Text by Paavo Järvensivu and Jussi Ahokas, researchers at BIOS Research Unit, based in Helsinki, Finland. Both participated in the Beyond Growth 2023 conference at the European Parliament, Brussels, May 15–17. Järvensivu took part in the panel discussion on industrial policy chaired by Green MEP Ville Niinistö.
During the high-level, three-day Beyond Growth 2023 conference at the European Parliament, leading scholars frequently emphasised that a sustainability transformation in Europe is (also) a massive investment project. To reconstruct basic socio-technical systems, such as energy, mobility, food, and cities, a lot of well-targeted economic activity needs to take place. Despite this sentiment, there was remarkable uneasiness around industrial policy – arguably an essential dimension of the broad ecological reconstruction of Europe. From a degrowth/post-growth perspective, it is easy to see industrial policy as a means for the government to boost economic growth and competitiveness at home, at the expense of the rest of the world. And from a more conservative position, industrial policy easily looks like an unwarranted deviation from rules-based free-market policy. In this text, we elaborate on an industrial policy that aligns with the goals of a rapid sustainability transformation. We also examine its tensions with the recent developments in the EU.
Industrial policy is the co-development of industry and other sectors under the guidance of public authorities. The government that pursues industrial policy sets the direction for industrial renewal and ensures that the necessary actors can find each other, that sufficient knowledge and skills are available, that the infrastructure and resources are in place and that the financial conditions are favourable. Where necessary, the government will also provide employment and investment itself. Historically, industrial policy was at its strongest during the few decades after WWII. This was a period of reconstruction and rapid industrialisation, which also created the institutions and other basic conditions for the welfare state.
One could say that industrial policy in the European Union has been actively rejected since the 1980s. The EU focused on creating rules for a competitive market. Important tools were competition law and restrictions on state aid. The active intervention of the state in the market – once markets and their rules had been created by the state – was significantly reduced. This was in line with broader global policy trends.
However, in the 2010s, and increasingly in the very recent years, the European Union has taken giant strides towards a new industrial policy (for details, we recommend Di Carlo & Schmitz 2023). The background to this is above all the concern that Europe is being squeezed in a geopolitical struggle. China has taken over production chains and in many areas has also overtaken Europe in terms of technological know-how, the United States is supporting its own industry with massive aid packages, and Russia is violently breaking up old geopolitical configurations and relations. The EU has woken up to a reality in which it feels the need to strongly boost its industrial capacities.
Under the European Commission led by Ursula von der Leyen, industrial policy is being tied to the ‘digital-green’ objectives of the European Green Deal. Despite its shortcomings, the Green Deal has clearly been the overarching policy that has steered Europe consistently towards climate and environmental goals. In Finland, too, political and industrial actors have been surprised by its strictness: we have not been able to succumb to the old, somewhat delusional idea that our industry is always greener than elsewhere, so the requirements of the EU’s transformation policies will not affect us that much.
No treaties in the EU have been reopened and re-signed. The IPCEI (important project of common European interest) legislation, which has been dormant for a long time, has been raised as an enabler of industrial policy. It allows countries to be flexible on competition and state aid rules, as long as the economic activity at hand can be seen to contribute to the common European interest. The same approach has been followed in relation to the EU’s economic policy rules, which have been interpreted creatively, especially during the COVID-19 pandemic and after Russia’s full-scale attack to Ukraine, but also already in the 2010s after the global financial crisis, for example, in the area of monetary policy.
Today, industrial policy needs to be thought of and crafted in particular in relation to the sustainability crisis. The global consensus view in the natural sciences is that there has been dangerously little progress towards sustainability in the world’s major economies. This is also the case in Europe: climate emissions must be reduced radically faster than has been possible so far, carbon sinks must be increased, biodiversity must be safeguarded and resource use must be renewed and reduced to sustainable levels. Otherwise, the conditions for human life on our planet will deteriorate and become highly unstable.
Hence the great controversy experienced at the Beyond Growth conference: natural science shouting ‘do all you can’ and political realism resignedly stating that ‘unfortunately, this is all we can do’. The European Green Deal, for all its merits, has not been able to change this situation in any meaningful way. So, at the conference, researchers from various disciplines and representatives of many organisations took the stage to challenge this political realism.
What do the scholars calling for a rapid sustainability transformation offer as a way forward? Above all, they emphasise the need to reconstruct the socio-technical systems (energy, transport, food, cities) that sustain people’s daily lives. A phrase frequently heard at the conference in this context was efficiency & sufficiency.
Efficiency refers to the use of less energy and materials to perform the same task. Electric cars, for example, are significantly more energy efficient than cars with internal combustion engines. Sufficiency, on the other hand, refers to the fact that people have and will have in the future the means to adequately meet the needs that are essential for a good life. The sufficiency perspective addresses both the question of “how much is enough” and “how this enoughness can be made available to all”. Combining the perspectives of efficiency and sufficiency leads to a reflection on what is adequate mobility and how to achieve it effectively. In other words: what kind of a transport system allows good and sufficient mobility without placing too much strain on the environment? To which we would like to add: how to build such a system from where we are now, with existing structures in place?
We see industrial policy as an essential part of such a reform of socio-technical systems. First of all, the reconstruction is clearly an industrial activity: the building of biking lanes, electric public transport, the electrification of the remaining private transport, digital services and the related equipment, and the production and use chains that underpin all this. Secondly, the modernisation of systems requires a huge amount of research, education, innovation and investment (to be sure, degrowth researchers at the conference also stressed on several occasions precisely this kind of ‘massive investment’ in efficiency and sufficiency). Thirdly, energy- and material-intensive economic activities that do not contribute to purposeful system reconstruction must be abandoned. There are two reasons for this: to reduce the total amount of activity that must undergo transformation to be sustainable, and to redirect the resources devoted to it, including workforce, to the necessary reconstruction work.
The role of industrial policy is to direct, coordinate and accelerate this extensive and complex process. For businesses and workers, industrial policy reduces uncertainty: the ability to see realistic paths for the future, the courage to innovate and invest, the courage to get (re)educated, the courage to take on jobs that build a sustainable future. Industrial policy will make the business and work required to modernise socio-technical systems understandable and economically viable – now, not in the distant future.
The rapidly evolving European industrial policy faces major questions: How can we ensure that it really supports the sustainability transformation? How can we ensure that it does not slip into traditional anything-goes growth policy, Western protectionism or sheer extractive colonialism? From the perspective of small EU member states like Finland, there is an additional question: how to ensure that European industrial policy treats member states fairly?
In the industrial policy panel discussion at the conference, the perspective chosen by BIOS was one of knowledge production. We will deal with it next, and return to issues of power afterwards.
At the outset, we wish to highlight one major difference between setting up competitive markets and doing industrial policy. The former is concerned exclusively with market rules, while the latter, in addition to market rules, envisages concrete paths for the future of industry. Take the hydrogen economy, for example, now that so much is being fussed about it. Industrial policy requires that the public authorities understand, and in a democracy the public to a sufficient extent also understands, the basic elements and choices of the hydrogen economy. Is hydrogen seen as playing a key role in the reconstruction of transport systems? Will Europe or individual member states invest in the processing of so-called green hydrogen into fertilisers and other important raw materials, or will it aim to produce, distribute and use hydrogen as such on a very large scale?
We argue that in order to answer questions like these in a meaningful way, a “situation room” dedicated to the knowledge-needs of the industrial sustainability transition is needed. We call the process science-driven planning. It brings together typically disparate areas of knowledge, such as ecological boundary conditions, available material resources, infrastructure, social practices, technological trajectories, geopolitics and developments in international trade. It also balances different rationalities such as ecological resilience, economic competitiveness, geopolitical security and human well-being. Moreover, as industrial policy aims to (re)construct the conditions for “good enough” and sustainable living, like described above, the human, social and cultural dimensions are highlighted: issues such as sufficiency and the good life cannot be framed solely in technical terms. On the basis of all this, science-driven planning outlines realistic and attractive future paths that lead to a rapid and deep sustainability transformation.
Science-driven planning, thus, builds an overall picture of the required changes in socio-technical systems. It outlines the content of industrial policy that is in line with the sustainability transformation and treats the different actors fairly within and outside the EU. Planning is needed, but the best available information does not yet ensure that it is used properly. It must be insisted that the EU and its member states commit to the best multidisciplinary scientific knowledge when designing and implementing industrial policy. In practice, this kind of pressure comes from the civil society. The obvious counterforce then is the established industries, demanding that no major changes should be made in the production of food, energy, chemicals, cars or, say, pulp, or at least not too quickly. Luckily, there are also a lot of industries and industrial actors that challenge the old fossil-fuelled regimes and systems.
The second major political counterforce arises from nationalism. The nationalistic reassurance is that as long as we do well, others do not matter so much. Of course, this makes no sense, even from a strictly instrumental point of view: in an era of climate and environmental disasters, no walls can hold back. Climate change and erosion of biodiversity must be prevented everywhere, and the most effective way to do this is through good cooperation, sharing material resources and knowledge fairly. At a time of intensifying geopolitical disturbances, the realistic conclusion for Europe is to build and maintain good partnerships wherever possible, with a particular focus on the Global South.
European and national industrial policies must go hand in hand. Here, too, science-driven planning has an important role to play. A realistic look must be taken at what are the sensible industrial development paths and what their roles are in different parts of Europe. This is influenced by geographical characteristics, natural resources, inherited industrial structures, etc. Science-driven planning helps to ensure that European industrial policy is not just a continuation of old industrial configurations, historically formed with and for fossil fuels.
Monetary and fiscal policy rules determine the conditions for a sustainability transformation in the EU and its member states. Many smaller states have been concerned, quite rightly, that the big countries, especially Germany and France, can support their domestic industries on a completely different scale. In other words, smaller countries expect their industries to suffer if the rules regarding competition and state aid are relaxed in the name of industrial policy. The European Commission has proposed a sovereignty fund, a kind of common EU fund, as one way of balancing the conditions for public funding of industrial development among EU countries. The details of the proposal (for example, where the money will come from, and how it will be spent) are not clear, and so far the proposal has failed to convince the long-standing opposition of many member states.
However, now that Germany is also behind it, it is very likely that the EU’s more active industrial policy will move forward at a rapid pace. To be successful, European industrial policy must, firstly, really contribute to the sustainability transformation – otherwise we are merely reacting to acute crises while forgetting the existential ones. Secondly, it must treat all EU member states fairly. Thirdly, it must find a globally just geopolitical stance which accelerates the pace and widens the breadth of sustainability transformation. In practice, all this means pragmatic, multilateral and long-term negotiating capacity – backed by solid science-driven planning.
We can start by acknowledging the reality that despite the rhetoric and all the rules, industrial policy has been pursued in Europe all along, but from the 1980s to the present day it has been done indirectly and largely hidden from public scrutiny. Now that the ecological reconstruction of societies means deep, rapid and interconnected transitions in almost all economic sectors and industries, industrial policy needs to be brought into the democratic limelight. Industrial policy must be based on multidisciplinary scientific knowledge and subjected to constant scientific and public critique.