Against dramatisation. The European Commission's communication on "an industrial policy for an enlarged Europe" is, in my view, one of the best documents to come out of the Community machine in recent times. Europe needed it, because we know the fears about the delocalisation of production activities from the EU to parts of the world where production costs (especially labour costs) are lower, within the context of the alleged "disindustrialisation of Europe", and which is one of the main reasons behind the lack of enthusiasm on the part of a section of the public about the Union's enlargement towards the east. The Spring Summit (25 and 26 March) affirmed that "the risk of disindustrialisation remains" and that it awaited "with interest the report drawn up by the Commission" on this (paragraph 17 of the conclusions).
But there are risks. Several commentators have put the Commission's document forward as a response to these fears. However, I think that this would be to diminish it. The Commission does not just explain the reality of the situation and deflate various exaggerations; it also recognises that certain risks exist, and explains how to tackle them. The situation is much more complex than superficial analyses, which go no further than collecting together a mass of figures, might suggest. Certainly, most of the guidelines quoted by the Commission were already developed under the Lisbon strategy: investment in research and innovation, greater interest in education and training; improved functioning of the internal market; promoting competitiveness, simplifying the European legal framework. But these objectives and the initiatives to be taken to achieve them specifically target industry's position.
Producing goods. The starting point might, at first glance, seem naïve: "industry plays a vital role for the prosperity of Europe". But only people who have forgotten the guidelines and debates of the past would find this sentiment banal. If you look at the statistics alone, ignoring the lifeblood of a country or a region, and are indifferent to how people live, you will see that the manufacture of goods and agriculture plays an ever decreasing role in Europe's economy. Don't let's get started on agriculture: it represents just 3 or 4% of overall employment, and even less of the GDP; and manufacturing's share continues to fall, while that of services rises. From there to designing an "advanced economy" with little or no agricultural production and saying goodbye, with no regrets, to the production of goods which could be produced elsewhere, is just one step, which some economists would not hesitate to take. That's what being modern's all about. Bitter-sweet letters were exchanged between Chancellor Schröder, who was unhappy with various aspects of the Commission's policy, and President Prodi, with his firm and passionate defence of the manufacturing industry. Last year, the same Chancellor, President Chirac and Prime Minister Blair wrote twice to Romano Prodi to repeat the same demands. As it was seemly to reinforce the principle, the Commission did so. The most widely-quoted phrase is the following: "the European economy continues to depend on the dynamism of its industry, which has become increasingly bound up with services, to the development of which it contributes". Good riddance, therefore, to the idea that Europe could have the goods its people need made elsewhere, in the name of a "world division of labour", the logic of which would also dictate giving up autonomy of food production.
Three-point diagnosis. The Commission backs up its views with a conclusion which sets right several misconceptions and superficial readings. This is the bulk of it:
1. It is true that manufacturing industry's share of total employment has been falling since the late 1950s, but the main reason is "the growth of industry's productivity, which is greater than that of services". The vast majority of the industrial sectors have registered job losses coupled with an increase in added value and productivity. This is a normal consequence of economic progress and therefore "a trend to be encouraged and facilitated".
2. The process referred to should not be confused with actual disindustrialisation, which pre-supposes an associated fall in employment, production and productivity, worsened by a trade deficit. There is absolutely no evidence of such a situation in the EU. Genuine disindustrialisation was detected in 5 of the 23 sectors analysed, which were: textiles; clothing; leather shoes; shipbuilding and repairs, oil and coal refining. Overall, industrial production in the Union has increased significantly.
3. Industry increasingly outsources certain service activities (transport, logistics, computing etc), which were previously carried out "in house". This phenomenon has accentuated the manufacturing industry's apparent falling-off, which has in fact just re-focused on its basic mission of creating goods. At the same time, supply of industrial products contains more and more services (maintenance, after-sales service, etc), which accentuates the industry/services interpenetration. Services exist largely as a function of industrial production (but statistics do not show this link).
A few "worrying signs". This diagnosis puts the alleged disindustrialisation back within context, but does not remove the "worrying signs" noted by the Commission, which are;
a) the drop in the growth of the productivity of work. Statistics clearly show a slowing-down, although it is not uniform and does not exist in all industrialised countries. The United States has not experienced it, nor, closer to home, Finland, Sweden and Ireland. The Commission concludes from this that the slowing down "is not inevitable and should not be interpreted as a normal part of the process of industrial change". Personally, I feel that growth in productivity has its limits, otherwise we would be living Charlie Chaplin's "Modern Times". This does not weaken the Commission's view that the performances of European industry are disappointing in parts, for example in the high technology sectors.
b) insufficient efforts by the EU in favour of research and innovation, especially on the part of business, which justifies the new objectives stated or proposed in this field. The causes the Commission gives for companies' relative apathy, compared to the US, are: greater difficulty of access to sources of private funding; a "culture which is sometimes too cautious to take risks", insufficient collaboration between public research bodies (including universities) and the industrial sector. The lack of public effort is not included among Europe's main failings (see this column of 23 April): instead, the focus is on the regulatory environment which "plays a fundamental role in research, innovation, entrepreneurial dynamism and growth of productivity". The report recognises American superiority in all of these. The US not only "attracts scientists", but also holds a "clear attraction" for the young Europeans who finish their studies in the country and then decide to stay.
c) increasingly strong competition from emerging countries such as India and now China, joining the traditional competition from the US and Japan in high-tech sectors. The Commission stresses that competition from China is spreading from the usual sectors- textiles, shoes and simple industrial products, such as bicycles, to electronics and white goods, referring to the companies TCL, Haier, Galanz.
Delocalisations to Chinese competition in purchase of raw materials. On top of direct competition from Chinese producers comes the phenomenon of delocalisation: European firms moving their production to China or India (or other countries where production is cheap). This phenomenon "is starting to affect research and the high-technology sectors (...). China and India, with improving infrastructure, expertise acquired in various high-tech sectors, excellent universities and lower research costs than Europe, offer advantages that cannot be overlooked". And this is also true of some services, which can be moved to India, a country with a highly-qualified, English-speaking workforce.
The Commission also takes note of a more recent phenomenon, which has already been spoken of in the press: Chinese competition in the purchase of raw materials. Beyond the macro-scopic case of steel, which has already been challenged by European users due to the price increases caused by the Chinese purchases, the Commission cites: precious metals, non-ferrous metals, coke, rubber and, increasingly worringly, recyclable metal waste, a rich source of raw material for the European processing industry. Some analysts expect the threat of Chinese purchasing to extend to energy products, and the Commission is explicit in its conclusions: "if this situation continues, it will seriously threaten the competitiveness of certain European industrial sectors".
Europe's assets. However, the Commission warns against over-dramatisation. The "legitimate factors for concern" at sectorial level should not "lead to macro-economic generalisations". European investments in China are expanding, it's true; but they are not even 2% of the total; work productivity is increasing in China, but the 2002 analyses put it at 8.6% of Germany's. And then, "a China which is developing and becoming richer will be a China which imports more", and its trade opening will offer considerable opportunities for European industry, as long as the appropriate policies are in place. They are the subject of the last chapter of the Commission's document, and I propose to return to it.
(F.R.)