Evolution of Industrial Policy: Horizontal Policies, Liberalization, and Reforms
The Rise of Horizontal Policies (Clusters and Innovation Systems)
Horizontal policies are general and benefit many branches and companies. For example, clusters and innovation systems are often used.
Michael Porter’s influential work on this topic is (1990): The Competitive Advantage of Nations.
They identified a new “network paradigm” in which the spatial dimension of inter-firm networking was of key importance.
The EU supports regions applying cluster policies through its Smart Specialization Platform for Industrial Modernization (S3P-Industry).
Liberalization of Network Industries and Services
The WTO’s GATS (General Agreement on Trade in Services), established in 1995, fosters the liberalization of services worldwide. However, because WTO negotiations are difficult, service liberalization often comes from multilateral agreements between countries.
Network industries in Europe were not liberalized before January 1, 1993.
The Bolkestein Directive in 2006 was an important step in the European Union towards service liberalization (now the EU Services Card).
Ultimately, the country of origin principle was dropped, as were other laws considered too liberal.
There were concerns that it would result in an ultraliberal Europe where welfare and social benefits would be cut.
Privatization of Public Enterprises
Public enterprises in manufacturing and network industries were privatized, not because it was necessary according to European treaties or competition policy, but because private firms are supposedly more efficient.
These liberalization and privatization processes were carried out with care, preventing foreigners from buying national enterprises.
Two contradictions:
- 1994: Attempted to create a cross-ownership structure, “Noyeau dur” or hard cores.
- 1995: The golden share.
Competition Policy Against Oligopolies
Apart from the control of state aid, another goal of competition policy is to control oligopolies and monopolies, because they are dangerous for the customer and for other enterprises. However, instead of becoming tighter, competition policy has become softer. In the US, since 1982, the authorities were more permissive about mergers and acquisitions that were creating large enterprises.
Even though European competition policy included merger control regulation for the first time in 1989, dominant position as such was not seen as a problem, but rather “the abuse of” dominant position.
This has led to the admission of monopolies and oligopolies.
Structural Reforms and Labor Market Reform
The industrial policy (neoliberalist) also defends structural reforms:
- Liberalization of markets
- Privatization of public enterprises
- Liberalization of the labor market
Macroeconomic policy is also important for industry (interest rates, taxes, etc.) and can be considered part of industrial policy.
The Keynesian idea that high wages are good for sustaining demand and employment was rejected. Instead, lower wages and general flexibility in the labor market were considered convenient for competitiveness.
European governments began reforming their labor markets in the mid-1980s.
The rapid expansion of the European Union to the East European countries increased the pressure over western labor markets. Western European firms strengthened their links with Eastern Europe since 1995.
Another important step in labor market reform were the Hartz I-IV Reforms (2002-2005) in Germany. This was shown as an example for the rest of Europe. The European Union continues to advocate for horizontal policies and structural reforms.