EN Official Journal of the European Union C 10/106

Opinion of the European Economic and Social Committee on ‘Economic policies that contribute to the European industrial strategy’

(2008/C 10/24)

On 17 January 2007 the European Economic and Social Committee decided, under Rule 29(2) of its Rules of Procedure, to draw up an opinion on Economic policies that contribute to the European industrial strategy.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 4 September 2007. The rapporteur was Ms Florio.

At its 438th plenary session, held on 26 September, the European Economic and Social Committee adopted the following opinion by 129 votes to two, with five abstentions.

1. Conclusions and recommendations

1.1 The objectives of growth, innovation and employment, put back in the limelight by the Spring 2000 Lisbon Agenda, must go hand in hand with a reappraisal and fresh appreciation of the role of industrial policies in Europe. Whilst upholding the stability and growth pact and consolidating the single market, there is a need to find ways of coordinating action that enable European industry to play a central part in rising to the challenges posed by globalisation. Priority sectors of Community or supranational interest must be pinpointed among the strategic objectives and bolstered using appropriate economic instruments. Responsibility for medium- and long-term industrial strategies rests mainly within the European sphere, whereas it should be up to the Member States to deal with the practicalities of implementation. The single currency and the internal market are formidable instruments but not ends in themselves; the aims remain those set by the Treaty: economic and social progress and a high level of employment. In the light of all the above, the EESC believes that in terms of economic policies that contribute to the European industrial strategy, the following areas should be focused on:

1.2 The Broad Economic Policy Guidelines and the Lisbon Agenda. The BEPG, though an economic policy guidance and coordination tool, should be tied in more closely with the Lisbon Agenda initiatives and provide for investment in innovation and new technologies in the industry sector, taking account of the economic situation of the individual Member States.

1.3 Role and policies of the European Central Bank. The main aim of the policy choices made by the ECB is to control inflation and to ensure price stability. The process of achieving these aims can sometimes act as a brake on investment. Whilst bearing in mind its priorities, the ECB could, wherever possible, adopt a more flexible monetary policy in order to boost investment.

1.4 Role of the EIB. The European Investment Bank must make a significant contribution to economic and social cohesion and bolster industrial development through incentives for research and development. The Commission should also equip itself with new macroeconomic policy tools to encourage industrial development and growth.

1.5 The need for better fiscal policies. In the sphere of fiscal policy, there is a need to cut red tape, particularly for SMEs. Furthermore, tax incentives should be used to encourage companies to invest in research and development.

1.6 The risks of unregulated financialisation (1) of companies. Excessive focus by companies on financial activities and the ever increasing incidence of purely speculative investment in industry is endangering the industrial fabric, often hitting production, employment and social cohesion: there is a need to adopt measures to effectively regulate the involvement of the financial world in company life.

1.7 Relaunch of the European industrial model. One way of combating the decline in manufacturing and company relocation would be to relaunch the European industrial model, featuring successful districts and sectors of economic activity. In any case, the industrial fabric requires both hard and soft infrastructure. It is in the interests of the EU as a whole to finance these projects. Furthermore, given that services play a central role in the European economy, they must interact with the business world; they are in fact its life-blood, especially those that support production. These services to companies would soon fail if the industry sector lost its dynamism.

1.8 Research, development and intellectual property. It is clear that there is a need to improve results and investment in research and development, as they are currently far from the Lisbon Agenda targets. Once again, the EU must step up its financial commitment. Investment in research, under a new industrial strategy, should take into account the EU's new targets regarding CO2 emissions. The protection of intellectual property rights is also important for the competitiveness and innovative capacity of European industry and should be ensured by appropriate EU instruments.

1.9 Education and industry. The importance of mutual dependence/linkages between business and education cannot be over-emphasised. Schools, universities and third-level institutions must be aware of the need to equip students with qualifications that are relevant to business. Business itself needs to communicate its requirements to these institutions. One way to improve links is to develop Business Parks on university campuses; another would be to bolster the role of European centres of excellence and, in other respects, the role of the European Technology Institute.

1.10 Social dialogue. Identifying synergies and involving all the stakeholders in achieving structural change can help make industrial change socially acceptable, if the social partners are systematically involved in anticipating and managing that change, and if the dual objective of making businesses competitive and reducing negative social impact is consistently pursued. In cross-border regions, industrial changes could be facilitated, by setting up the optional transnational framework for collective negotiation as announced in the 2005-2010 social agenda. European Works Councils can also contribute: steps must be taken to strengthen the competencies of those involved in their work, so that these councils can execute their role as a key player in the consultation and dialogue process (2).

2. Background

2.1 The legal basis for implementing a Community industrial policy is to be found in Article 157 of the Treaty establishing the European Community (3) and it is repeated in a number of important documents. The European Commission's Communication on Industrial Policy in an Open and Competitive Environment: Guidelines for a Community Approach (4), published some years ago, marks a salient point in the history of European industrial policy. Other documents followed (5): the Commission Communication on Industrial Policy in an Enlarged Europe (6) touches on the opportunities and consequences of the planned enlargement of the European Union. Subsequent documents of note include the Commission's Communications on Some Key Issues in Europe's Competitiveness (7) and Fostering structural change: an industrial policy for an enlarged Europe (8). More recently, the Commission issued a Communication entitled: Implementing the Community Lisbon Programme: A policy framework to strengthen EU manufacturing — towards a more integrated approach for industrial policy (9), which was followed by the Mid-term review of industrial policy (10).

2.2 The introduction of the euro as the single currency led to the agreement on the stability and growth pact between participating countries, bringing a renewed need for better coordination of national economic policies, particularly budgetary policies. The recent enlargement taking in the countries of central and Eastern Europe, on the other hand, poses a significant challenge to the future of Europe and the need to overcome the continuing disparities between the various economic, social and industrial conditions. EU policies have achieved important objectives, particularly in consolidating the internal market and more recently with regard to the free movement of services. The attention given to all of these priorities (meeting the Maastricht criteria, regulating the internal market, particularly diverse economic and industrial conditions) has been to the detriment of policy in support of the EU's industrial potential.

2.3 Against this backdrop, industrial policies have carried less weight within the strategy for growth and jobs. This is because the Member States have been given all but free rein in this area, with supranational agreements generating few returns and EU coordination initiatives a rarity. Despite commitments and documents over the last 25 years designed to equip the EU with an industrial policy to enable it to keep step with the world's great economic powers, there is a general feeling that national interests have prevailed. Much has been done to speed up privatisation and liberalisation, deemed the best incentives for economic growth, to the detriment of EU policy supporting the industrial and manufacturing sector.

2.4 In today's globalised world, there is a growing need to identify the European industrial strategies best placed to respond to global competition, not only from giants like the USA and Japan, but also from the emerging Asian powers such as China and India. Community instruments are therefore needed to rise effectively to the challenges posed by the rest of the world and in order to give the EU a headstart in strategic sectors.

2.5 However, the tendency in Europe over the last few years has been to renationalise industrial policy, particularly in certain strategic sectors such as energy. The risk is that the predilection for national rather than European champions, particularly in sectors requiring a broader market and greater investment, may actually go against the national interests of the Member States.

2.6 Medium- and long-term industrial strategies and their flanking economic policies are a European matter, while it should clearly be up to the Member States alone to implement those policies and scale them down into national-sized decisions.

2.7 Faced with new economic powers on the world stage that are more competitive when it comes to labour-intensive production, European industrial strategy must set its sights on quality. There is a need to foresee not only which will be the leading sectors in hi-tech, innovative, quality production, but also to pick out the economic instruments that can be made available to the industrial and manufacturing sectors representing the interests of the European Union as a whole.

3. A new start for the EU's economic policies

3.1 Since day one, the EU's internal market has been the driving force behind European integration and economic growth. The euro as a single currency has given additional impetus to the role of the single market, making exchanges faster and safer and improving competition. However, both the internal market and the euro are tools rather than objectives in themselves. The objectives are those set out in the Treaty and reaffirmed in the conclusions of the European Council of 21-22 June 2007: economic progress, social cohesion and a high level of employment.

3.2 After an encouraging performance in the second half of 2003, the European economy suffered a downturn during the second half of 2004, partly as a result of external factors such as oil prices, which were affected by the international crisis, and international trade patterns. Progress in 2005, the slight growth in 2006 and the encouraging first quarter of 2007 (11), confirm that, at any rate, a stronger European economy will depend increasingly on exports and ever less on internal demand (12).

3.3 In the Broad Economic Policy Guidelines (BEPG) 2005-2008 (13), the Council mentioned the instruments, priorities and macroeconomic policies that the Member States need to adopt, as well as related reforms, necessary for a sustainable industrial strategy.

3.4 The macroeconomic policies set out by the Council in the BEPG are aimed at improving economic growth and employment, while also stressing the importance of economic policies for price stability. The measures proposed aim to: — secure economic stability, while keeping to medium-term objectives; — secure a manageable economy and budget, reducing public debt and bolstering pension and insurance systems; — encourage the efficient distribution of resources, favouring spending that nurtures economic growth, and promote wage trends that contribute to economic stability; — promote greater consistency between macroeconomic, structural and employment policies.

3.5 The macro-economic policies of the stability and growth pact should be coordinated more effectively with the Lisbon strategy objectives, in order to engender a single economic policy for the European Union and the euro area. European budget reform is needed to underpin the appropriate industrial strategy choices, redirecting resources to investment that is more conducive to growth (14).

4. Investing in the Lisbon Strategy

4.1 As for reforms intended to increase growth and those most important from an industrial viewpoint, the Council referred to the following priorities: — improving and encouraging investment in research and development, reiterating the 3 % of GDP objective set in Lisbon; — exploiting European industry's competitive edge by shaping a modern and active industrial policy, developing new technologies, creating an attractive environment for industry, multiplying the factors for competitiveness in the face of globalisation, and nurturing centres of entrepreneurship within the EU, with a focus on quality; — expanding and boosting the internal market and applying competition policies more effectively, partly by cutting State aid; — promoting a business culture and nurturing SMEs; — improving and investing in European infrastructure as a key factor for the smooth running of the European industrial machine.

4.2 The 2003 Sapir report (15) had already considered many of these objectives, emphasising the need to uphold the stability and growth pact. With regard to monetary policy, it argued that the only way to create the ideal climate for industrial policy was with measures that kept the cost of money under control and ensured long-term macroeconomic stability.

4.3 In its own opinion, the EESC called for the BEPG to be tied in more closely with the other Lisbon Agenda initiatives (16).

4.4 However, macroeconomic policy decisions remain seriously skewed. There is a marked focus on the fight against inflation and on price stability, and the European Central Bank uses interest rates too readily but with little flexibility and at times for reasons difficult to comprehend. In times of strong growth (1999-2000) the ECB practically doubled interest rates, but it was extremely slow to reduce them during the long years of poor growth. Flexible monetary policy combined with targeted fiscal policies (tight controls and public investment) could prove the winning factors in securing sustainable long-term growth in the European system.

4.5 The ECB is responsible for maintaining monetary stability and keeping inflation in check. These policies can however turn out to be obstacles to economic growth in the euro countries, and therefore also act as a brake on the other 15 ‘converging’ countries. That is why the ECB's policies need to be coordinated more effectively with the EU's macroeconomic policies. Clearly, the ECB's decisions must give due consideration to the fact that although a strong currency has a positive effect on imports, making them cheaper, it penalises exports.

4.6 Recent months have witnessed modest but encouraging economic growth in the EU. This growth has been buoyed up by exports to other markets. This is without doubt a good thing, but it is really internal demand that needs to be sustained if growth in the internal market is to be lasting and solid. Wage policies also contribute to sustaining and building internal demand, as they give the economy a boost and improve performance, while warding off excessively low inflation or a fall in prices.

5. Better fiscal policies based on common accord

5.1 An agreed strategy that also covered fiscal policies, could help to secure support measures for industrial development and the overall strengthening of the European economy. While there is a need to cut the excessive red tape that burdens companies, SMEs in particular, there is also a need to improve legislation through simplification, ensuring both transparency and rigorous compliance. A tax system that is equitable and redistributive, in line with growth trends, and which promotes cohesion, is an important lever for growth, employment and productivity.

5.2 The phenomenon of the increasing financialisation (17) of companies can have a detrimental effect on the industrial and manufacturing sector. The impact of this situation is severe both for the distribution of income and wealth and in terms of economic development and employment.

5.3 Increased transparency and better regulation at EU level are needed, for the following main reasons: 1) hedge funds represent a high-risk instrument on the financial market; 2) individual investors are still not receiving sufficient attention and protection; 3) effective rules would protect both business and the financial market, as well as investors and savers. Transparent and efficient regulation is therefore needed at EU level to ensure investors receive appropriate and comprehensive information. The adoption of the ‘Markets in Financial Instruments Directive’ (MiFID), also represents a major step towards protecting investors, whether they are companies or natural persons.

5.4 The EU and Member States ought therefore to equip themselves with effective instruments to guard their economies from speculation and excessive focus on financial activities on the part of industrial and economic groups, which, rather than benefiting countries' wealth and wellbeing, present a genuine danger for social cohesion and employment.

6. Investing in key sectors

6.1 The companies to play a primary role in the future will certainly be those concerned with cutting-edge technology such as alternative energy, nano and biotechnology, aerospace and aeronautics, multi-media and telecommunications. All these sectors are capital rather than labour intensive and therefore require a highly skilled workforce.

6.2 European industry's traditionally strong sectors (vehicles, domestic appliances, etc.) need to be flanked by high-quality production. European economic policy should therefore use direct and indirect instruments to encourage major European projects in these spheres.

6.3 EIB President Philippe Maystadt, in his address to the EESC, underlined that ‘the key role of the EIB is to promote economic and social cohesion, and to this end we are prioritising investment in renewable energy, energy efficiency, research and development, and the security and diversity of our energy supply’. At the same time, initiatives such as the JASPERS programme are aimed at the preparation of projects on transport networks, the environment and health.

6.4 There are highly energy-intensive companies that are fundamental to Europe's industrial fabric. These primary European industries should be defended at Community level, by seeking to coordinate Member States' industrial policies to enable transitional and longer-term measures, if necessary of a sectoral nature. However, attention must also be given to the EU's basic targets for reducing CO2 emissions in order to combat global warming; there is an opportunity here to reconcile the need for internal market growth with current climate change concerns. In keeping with these objectives, the EU must take a leading role in the international negotiations on Kyoto compliance and in safeguarding the recent REACH regulation.

6.5 Certain industries are already heavily affected by a worrying migration of activities. Every effort is needed to ensure that production unit closures cause as little trauma as possible for workers and for the welfare of the regions concerned. However, the response cannot simply be one of containment. The abiding objective must be to enable companies to adapt, and to give workers ongoing training so that they can remain on the labour market by virtue of their skills.

7. Territorial policies

7.1 For balanced development throughout the Community, national and EU incentives are needed to encourage companies to make additional, not just alternative, investments, in order to extend their customer base and take full advantage of the benefits of the internal market, which now also includes the new Member States. A European industrial fabric made up of successful industrial districts and sectors of economic activity is still a very relevant model and one that can be competitive even in the face of the challenges of the future, particularly in certain specific manufacturing sectors.

7.2 The Commission itself (18) has stressed the trend towards de-industrialisation and relocation, phenomena that are partly linked. There is no doubt that the European economy has gone through an enormous transformation in recent decades: the manufacturing industry's share in EU output fell from 30 % in 1970 to 18 % in 2001, with a parallel explosion in the services sector which bounced up from 52 % to 71 %. Relocation affects mainly low-tech, labour intensive industries; but the real danger is that research and development activities may also be relocated beyond European borders, and this is already happening. The latest figures on industrial new orders, published by Eurostat at the end of April 2007, also give cause for concern (19).

7.3 Manufacturing industry has always been and will continue to be the backbone of the European economy. Many sectors are reliant on a solid industrial base, including the services sector: to abandon it would be damaging as it has enormous potential and many strong points (20). While relocation to outside the EU has taken place within certain labour-intensive industries, it is essential that the core of industrial production, which represents the high added value of our economy, remains here in Europe.

7.4 A glance at the global companies with the highest turnover shows the lasting power of manufacturing in the modern economy. Furthermore, the most dynamic and innovative strand of even the tertiary sector, which is growing and is set to continue growing, is its services to industry (21).

7.5 Over the last few years, the European Commission has made a number of commitments in support of various industrial sectors; let us consider two by way of example. The automotive industry, traditionally a strong branch of European industry, accounting for 3 % of European GDP and 7 % of employment in the manufacturing sector, has recently attracted the attention of the Commission. Its CARS 21 communication (22) is a bid to launch a comprehensive strategy for the European car industry, with a view to securing vehicle production in the long term, at the best prices for consumers. The document covers a number of aspects, such as cutting administrative costs, environmental sustainability, road safety, external trade and research. The Commission seems to have realised that the automobile industry and its ancillaries are central to the European economy and as such require European-level coordination instruments to guide their development.

7.6 The textiles sector is another area in which the European institutions have taken ad hoc measures. It is particularly vulnerable as it is extremely sensitive to the consequences of international competition. The Competitiveness Council on 27 November 2003 already underlined the importance of securing effective interaction between Community policies, especially through research, innovation, training measures and the protection of intellectual property rights. Early in 2004, the Commission set up a high level group (HLG) for the textiles and clothing sector, with the task of making recommendations on a series of practical initiatives at regional, national and European level (23).

7.7 In November 2003, the Commission also launched the European Growth Initiative, with a view to speeding up economic recovery in the EU. It includes a ‘Quick Start Programme’ for public and private investment projects relating to infrastructure, networks and knowledge, with a view to encouraging the creation of public-private partnerships, in cooperation with the European Investment Bank. This project deserves support, particularly in light of the economic, social and environmental protection objectives set by the European Union in recent years.

7.8 The European Social Fund can be defined as one of the instruments designed to aid transition in sectors and areas hit by structural change. It is particularly geared towards active employment policies, training and access to the labour market. The European Regional Development Fund bolsters competitiveness, targeting research, innovation, education and infrastructure. Only if the socio-economic players are sufficiently involved in the programming process, under the partnership principle, will Structural Fund programmes attain their objectives.

8. Research and development

8.1 It has been demonstrated that research and development are necessary conditions for economic growth and industrial strategies. The EU institutions have made many attempts to promote, encourage and improve results and investment in innovation, always emphasising the importance of these matters.

8.2 The Lisbon Agenda set all the Member States the objective of investing 3 % of GDP in research and development. This goal still seems far off, and in recent years it has been noted that those States with a tradition of investing have continued to do so while the others have not made the expected increase (24). Ad hoc fiscal measures can also be employed as incentives to invest in research and development.

8.3 As the Sapir report underlines, the European Union's investment in research and development is substantially different from that of the United States. The difference is not only in the resources directed towards research and development in the public and private sectors; Europe has fewer researchers, fewer scientific publications, and a lower incidence of high tech products on the international market, and it registers fewer patents and spawns fewer new successful start-ups than the USA (25).

8.4 In its Green Paper on The European Research Area: New Perspectives (26) the Commission proposed a strategy to overcome the current deadlock on the Community patent, and initiatives are being prepared to support the emergence of lead markets in promising technology-intensive sectors.

8.5 The need for a strong coordination body within the Joint Research Programme and the Competitiveness and Innovation Framework Programme, to focus more on industrial strategies, is more evident than ever before.

8.6 Support for research is still largely a matter for national policy, but there are positive examples of European research initiatives: most economists would describe the Airbus consortium and the STMicroelectronics joint venture as successful European champions, rare examples of supranational coordination that are globally competitive in technologically complex sectors. The innovation fund could be a factor in the creation of European industrial consortia, helping increase the number of supranational success stories.

8.7 The ideal industrial fabric needs an infrastructure, and above all a European one. The aim must therefore be to upgrade and consolidate hard infrastructure, such as transport and IT networks, ports, transport corridors and carriers, and also soft infrastructure, by focusing on training and coordination of universities and research centres, which is equally important particularly in the light of the long-term challenges.

8.8 A strong link between academia, research and the business world is essential in this regard. A strategic approach is therefore needed, which ensures that students are equipped with the necessary skills to enter the workplace. Furthermore, public and private investment will be needed to ensure the increasing development of university-linked centres of excellence that will represent a breeding ground for future entrepreneurs.

8.9 Lastly, it is worth noting that the EU's seventh research framework programme for 2007-2013 (27) has increased the budget for small and medium-sized enterprises, allocating EUR 1,3 billion for: — the provision of support for small groups of innovative companies in order to resolve common technology-related problems; — a guaranteed 75 % funding for research and development in SMEs (as opposed to 50 % in the sixth framework programme); — developing and coordinating support for SMEs at national level.

Brussels, 26 September 2007. The President of the European Economic and Social Committee Dimitris DIMITRIADIS

(1) Financialisation: ‘the increasing dominance of the finance industry in the sum total of economic activity, of financial controllers in the management of corporations, of financial assets among total assets, of marketised securities and particularly equities among financial assets, of the stock market as a market for corporate control in determining corporate strategies, and of fluctuations in the stock market as a determinant of business cycles’, from Wikipedia

http://en.wikipedia.org/wiki/Financialisation.

(2) Social dialogue and employee participation, essential for anticipating and managing industrial change and Implementing the Community Lisbon Programme: A policy framework to strengthen EU manufacturing — towards a more integrated approach for industrial policy, OJ C 24, 31.1.2006; Cohesion Policy in Support of Growth and Jobs: Community Strategic Guidelines, 2007-2013, OJ C 185, 8.8.2006.

(3) Article 157(2) in particular states that ‘The Member States shall consult each other in liaison with the Commission and, where necessary, shall coordinate their action. The Commission may take any useful initiative to promote such coordination’.

(4) COM(1990) 556 final.

(5) See for instance the following two European Commission Communications in the 1990s: An Industrial Competitiveness Policy for the European Union, COM(1994) 319 final, and The Competitiveness of European Enterprises in the Face of Globalisation — How it can be encouraged, COM(1998) 718 final.

(6) COM(2002) 714 final.

(7) COM(2003) 704 final.

(8) COM(2004) 274 final.

(9) COM(2005) 474 final.

(10) COM(2007) 374 final.

(11) See Eurostat News Release 64/2007 (15 May 2007).

(12) See Eurostat News Release 50/2007 (12 April 2007).

(13) Council Recommendation 2005/601/EC of 12 July 2005 on the broad guidelines for the economic policies of the Member States and the Community (2005 to 2008), OJ L 205 of 6.8.2005, p. 28.

(14) See Lisbon Agenda Group — Workshop on developing the Lisbon Agenda at European Level — Brussels, 17 November 2006, Synthesis Report by Maria Joao Rodrigues.

(15) An Agenda for a Growing Europe — Making the EU Economic System Deliver, André Sapir et al, July 2003.

(16) See EESC opinion on Broad economic policy guidelines and economic governance, OJ C 324 of 30.12.2006, p. 49.

(17) See footnote 1.

(18) Communication from the Commission to the Council and the European Parliament: Some Key Issues in Europe's Competitiveness — Towards an Integrated Approach, COM(2003) 704 final.

(19) Eurostat News Release 56/2007, 24 April 2007.

(20) The fundamental importance of a strong and vigorous industrial sector in Europe is reiterated by the Commission in its Communication Implementing the Community Lisbon Programme: A policy framework to strengthen EU manufacturing — towards a more integrated approach for industrial policy, COM(2005) 474 final of 5 October 2005, and in the EESC opinion on the communication, OJ C 185 of 8.8.2006, p. 80.

(21) For the importance of services to production, and the interaction of services with the European manufacturing industries, see the EESC opinion on Services and European manufacturing industries: Interactions and impacts on employment, competitiveness and productivity, OJ C 318 of 23.12.2006, p. 26.

(22) Communication from the Commission to the European Parliament and Council: A Competitive Automotive Regulatory Framework for the 21st Century — Commission's position on the CARS 21 High Level Group Final Report — A contribution to the EU's Growth and Jobs Strategy, COM(2007) 22 final.

(23) Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions — Textiles and clothing after 2005 — Recommendations of the High Level Group for textiles and clothing, COM(2004) 668 final.

(24) See the work of the EESC Lisbon Group, in particular the Resolution on the implementation of the renewed Lisbon Strategy, of 15 February 2007, CESE 298/2007.

(25) COM(2006) 728 final.

(26) COM(2007) 161 final.

(27) See the EESC opinion on the Proposal for a Decision of the European Parliament and of the Council establishing a Competitiveness and Innovation Framework Programme (2007-2013), OJ C 65 of 17.3.2006, p. 22.