Opinion

Manufacturing Europe’s growth

Europe's policies should focus on the high-end industries that are driving Europe's productivity growth.

By: and Date: November 5, 2013 Topic: Innovation & Competition Policy

Blueprint ‘Manufacturing Europe’s future

Stemming the decline of Europe’s manufacturing sector is often viewed as key to Europe’s growth after the crisis. For instance, the European Commission’s 2012 communication on a ‘A stronger European industry for growth and economic recovery’ stated that “Europe needs industry”. The communication set out a roadmap for re-industrialising Europe, with the aim of ‘raising the share of industry in gross domestic product (GDP) from the current level of around 16% to as much as 20% in 2020′. It also spelled out action plans for specific sectors and technologies.

But setting the right policies requires an understanding of the changing role of manufacturing in Europe’s economy. Targeting a minimum share of GDP for manufacturing and focusing on specific sectors and technologies do not reflect a correct understanding of the situation.

The relative decline of manufacturing in Europe’s GDP and employment (currently at, respectively, 16% and 14%) is a result of many factors: the slower growth in demand for products compared to services; the stronger productivity growth in manufacturing than in services and the growing strength of emerging countries, especially in Asia, as producers of manufactured goods. This decline is evident across almost all manufacturing sectors, crossing the hi-tech/low-tech divide, and all European Union countries, although with different intensities and with a different weight on what causes the decline.

Despite its relative decline, manu-facturing still matters in and for Europe, but its contribution to the economy is changing dramatically. As Europe’s manufacturing shifts towards higher value-added activities, its major contribution is to productivity growth: the sector accounts for 65% of Europe’s business R&D and 60% of its productivity growth. This shift towards higher value-added activities correlates with a growing ‘servitisation of manufacturing’ (ie, a strategy of creating value by adding services to products) and a greater innovative capacity. It also involves a shift towards higher-skilled and better- paid manufacturing jobs.

This transformation of Europe’s manufacturing towards higher value-added, more innovative and higher-skilled activities holds across all sectors, even in traditional sectors like food and textiles. In other words, the old divide between sectors is rapidly becoming irrelevant for policymaking and being replaced by a divide between high- and low-value-added activities that pervades all sectors.

The development of high value-added activities is increasingly being done through global value chains. Participation in global value chains allows firms and countries to specialise in certain activities and to be more efficient, with higher productivity growth. In Europe, many firms participate also or even only in European value chains that have flourished thanks to the EU’s single market. These European value chains are integral parts of global European chains and allow European firms to be globally competitive.

This means that the ‘Europe needs industry’ credo should be replaced by ‘Europe needs innovative firms that operate in activities with a high value-added and participate in European and global value chains’. The goal of European policymakers should be to make Europe an attractive place for innovative firms, regardless of their sectoral activity.

Access to large, open and inter-connected markets remains a major location factor for all firms, within and outside manufacturing. Firms also need to be able to tap into efficient infrastructure services, pools of specific skills and networks of innovative capacity as well as competitively priced material inputs. They also need access to capital markets able to fund their innovative processes and their international growth strategies. A dynamic and competitive EU single market should therefore be the main priority of European policymakers keen to foster the manufacturing sector. Much remains to be done to further not only the integration of European product markets, but also a genuine single market for transport, tele-communications, financial services, energy as well as higher education and research.

Finally, a dynamic and competitive EU single market must be accompanied by reforms of national social policies in the direction of greater flexibility and better security for workers who should be equipped with better skills acquired not only in schools but also in the workplace and throughout their careers.

Blueprint ‘Manufacturing Europe’s future


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article Download PDF More by this author

Blueprint

Remaking Europe: the new manufacturing as an engine for growth

Europe needs to know how it can realise the potential for industrial rejuvenation. How well are European firms responding to the new opportunities for growth, and in which global value chains are they developing these new activities? The policy discussion on the future of manufacturing requires an understanding of the changing role of manufacturing in Europe’s growth agenda.

By: Reinhilde Veugelers Topic: Innovation & Competition Policy Date: September 7, 2017
Read article More on this topic More by this author

Blog Post

Africa and Chinese rebalancing

What’s at stake: China and Africa have developed close economic ties over the past 20 years. The need to rebalance the China-Africa relationship was also a prominent topic in the context of the recent Kenyan elections. But if the drivers will shift relatively more towards domestic consumption, what will the impact be on Africa? We review recent contribution to this debate.

By: Silvia Merler Topic: Global Economics & Governance Date: August 28, 2017
Read article More on this topic

Blog Post

Low carbon technology exports: the race is still open

A country’s relative strength in exporting a certain product is likely to persist. But it is easier to gain a comparative advantage in exporting low carbon products. When it comes to R+D, strength in a certain technological field is much less linked to past specialisation. This also holds for low carbon technologies. Finally, our preliminary findings are consistent with the view that R+D can help a country specialise in clean technology exports. However, we are not yet able to show that policy action supporting R+D in clean technologies is a sensible way to develop a comparative export advantage in these sectors.

By: Georg Zachmann and Enrico Nano Topic: Innovation & Competition Policy Date: August 24, 2017
Read article More on this topic

Opinion

Europe must seize this moment of opportunity

As the EU enjoys a period of growth and relative stability, there is finally room to undertake long-needed reforms. But it is vital to act soon, and priorities must be set. There are three pillars of reform for the coming months: completing a robust euro area; building a coherent EU foreign policy; and harnessing the single market’s potential to deliver strong and inclusive growth.

By: Agnès Bénassy-Quéré, Michael Hüther, Philippe Martin and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: August 12, 2017
Read article More on this topic More by this author

Blog Post

Italian economic growth and the Euro

While the Euro has frequently been blamed for the poor growth performance of Italy over the years, a long-term analysis shows deteriorating growth before the introduction of the Euro. Additionally, Italy has shown worse performance than other euro-periphery countries, such as Spain, implying deeper structural reasons for Italy’s economic malaise.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: July 26, 2017
Read about event More on this topic

Past Event

Past Event

CANCELLED - What should be Greece's next growth model?

Due to unforeseen circumstances, we will have to cancel this event.

Speakers: Kuriakos Mitsotakis and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 8, 2017
Read about event More on this topic

Past Event

Past Event

Standardisation and patents: problems and policy options

Bruegel together with the Association for Competition Economics (ACE), is hosting an event on standardization and SEP licensing.

Speakers: Aleksandra Boutin, Georgios Petropoulos, Rebekka Porath, Pierre Regibeau and Hughes de la Motte Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 9, 2017
Read article More on this topic

Blog Post

Europeans rediscover enthusiasm for globalisation

The general political mood on both sides of the Atlantic seems to suggest declining public support for globalisation, but people in the EU increasingly see globalisation as an opportunity for economic growth. This shift in public opinion coincides with improved economic conditions.

By: Uuriintuya Batsaikhan and Zsolt Darvas Topic: European Macroeconomics & Governance Date: May 4, 2017
Read article More on this topic More by this author

Blog Post

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read article Download PDF More on this topic

Working Paper

From start-up to scale-up: examining public policies for the financing of high-growth ventures

What are the challenges of financing scale-ups, and how can long-term public policies support the creation of a better scale-up environment?

By: Gilles Duruflé, Thomas Hellmann and Karen E. Wilson Topic: Innovation & Competition Policy Date: April 10, 2017
Read article More on this topic More by this author

Blog Post

Embracing the silver economy

What’s at stake: The oldest human in known history was a Frenchwoman called Jeanne Calment who celebrated her 122nd birthday in 1997. Thanks to advances in technology and medicine humans living until 100, if not 122, might not be an exception in the near future. Ageing, while described as a looming demographic crisis, also offers a silver lining. Business in rapidly ageing societies is already adapting their strategies to navigate the “silver economy”. This blogs review looks at the implications of the silver economy on growth, productivity and innovation as well as the opportunities offered by the silver industry.

By: Uuriintuya Batsaikhan Topic: Global Economics & Governance Date: April 10, 2017
Load more posts