but competition is rising in other fields like improvement of the economic infrastructure in the BRICS countries, the appreciation of the euro, and energy prices, which stimulate investments abroad.

2.2 Moreover, Europe is lagging behind the US and Japan in innovative performance and technology specialisation. Europe is more strongly represented than the US in the medium-high and medium-low technology industries, but the traditional gap between the two continents in the high-tech segment has substantially increased in recent years.

2.3 The White House and Congress show a strong commitment to manufacturing renaissance with a national competitiveness strategy for 2014 - 2018 (3). A central issue is the role and value of manufacturing in the economy, security and global leadership of the US.

2.4 Public-private partnerships reinforce the technological and innovative infrastructure The Ministries of Defence, Energy, and Commerce are directly involved, as are the National Science Foundation and NASA, giving impetus to a great number of national research institutes and universities.

2.5 This is a remarkable development in a country that, until recently, was preaching the post-industrial economy. The rising competitiveness of China and others works as a wake-up call. Perceptions are changing. It is forecasted that China will take over as the foremost economic power in the world by 2030 while the US will maintain global leadership, and Japan and Europe will follow a long way behind (4).

2.6 New oil exploration and, above all, shale gas is expected to result in American energy independence. This exploration is being considered as an energetic revolution entailing industrial renaissance in the US as well as geopolitical shifts. Environmental and health concerns have still to be addressed (5).

2.7 The rise of China, Brazil, and India continues. Russia is also on its way. In their slipstream other Asian and South American countries follow rapidly. For years, growth figures in the emerging world have been far above average, especially in Asia. Newly established education systems are yielding massive numbers of well-educated and qualified technicians and engineers. In parallel, huge research institutes are being set up. The quality of goods and innovative processes are improving across the board. Transport facilities and services infrastructure are catching up fast.

2.8 In China, a mixed system of state capitalism and free market mechanisms is emerging (6). It is intimately intertwined with the existing national culture and (political) traditions. Wealth creation does not go hand in hand with democracy nor with human and workers' rights. Environmental and health conditions remain underdeveloped, although the quality of production is rising. Backlashes are far from imaginary. But it is fair to say that capitalist interventions by the state will continue to steer certain types of production that correspond with national ambitions. Investments by sovereign wealth funds may work in a similar direction, outward as well as inward.

2.9 A number of countries usually benefit from a more streamlined governance structure than the EU due to the fact that they have one main decision-making centre, a common strategy and agreed objectives in the public sector.

2.10 Parts of Africa are also in a process of rapid development. China invests heavily without paying attention to societal impact.

2.11 The world context and geopolitics are changing incessantly. Data are paramount to make public and political opinion much more sensitive. The EESC recommends an annual EU score-board of a number of socio-economic, technological and job developments in relevant parts of the world.

– B/ Europe

2.12 The in-depth analyses of the Commission on European and per-country trends show an increased awareness of the need for manufacturing industry.

2.13 Situations differ greatly between countries, from Germany that has nearly 30 % of manufacturing industry in Europe to countries – bigger and smaller ones – with substantially lower to very small percentages. In some MS industrial investment has gone down considerably over the last 20 years. In some cases this had to do with large-scale restructuring, and in others also with a degree of neglect (7).

2.14 Among the great variety of MS to improve conditions some are obviously proving more successful than others. Employment in industry is steadily reducing. On top, in the current crisis since 2008, more than 4 million jobs in manufacturing are lost.

2.15 There is no indication that policies and instruments or best practices are discussed among MS. National concepts of industrial and innovation policy are primarily driven by national traditions and procedures, and identified by national frameworks and relations between the public and the private sector, among which business, research institutes and universities, trade unions and others.

2.16 Consequently, many policies and corresponding financial arrangements are primarily national oriented which does not favour the internal market nor cross-cutting trans-border projects.

2.17 Apart from very successful results in some countries, an undesirable fragmentation of the internal market, as the Commission rightly points out, hampers potential growth factors.

2.18 Creative diversity is a great asset in Europe, but it will only benefit to all Europeans, if convergence to common goals is ensured. An optimal balance should be struck between creative diversity among MS and transparent and convincing convergence.

2.19 As the American example illustrates, such convergence will bear in particular fruit for continental networks of SMEs with growth potential.

3. Europe 2020: shared vision, competences and actions

3.1 The internal market needs a renewed impetus. Although hidden protectionism has been on the rise, and renationalisation and fragmentation are still looming, the EU is succeeding in keeping the internal market intact and the principle of open markets unaffected, although implementation remains rather a weak spot.

3.2 The Europe 2020 strategy, envisaging shared competences between EU and MS, should lead the way. In respecting specific national approaches and methods it provides instruments to benefit from the advantages of the overall European scale. The potential benefits of such targeted governance have systematically been underexposed.

3.3 There is also an urgent need for visible results in gearing successful innovative processes and job creation parallel to changing patterns of manufacturing, commercialisation, and services.

3.4 Deliberate anticipation of restructuring is needed. It will enhance acceptance of adjustments, favour up/re-skilling of the workforce, and help to limit precarious jobs (8).

3.5 The EC Communication of 2010 is already giving rise to initiatives like Horizon 2020, competitiveness proofing, industrial innovation, resource efficiency, skills and education, access to finance, the interaction and blurring distinction between industry and services, and increased awareness of complications in international investments and transfer of technology.

3.6 It is astonishing that, until recently, transparent peer reviews of MS were rarely carried out. A monitoring role for the Commission should be extended.

3.7 Such peer reviews would highlight obsolete structures in industry as well as in decision-making. They would help to accelerate modernisation using successful approaches, and can be indicators for European convergence "to the top" for both the public and the private sector.

3.8 The Commission's SWDs contain per-country recommendations, related to industrial development (9). These country-specific recommendations need to be better addressed in the NRPs as discussed by MS and the Commission as part of European Semester.

3.9 However, it would be a serious mistake to leave all this to the Commission alone. It is also a primary task for the competent departments in the MS themselves which are responsible for policies that are not covered by EU regulation or measures. Moreover, these departments must also ensure accurate implementation of EU regulation.

3.10 Financial policies within the Eurozone entail fine-tuned coordination between European Institutions and national authorities. There is no reason why a comparable coordination cannot be achieved in strengthening of framework conditions for industry, innovation and job creation, inspired by a shared vision.

3.11 The Commission's SWDs can also help MS to undertake reviews bilaterally or trilaterally among themselves on industry-related areas, like skills and education, technology and innovation, administrative burdens, tax policy, and state aid. Each country can easily draw conclusions for desirable policies at home in a common European perspective. Serious evaluation of applied measures should in any case be part of national programmes.

3.12 As these trends have to be supported by all of society, it is very important for business associations and trade unions to act as full partners in the process. This goes also for other stakeholders like the education sector, NGOs, consumers, and others, where appropriate. Consensual approaches pay off. Social dialogues at national and regional level as well as in sectors and companies will be very supportive.

4. Themes to be addressed

4.1 The EESC agrees with the Commission that the "complementarities between national and EU interventions in industrial policy are a fundamental condition for the success of European industrial policy". They will enhance the impact of EU and national actions, and offer plenty of opportunities to shift from talk to walk.

4.1.1 An overall concept means a holistic approach and transversal policies. The EESC highlights below interlinked themes which it considers crucial for the future of European industry.

4.2 Industrial innovation

4.2.1 Industrial innovation needs a strong European technological base, supported by cross-border coordination and cooperation between research institutes and universities, applied technology, and businesses.

4.2.2 Key Enabling Technologies and other cross-cutting technologies are crucial for EU- and national R&D programmes. Manifold downstream activities as well as public policies concerning infrastructure and sustainability benefit from them. The EU framework for public-private cooperation and consultation, notably via EU Technology platforms, is essential. Public procurement should also generate incentives for advanced innovation.

4.2.3 Technology is the battleground of the future. In promoting international (flagship) projects the Commission and the Research Council should lead the way in reinforcing the internal market for technology and cross-border projects. Successful R&D and European patents should sustain innovative investments and high quality jobs.

4.2.4 The EESC underlines the significance of EU financial resources for R&D and cross-border projects. Horizon 2020 should match rapidly expanding efforts in other countries. Although Europe is still well placed, its traditional lead is diminishing. Cutting the budget of Horizon 2020 is counterproductive.

4.2.5 The key role of higher education and related research for innovation should be is self-evident. Programmes and management should be adjusted, where needed.

4.2.6 Annual information on public and private investment in key technologies is desirable.

4.2.7 Innovation affects many more areas. It is about new dynamics in business and in the workplace: redesign of existing production methods, the need to restructure obsolete operations, the development of value chains and new "sectors", the blurring of borders between industry and services. Innovation is about modernisation and creativity in society. It should be communicated as such.

4.2.8 The Commission underscores the need for technology and innovation across its services as a horizontal priority. It would be welcome for national administrations to take over this method.

4.3 Skills and qualifications

4.3.1 Technology, innovation, redesigned production processes, integration of industry and services, new societal requirements and spearheads all make appropriate skills and qualifications from top to bottom a crucial area.

4.3.2 Up-to-date education systems at all levels are key. EU attention for education, schooling and training is rightly increasing – as it is at national and regional level. Education is a basic requirement and must be within reach for everybody.

4.3.3 Any EU Growth initiative asks for ongoing emphasis on the whole spectrum of education. Given substantial differences between MS, exchange of good practices will be indispensable to address in particular youth unemployment.

4.3.4 Stakeholders play a key role. At each level – company (including with works councils), local, regional, national and EU – social dialogues should address education, apprenticeships/dual education industrial training and advanced (life-long) training to enhance competences and employability to meet labour market requirements. Cross-border recognition of competences and qualifications should be the rule to promote international mobility.

4.3.5 In line with the OECD the Commission should be mandated to carry out peer reviews of education systems and their results in the MS. They will produce useful indicators for improvement, where appropriate, as occurs in many other fields.

4.3.6 The required level of competences in business and society is steadily rising. Technical education, and services in manufacturing are priorities, from lower-level qualifications to higher education. Technical secondary schools and the VET-systems play an essential role.

4.3.7 In higher education structural shortages of scientists, engineers and mathematicians – students and researchers – should be addressed, combating mismatches between demand and supply on the labour market.

4.3.8 Every worker should be entitled to vocational training. This is particularly necessary for workers and craftsmen with specific specialties in SMEs and handicrafts.

4.3.9 The creation of sustainable industrial employment that is based on up-to-date working conditions, and health and safety conditions, is part of the right mindset for modernisation processes in industry. Improved competitiveness should go hand in hand with appropriate working conditions and workers’ rights.

4.3.10 Particular attention needs to be given to the impact of population ageing in the EU on the supply of labour in industry. The working conditions of ageing workers must be adapted in line with this, as must the structure and capacity of training and lifelong learning.

4.4 Access to finance

4.4.1 Access to finance remains a weak spot. The industrial sector has suffered a lot from the banking crisis. Banks remain reluctant in credit financing. The crisis has favoured renationalisation of operations. Traditional risk aversion is enhanced by stricter international rules on equity capital, and presumably by EU financial regulations. Fortunately, the Basel III regulations, hampering lending, will gradually be applied more leniently.

4.4.2 SMEs require more appropriate financial engineering, and new financial sources like, for instance, insurance companies and pension funds. One main objective is to spread risks or to water them down, inter alia through guarantee schemes or government funds. Crowd-funding must open up attractive prospects.

4.4.3 Meanwhile, private or non-bank funding must increase. Private initiatives in MS should be highlighted. The gap with the US is illustrative: 2/3 of American investments are financed outside the financial sector, against only 1/3 in Europe. EU and national legislation should encourage the trend towards more private financing and private equity, in particular to support innovation.

4.4.4 Subsidiarity entails a great diversity of tax policies as well as subsidy and loan systems across Europe. The EESC insists on an assessment and peer reviews of national instruments by the Commission in view of an effective convergence of instruments.

4.4.5 The EIB and the Commission are working on next generation EU-wide instruments with a higher impact and leverage than grants. The risk capacity of EU funds, combined with the funding capacity of the EIB, is intended to result in a mix of capacities for design and implementation of financial instruments for industrial objectives.

4.4.6 Revolving funds, coordinated between the EIB and the Commission, and to be applied in Horizon 2020, Cosme, the Multiannual framework and regional policy must yield multiplier results. Special attention must be given to visibility of who is in charge of what. The EESC underlines the need to maintain a robust well-managed EU budget, dovetailing with successful (re-)arranged national credit instruments. Project bonds and green loans must expand.

4.4.7 Current EU rules are too stringent and bureaucratic. The EESC reiterates that EU instruments must be tailored to the market and be easily implemented. They must be flexible to rapidly changing market conditions, for innovative companies as well as for small off-the-radar micro-economic projects. A new balance must be struck between reliable governance of instruments and market needs.

4.5 Sustainable development

4.5.1 Sustainable development and resource efficiency are, despite significant differences between MS, increasingly integrated in companies' strategies, and in up- and downstream operations. Sustainable business models enhance the resilience of European companies. Public and private actors have to rely on each other.

4.5.2 A special case in point is climate change and CO2 emissions. With a persisting risk of carbon and investment leakage, the EESC insists on a renewed assessment of EU policies as a basis for a sustainable transition to a low carbon economy.

4.5.3 Cost efficiency and technical feasibility to preserve competitiveness of companies are a prerequisite for sustainable economic growth and job creation in the EU. Only then synergies between environmental goals and industrial performance will be generated.

4.5.4 A technology-driven transition to a low-carbon/resource-efficient economy should also be socially fair to all generations of the workforce.

4.5.5 Population ageing means senior citizens will make up a larger proportion of consumers and industrial production will have to cater for their different consumption pattern. This also provides new businesses opportunities and room for innovations such as functional food and in the adaptation of housing and transport, as well as new technologies in health and long-term care.

4.5.6 EU programmes and regulatory provisions should trigger sustainable innovation amongst others along the lines set out in the Resource efficiency flagship. Given the huge industrial interests involved, comparable, stable and predictable environmental conditions across the whole Union are paramount. The effectiveness of "Eco-design" (10) and an introduction of absolute caps on the use of raw materials for industry should be duly assessed. Overregulation also affects innovation and investments and may lead to losses in market shares. Commission and Council should safeguard Europe's basic (energy-intensive) industry and eliminate competition distortions in relation to third countries.

4.6 Services

4.6.1 Services embrace 70 % of the European economy, engaging the largest part of the workforce. They are also inextricably intertwined with industrial processes, and strengthen their basis. The implementation of the Services Directive, however, has been patchy. Moreover, business services are continuously underdeveloped in most parts of the EU.

4.6.2 The lack of an integrated services market – the white elephant in the room – has a negative effect on both internal European trade and productivity. In both fields the US are leading due to the US's much more integrated services market. There is still significant "home bias" in services, supported by barriers to cross-border services. "With less trade comes less competition: the EU's services markets are still national, by and large, which hampers productivity growth" (11).

4.6.3 This poor development is a barrier to a competitive ICT sector in Europe, hampers pioneering initiatives, and raises barriers to productivity growth. Consequently, the EU should ensure free market development of services, and promote business services and corresponding job creation across Europe.

4.7 Administrative barriers

4.7.1 Complaints about administrative barriers are common currency. However, they still result in too little systematic re-evaluation of rules and regulations of national origin for which impact assessments as applied by the Commission for its policies, would be equally highly desirable. Coordination among Member States is usually lacking. Administrative obstacles and barriers are damaging many endeavours to create start - up and foster SMEs.

4.7.2 In this field hidden protectionism is on the rise. The EESC insists on continuous and transparent assessments. The Commission should be mandated to carry out enquiries. Peer reviews should be discussed in the Council. The Council should define goals and deadlines.

4.8 SMEs

4.8.1 There are many different, often incomparable, kinds of SMEs. In some sectors, for instance retail, they are under heavy pressure. In others, however, they are taking over activities from bigger companies – outsourcing, value chains, etc. They are usually essential for innovation of products and services. Due to their innovative strength and market successes SMEs must visibly be integrated and highlighted as a driving force in EU industrial policy.

4.8.2 Due to their dynamics, interaction within value chains, and flexibility, SMEs are often pioneers in tailor-made solutions and renewal. They are also a valuable source of new jobs. SMEs should be supported in efforts to reduce use of scarce resources and energy. This will ultimately result in a reduction of costs which will enable them to better performances and job creation.

4.8.3 Europe needs young entrepreneurs. "Entrepreneurship" in education – including the phenomenon "entrepreneurial university" – should be highlighted. The EESC welcomes the Commission's Entrepreneurship Action Plan.

4.8.4 The number of start-ups is rising. Comparisons with the US, however, prove that too few small companies reach the level of mature growth. This has to do both with failing financial conditions and with national barriers in the European market.

4.9 Energy

4.9.1 National energy policies lead to a fragmented energy-mix policies in the Union, affecting energy prices, technology, relations with third countries, and the internal market. The EESC insists on a Common Energy Policy. Given the deep implications of energy for the economy, a serious industrial policy cannot take shape without certain common principles across Europe.

4.9.2 The Council can no longer escape from a strategic debate on long-term energy prospects and corresponding policies, i.e. the desirable energy-mix in the EU, covering fossil raw materials, nuclear energy, and renewables. Environmental, health and safety conditions are also part of the agenda.

4.9.3 Decisions are all the more urgent now that the shale gas development in the US is currently turning the world energy picture upside down.

4.9.4 EU energy prices are substantially higher than those in the major trading partners. The American gas price is 20 % of the European one. This has huge implications for the chemical and the steel sector and can affect downstream industries. The effect on investments in Europe and the need for a coordinated response of the EU and the MS raise burning questions that ask for an effective answer.

4.9.5 Industry is contributing to renewable energies. But due to the high cost of energy it is crucial to strike the balance between competitiveness and the process of funding renewable sources which may encompass reduction from levies as well as improvement of cost efficiency support schemes.

4.10 External relations

4.10.1 External relations go beyond formal agreements like the WTO. In developing the external dimension of the industrial policy the EU and the MS should define common views on how to deal with complicated issues, notably to ensure a global level playing field. As open markets imply reciprocity, the EU should seriously deal with concrete and damaging distortions to European industrial interests.

4.10.2 Undisturbed supply of energy is crucial for economic as well as security reasons. This issue requires all the more an all-over European approach in light of the currently low energy prices in the US. Special attention should also focus on materials which are essential for industrial processes.

4.10.3 International environmental, climate, and social standards or corresponding sector agreements are vital for a global level playing field. They must create conditions to preserve manufacturing value chains in Europe.

4.10.4 The EESC underlines the need to protect Intellectual property rights. Access to public procurement abroad should be ensured.

4.10.5 Well-negotiated and balanced free trade agreements, especially with the US, are very welcome. Close monitoring is a prerequisite.

Brussels, 11 July 2013. The President of the European Economic and Social Committee Henri MALOSSE

(1) See, amongst others, OJ C 218, 23.7.2011, p. 38, an EESC reaction to the previous EC Communication on Industrial policy of 2010.

(2) Commission Staff Working Document, SWD(2012) 297 final, page 10.

(3) American Manufacturing Competitiveness Act of 2012.

(4) Global Trends: Alternative Worlds, National Security Council, Washington December 2012.

(5) US EPA, Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources: Progress Report, December 2012 (http://www2.epa.gov/hfstudy).

(6) See State Capitalism, The Economist, Special report, January 2011.

(7) Commission Staff Working Document, Industrial Performance Scoreboard and Report on Member States' Competitiveness, Performance and Policies, SWD(2012) 298 final, Parts 1, 2, 3 and 4.

(8) See also the Cercas Report of the EP.

(9) See note 6: Staff Working Documents, Parts 1-4.

(10) EU Directive 2009/125, October 2009.

(11) "How to build European services markets", John Springford, Centre for European Reform, September 2012, page 4.