A few years ago, the European Union’s institutions promoted the goal of increasing the manufacturing sector’s share of EU value added to 20 percent. Meanwhile, the labels ‘made in Europe’ or ‘made in country x’ resonate with many politicians in Europe while US president Donald Trump believes that his policies would create “millions of manufacturing jobs”.

The different chapters of this report suggest that manufacturing is indeed a special sector. It scores high in terms of value added, salaries in the sector are often higher than elsewhere and innovation is strong. But calls for targeted industrial policy ring hollow: what constitutes ‘manufacturing’ is a fluid concept. New technologies shape industries while outsourcing and the breaking up of value-added chains create measurement problems. Finally, targeting one sector at the expense of others can lead to major distortions in a market economy and would likely hurt growth and jobs rather than helping.

This report revisits the old questions of whether we need a special industrial policy and if it should target specific sectors, technologies or even consumers. In response, the report proposes a more holistic approach. In my view, three questions are important. First, what kind of framework conditions are missing for different economic sectors to thrive in Europe? One aspect is access to a large and single market, which all too often is still fragmented by different national standards and regulations.

Second, how can policies be shaped that are pre-conditions for successful industries? EU policymakers shape the future of industry with numerous decisions. They decide what basic research to fund. They move more quickly on some regulations than on others. They promote specific educations systems, such as apprenticeship programmes.

Third, important decisions on major infrastructure projects underpinning industry shape the future. Is broadband internet access readily available? Does Europe need its own cloud computing infrastructure? Have we agreed on a single standard for charging electric cars to enable the rapid creation of a sufficiently wide network of compatible charging stations?

A ‘hands-off’ approach, as is often propagated by ordoliberal economists, is thus not the way forward. Instead, the public sector needs to focus on intervention where it is necessary while avoiding the promotion of specific technologies at the expense of others. The state cannot pick winners but not taking the right decisions on basic infrastructure, smart regulation and the best education could leave Europe as a laggard for many generations.

Guntram B. Wolff, Director of Bruegel

September 2017