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[Publisher:] Deutsches Institut für Wirtschaftsforschung (DIW) [Place:] Berlin [Year:] 1996
DIW Discussion Papers 129
Both the increasing mobility of capital and the globalization of enterprises has changed world markets in the last two decades. The economies of South-East Asia, especially Japan and South Korea, are no longer the work benches of the western industries, but they were very successful in catching up to the former leading nations of Europe and the United States. This development gave rise to a new discussion on the effects of industrial policy. One of the main shortcomings of this debate is the lack of a comprehensive analysis of all relevant decisions and measures. Since 1990 the Commission of the European Union (EU) has published several papers containing the objectives and instruments of a new industrial policy. The intention is to improve the competitiveness of the European firms and the creation of about 15 million jobs until the end of the century. For this reason the Commission wants to encourage non-physical investment to shift the physical-based economy to a knowledge-based economy. R&D efforts should be better coordinated and economic incentives to support the diffusion of R&D results into products and processes have to be applied. Another key element of these initiatives is the implementation of the so-called transeuropean networks (i.e. transport infrastructure, telecommunications and energy networks). Subsidies for ailing industries will be reduced while the future technologies will be promoted for their positive externalities on other sectors. The Commission lays particular stress on the Single Market as a kind of training field for the European industries, too. Competitive home markets are a necessary prerequisite for being internationally successful. A closer look at the main trading partners of the EU, Japan and the USA, shows that the governments of both countries pursue similiar strategies. The concept of a new industrial policy which takes into consideration the positive dynamic effects of competition could be justified by the results of the New (or Endogenous) Growth Theory. Particularly the externalities of investment decisions and the incentives to concentrate on R&D are analyzed. Studies like the famous one by Michael Porter or the ideas of Robert Reich reveal the increased importance of non-physical investment and competition, too. As a matter of fact the planned measures of the Commission seem to be a step in the right direction for their emphasis on improving the long-run growth conditions and for making the EU countries a more attractive location for international enterprises. Higher growth rates will offer the chance to create new jobs but in the short run this will not solve the current labour market problems. For leading economies (e.g. Germany) one element of a strategy to overcome these difficulties could be the choice between a more productivity-oriented or a more employment-oriented growth path within the sectors producing non-tradable goods. The second element is the reduction of working hours per head. This decrease could be combined with human capital investments. Reduced income could be compensated by a better qualification of the employees which lowers the probability of being laid off.
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