It’s not a bad thing if European economies start embracing industrial policies again

By Ding Yifan Source:Global Times Published: 2019/4/1 21:33:40


Illustration: Luo Xuan/GT

Many Western media have recently reported that the EU is embracing industrial policy again, saying that the EU is inclined to accept the French proposal to carry out European industrial policies to reinvigorate its industry and strengthen the foundation of Europe's economic recovery. 

In fact, the introduction of policy measures to help the development of domestic industrial enterprises was common in Europe in the early postwar period. However, with privatization and deregulation since the 1980s, this intervention has gradually disappeared. 

Under the guidance of the state intervention theory of "Gaullism," the French government provided loan interest rate subsidies to select companies and established state-owned enterprises to encourage technological development since the 1960s. Thanks to this policy, France successfully developed new technologies, including high-speed rail, civil nuclear power plants, aerospace and aviation in the 1970s, quickly becoming a global leader in many industrial sectors, just two or three decades after the World War II.

Industrial policy in the UK was first carried out to protect its textile industry from external products. After the Glorious Revolution, the British completely stopped importing wool textiles from France and the Netherlands, and in 1699 passed the Wool Act to protect the domestic textile industry. In 1700, the British Parliament enacted legislation prohibiting the import of cotton fabrics from India. 

Many British economic historians have pointed out that the industrial policy of the House of Tudor was the key to the rise of Great Britain. As for the comparative advantage theory advocated by Adam Smith, the originator of economics, the theory is only a set of statements that the British "invented" after obtaining its industrial predominance. The theory was used to persuade other European countries to no longer use industrial policy to foster domestic industrial enterprises to compete with the UK.

The active intervention of the government's industrial policy also created the miracle of the German Confederation. In order to protect its own market, Prussia took the lead in establishing the German Customs Union, implementing a high-tariff policy to keep British and French industrial products out of the German Confederation. It set up state-owned enterprises and funded private companies, laying the foundation for Prussia's victory in the Franco-Prussian War in 1871 and the establishment of the German Empire.

For more than a century from the 1820s to the 1930s, the US implemented unprecedented high tariff policies. It was under the protection of high tariffs that the US transformed from an agricultural country to the world's top industrial power. On the eve of World War I, the US had the highest industrial output in the world, accounting for 32 percent worldwide.

After the 1980s, neo-liberalism became the dominant school of thought in Western countries. Its "market fundamentalism" railed against economic interventionism, and industrial policy was swept away by economics and government decision-making departments.

Although these theoretical "revolutions" were beneficial to financial liberalization, they indirectly caused the industrial hollowing-out and social polarization in the West. In recent years, the significance of industrial policy in the strong economic growth of emerging economies has drawn the attention of developed countries that are suffering from industrial decline. As a result, Western countries have increased their intensity in accusing emerging economies in the WTO of state interventionism and violating the principles of free trade with their industrial policies. 

They must have forgotten the history of their own development.

Fortunately, these first-comers in industrialization have finally realized the importance of industrial policy as they struggle to get out of their current "stagnation." They have started to rethink implementing industrial policy as a weapon to revitalize their industries.

In fact, emerging economies only need fair competition in economic development and are not afraid of developed countries returning to their old ways of industrial policy. If developed countries could justify implementation of industrial policy, it would not necessarily be a bad thing for emerging countries that rely on their own industrial policies for rapid development.

The author is a Yiyang chair professor at Beijing Foreign Studies University.


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