Developing the toolbox for a contemporary and
sustainable industrial policy
By Guido Nelissen1, April 2011
The objective of this paper is to develop a tool-kit for a sustainable industrial policy. The paper starts by
setting the scene with a description of the structural challenges industry is confronted with. Then it tries to
shed some light on the often controversial and obscure nature of industrial policy. Indeed, the term
‘industrial policy’ refers to various concepts ranging from providing an environment conducive to private
business to targeted state intervention on companies and sectors. Therefore it is important to provide
insight into the changing concepts and rationale for industrial policy. This is followed by an overview of the
different policies that constitute the toolbox for a contemporary industrial policy and by a description about
how the creation of open markets within Europe has led to sea-changes in the thinking on industrial policy.
Finally, the paper tries to look into the toolbox for a sustainable industrial policy that is capable of tackling
the challenges of the ‘third industrial revolution’.
1. Industry at the crossroads of structural change
A strong manufacturing base is essential for sustained economic growth and stability in Europe. And a strong growthand innovation-focused industrial policy is essential to European companies, workers and consumers in the context
of economic instability and the challenges of sustainable development. Despite intense processes of de-
industrialisation, EU’s industry still plays a major role in Europe’s economy because:
- Industry still represents ¼ of European GNP and employment (construction and energy included)
- Its productivity grew by 47% over the period 1995-2007 against an overall productivity growth of
less than 20%
- ¾ of European exports are made up of industrial goods. Exports of goods have increased by 4,7%
p.a. over the period 2000-2008, substantially faster than industrial production
- Industry is a driver for the development of all kinds of services: each job in industry creates at least
one extra job in the sector of business- related services (business-related services provide already
37% of all private employment)
- Industry represents 80% of all private R&D
Guido Nelissen is economic advisor for ACV-CSC Metea/Belgium and chairman of the select working party on industrial policy
of the EMF
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Industry contributes to the solution of many societal problems (environment, mobility, healthcare,
better quality of life, bringing sustainable development objectives closer).
But industry is currently under pressure from a broad range of mutually reinforcing challenges:
1. A 20% decline in industrial production (and a 10% decline in employment) as a result of the
financial crisis, which meant the failure of the paradigm of self-regulation of financial markets. It
should be clear that the financial sector has to serve the real economy and not vice -versa. Therefore,
re-regulation and proper supervision are urgently needed to ensure that financial markets promote
rather than endanger the growth of the real economy. The financial crisis added also to worries
about the growth potential of the (Western-) European economies as economic growth apparently
can only be sustained by the creation of bubbles (burst of the dotcom-bubble in 2001 and of the
subprime-bubble in 2008).
2. The new international division of labour with fast-growing and emerging economies (BRIC)
adds a new dimension to the ongoing process of globalization.
3. The increasing speed of technological development and technology diffusion with an
increasing presence of emerging economies in ‘high-tech’ sectors (supported by rapid advances
in information and communication technologies). As a result, specialization in high value-added
products and production provides less and less of a shield against competition.
4. The evolution towards a (global) knowledge society. As a consequence, innovation and research
have taken over from physical capital and manual work as the driving force for growth and
competitiveness.
5. Climate change and the challenge of sustainable development urge industry to move towards
carbon-free and resource-efficient production.
6. The ageing of our populations raises specific challenges: new products and services to support
elderly people, the challenge of active and healthy ageing, the increase in the average age of
retirement, the employability of older workers, skills shortages, etc.
7. Emergence of a whole range of enabling technologies such as biotechnology, nanotechnologies and new materials that may bring about major changes in the organization of
production and new activities and create the basis for new industries as well as transform existing
ones
8. Rapidly falling communication and coordination costs have removed the need to perform
manufacturing stages near to each other, thus facilitating the geographical dispersion of different
production activities related to the same product. This is reflected in the offshoring/relocation of
labour-intensive (and low-skilled) production stages and driven by the advances in digital
technologies and virtual zero telecommunication costs. Global competition is no longer over
products but over spatially unpacked production processes.
9. Closely related to the previous point is the emergence of tightly interlinked - and geographically
ever more dispersed - value chains. Previously integrated industrial operations have been sliced
up into highly complex, smaller manufacturing and service packages which are globally
redistributed. As a result, industrial sectors can no longer be treated as homogeneous,
independent and national. Value chains are increasingly complex and intertwined, vertically
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segmented, and cut across traditional sector-based categories and geographical boundaries. This
has a number of consequences:
 increasing importance of networks of suppliers and innovation partners and for
companies to move to strategic positions inside these supply chains;
 the performance of companies is increasingly dependent on the performance of upstream
activities (not only for production operations but also for previously internal service
functions);
 The growing importance of targeted policies directed towards specific elements within
value chains of specific categories of firms or towards strengthening linkages and creating
synergies within value chains. National industrial policy will be more and more oriented
towards the support and development of these value chains, and strengthening of the
position of home-companies inside these globalised company networks, rather than on
general sectoral policies.
 The emergence of global value chains is facilitating the rapid integration of developing
countries and former Communist countries into the global economy by the transfer of
capital, technology and knowledge.
10. The blurring borders between industry and services, the so-called ‘tertiarization’ of industry (a
term which is preferable to ‘de-industrialisation’ which is not really reflecting what is going on), is
rendering traditional statistical classifications obsolete as tools for policy-making (since these
make a clear difference between industry and services). A substantial component of the rising
share of services in economic activity is attributable to the ‘outsourcing’ to specialized service
providers of services activities previously undertaken within industry. Firms even switch from being
manufacturers to re-inventing themselves as service providers. This may take the form of a total
reorientation of business or be part of an unbundling of production processes (associated with
processes of fragmentation, off-shoring, vertical specialization or splitting-up of the value chain)
through which firms disinvest themselves of actual manufacturing production processes. Finally,
many industries derive a significant part of their added value from the delivery of services that
accompany the goods that they provide. Consequently, instead of addressing the issue of deindustrialisation, industrial policy has to adequately capture the close inter-linkages between
industry and services.
11. The ongoing challenge of integrating the industries of Central- and Eastern-Europe into the
Western European economic fabric.
12. The creation of a monetary union in Europe with a gradual build-up of internal tensions because of
the absence of an economic union. Currently, the sovereign debt crises in Greece, Ireland and
Portugal have led to an intense debate about the future of the euro and the economic governance
of the euro-zone. The new economic architecture of the EU (strengthened Stability and Growth
Pact, Economic imbalances procedure, Annual Growth Survey and the Euro plus pact) will have a
huge impact on the industrial development of the Mediterranean member states (and Ireland).
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The need to address the long list of structural challenges that industry is confronted with lies at the base of
the re-discovery of industrial policy, mainly since the turn of the century when the burst dotcom-bubble
acted as a kind of wake-up call to politicians.
2. Industrial policy: a ‘moving’ concept
“There is a great deal of confusion about what industrial policy is, only surpassed by the confusion about
what European industrial policy might be’ 2
Although industrial policy has for many decades been a controversial concept, a clear rationale for
industrial policy in economic theory does exist. There is a large consensus over the fact that state
interventions have to correct for market failures, market barriers and externalities which hinder the
emergence of well-functioning markets and the efficient allocation of scarce resources. Monopolies are a
clear example of market failure. But market failures also refer to the fact that individual firms do not have
the capacity to invest in the public infrastructure (roads, schools, R&D) that they need in order to function
properly.
Market barriers exist because of information gaps (e.g. about the market potential for launching new
products, and about cost structures of new activities) and coordination problems (setting-up a new activity
requires the creation of a new supply chain, which is beyond the capacity of an individual firm; standards
have to be established in order to define products/markets).
To lift market barriers or to correct for market failures, it is clear that industrial policies are needed to
regulate markets, to provide public infrastructure, to correct for information asymmetries and to support
R&D or projects with a long payback period.
Finally, externalities are costs and benefits which are not transmitted through prices. Pollution is the best
known example of an external cost, while exploiting an invention discovered by somebody else can be
considered to be a positive externality. Governments have to correct for these externalities by regulations
and ‘internalize’ these costs and benefits e.g. by taxes and subsidies, by the introduction of intellectual
property rights or by requiring the polluter to repair damages.
Although economic theory does not provide a generally accepted definition of industrial policy, we could
say that industrial policy refers to all micro-economic instruments with a structural impact on companies (=
influencing the strategic decision-making process) and on the regulatory framework in which they operate.
This definition does not mean that industrial policy is a static concept. On the contrary, industrial policy has
evolved over the years from a very broad to a very narrow interpretation. Although industrial policy lies at
the origin of the European Union (European integration started in 1952 with the creation of the European
Community of Steel and Coal), its importance waned during the eighties and nineties. During this period
European decision-making was mainly directed to:
 Restoring the macro-economic equilibriums in the EU (inflation, public deficits, monetary stability)
2
. Jacques Pelkmans, European Industrial Policy, Bruges European Economic Policy Briefings n° 15, p. 2.
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 The creation of a monetary union
 The creation of a single market with free movement of capital, services and persons. Competition
policy was key in the construction of the common market and industrial policy was considered as
incompatible with active national industrial policies (oriented towards providing state aid to
companies and to supporting the national industrial basis e.g. by the creation of ‘national
champions’). National industrial policy was considered to be in complete contradiction with the
creation of open markets requiring the dismantling of national barriers, subsidies and direct
interventions.
 The belief that services and the ‘new’, ICT-based economy would take over wealth creation from
industry, which would disappear anyway in the long run –because of de-industrialisation. Industry
and industrial policy were written off as being issues of the past. The contribution of industry to
society was no longer valued at its true worth.
Furthermore, there was the rise of neo-liberal radicalism, aimed at eradicating all kinds of state
interventionism and stating that the best form of industrial policy was no industrial policies as free markets
and free competition are the best tools to modernize industry and to remain competitive.
On top of all this there were the bad experiences with the interventionist industrial policy of the post-war
era: keeping afloat ‘sunset’ (or ‘chimney’) industries, which had to restructure and slim down anyway, was
detrimental to public finances and did not contribute to their survival in the long run.
To some extent industrial policy became a dirty word and a concept of the past, connected with industrial
lobbying, state ownership and pouring money down the drain. Talking about industrial policy also became
old-fashioned because it was seen to be in contradiction with the dynamics of free markets. As a result
traditional interventionist industrial policies were gradually phased out.
All this resulted in a clear tendency to limiting the role of national industrial policy while an equivalent at
European level did not yet exist. The tool-kit for industrial policy shrunk drastically. Subsidies to keep ailing
companies and sectors artificially afloat, support to ‘national champions’, protection of home markets,
strategies of import substitution and, public equity in strategic companies were no longer reconcilable with
the rules of the internal market. National interventionist industrial policies (the last wave of nationalizations
in Europe occurred in 1982 under the presidency of François Mitterand in France) had to give way to just
creating favourable framework conditions for companies to thrive. Industrial policy turned out to be policies
for supporting entrepreneurs.
But faced with the bursting of the internet bubble in 2001 (which meant the collapse of the so-called ‘new’
economy) and the resulting continuous economic slowdown, many voices have been raised, calling for a
contemporary and more appropriate industrial policy dealing with the important structural challenges that
industry had to face in the light of globalization and the challenge of sustainable development.
Starting in 2002, the European Commission has issued six communications on industrial policy. They led
to a gradual rediscovery of industrial policy in Europe and clearly showed the renewed commitment of the
Commission – after two decades of silence - to protecting and strengthening the industrial base of Europe
and to tackling the deep structural changes that industry is confronted with. It resulted in a clear recognition
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of the role of industry as a motor for social, ecological and economic progress. The wave of
communications on industrial policy must also be seen as new attempts to reconcile industrial policy with
the requirements of the internal market and the challenges of worldwide competition.
Over the years, a new and broader understanding of industrial policy has emerged. Over the ideological
boundaries there is now a large consensus of opinion: industrial policy must be considered as a policy
process in support of strategic collaboration between the private and the public sector which is mainly
based on soft tools (since ‘hard’ instruments such as price controls, buy-national campaigns or non-tariff
barriers are irreconcilable with the general policy frameworks of the EU) and which also includes
environmental objectives and policies (sustainable development), energy objectives and policies (the
European climate plan) and social objectives and policies (training, the social management of change, skill
gaps and corporate social responsibility). The result is a modernized toolbox for industrial policy.
The new industrial policy is considered to be an important lever to achieve the objectives of the Lisbon
Strategy launched in 2001. The Lisbon Strategy was designed to make Europe the most competitive,
knowledge-based economy in the world, with a growth-rate of 3%, 3% R&D expenditure and an
employment rate of 70%. Many of the broad economic policy guidelines on which the national Lisbon plans
were based referred to industrial policy (innovation, competition, training, ICT, infrastructure and
reinforcement of the industrial base).
Since 2010, it is the successor to the Lisbon Strategy, EU2020, which now acts as an umbrella over a
more active industrial policy. The strategy consists of a limited number of headline targets:
1. Employment: 75% of the 20-64 year-olds to be employed (currently 69%)
2. R&D / innovation: 3% of the EU's GDP (public and private combined) to be invested in
R&D/innovation (from less than 2% today)
3. Climate change / energy
a. greenhouse gas emissions 20% lower than 1990 (or even 30%, if a satisfactory
international agreement can be achieved to follow Kyoto)
b. 20% of energy from renewables
c. 20% increase in energy efficiency
4. Education:
a. reducing school drop-out rates from 15% to 10%
b. at least 40% of 30-34 year-olds completing third level education (up from 32%)
5. Poverty / social exclusion: at least 20 million fewer people in or at risk of poverty and social
exclusion (reduction from 80 to 60 million)
This Strategy is accompanied by 7 flagship initiatives, 5 of them directly related to industrial policy:
- A digital agenda for Europe
- Innovation Union
- Youth on the move
- Resource-efficient Europe
- An industrial policy for the globalization era
- An agenda for new skills and jobs
- A European platform against poverty
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3. The industrial policy tool-box
So as to remove a great deal of the confusion about what industrial policy might be in an open market
economy, the industrial policy toolbox can be broken down into 4 levels 3:
1. Policies that affect industry but are not necessarily intended to meet industrial policy
objectives
1.1. Macro-economic policy (monetary and fiscal policies)
1.2. Income distribution and taxation
1.3. Wage policies
1.4. Industrial relations
1.5. Land-use policies
1.6. Price controls
1.7. General environmental policies
1.8. Sustainable development
1.9. Regional policy
1.10. Energy security (e.g. promotion of renewables)
2. Policies aiming at creating the right framework conditions
2.1. Establishment of companies
2.2. Efficient public services
2.3. Liberalisation of services
2.4. Regional economic policies
2.5. Competition policies (state aids – subsidies)
2.6. Creation of an internal market
2.7. Corporate taxation
2.8. Company finance (access to credit)
2.9. Environmental policy with direct impact on the economy
2.10. Transport and logistics
2.11. Energy supply for industry
3. Horizontal industrial policies
3.1. Research and Development, intellectual property rights
3.2. Innovation
3.3. Standardization
3.4. Promotion of entrepreneurship
3.5. Promotion of risk capital
3.6. Development of skills and human capital
3.7. Public procurement
3.8. Trade policies
3.9. Industrial infrastructure (industrial parks, incubation centres, re-development of brownfields, etc.)
3
. Based on Jacques Pelkmans, European Industrial Policy, Bruges European Economic Policy Briefings n° 15, p.4.
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3.10. Impact assessments of new legislation
3.11. Competitiveness aspects of energy policy
3.12. Social management of restructuring
4. Sectoral policies
4.1. Strategic roadmaps and action plans for specific sectors/ supply chains
4.2. Strategic roadmaps and action plans for new technologies (technology platforms4, joint technology
initiatives (see below).
4.3. Cross-cutting policies: ICT, defence, energy efficiency, energy-intensive sectors, space, etc.
4.4. Creation of lead markets which aim to foster innovation-friendly market framework conditions
through standardization, regulation, labelling and procurement measures in order to bring down
barriers and promote the uptake of innovative products and services
4.5. Actions for a low-carbon industry and for the creation of new jobs
4.6. (Innovation) cluster policies
4.7. Specific sectoral interventions such as value chains are increasingly fragmented both within and
across sectors. Sectoral policies will thus be more and more directed to specific elements,
strengthening linkages and creating synergies between the elements making-up value chains.
Overall the differences between ‘framework’ and ‘horizontal’ policy measures can often seem rather fluid.
And horizontal measures can quite evidently have a very strong sectoral dimension. Policy areas such as
energy, environment or trade contain elements of almost all the categories mentioned above. But although
the distinction between the different categories is not always self-evident in concrete cases, the
classification nevertheless offers a clear conceptual framework for the debate on industrial policy.
When discussing this toolbox for a contemporary industrial policy, it should be clear that the hard core of
the European Union is the internal market, which has a very strong legal underpinning and a powerful
institutional backing. As a result, a number of industrial policy tools are no longer compatible with European
competition rules:
- Central planning
- Support to national champions
- ‘Buy national’ – campaigns
- Soft loans and debt rescheduling
- Trade protectionism (quota/tariffs)
- Abuse of anti-dumping procedures
- Barriers to takeovers by foreign companies
- Golden shares (owned by governments to block company decisions)
- Public equity which does not respect the rules of the internal market.
- Investment subsidies and support to ailing companies when not in line with the European
rules
4
. Technology platforms bring together the entire array of companies and research centres involved in a given technology in
order to induce synergies and mutual inspiration. Such platforms may be the origin of new standards, ideas, products. Some
examples: ERTRAC (transport),Smart Grids, Manufuture, Steel, Solar Thermal, Sustainable Chemistry, Hydrogen, Photo Voltaïc,
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Although these direct forms of public intervention are ruled out, there remains room for governments to
exercise direct influence on economic decision-making. Public ownership of companies is still possible but
on condition that governments behave as a private investor. Public investment funds (mainly with private
support) and public support to risk capital financing are still widespread. The establishment of public-private
partnerships has become common for the development of infrastructure... And recently, the European
Commission has created some new frameworks for public intervention such as the joint technology
initiatives, the creation of lead markets or rules for green/innovative public procurement. Finally, Europe
also has a large tradition of big industrial projects like Airbus, Galileo, Eurocopter, Ulcos, Iter, etc.
4. The ‘new’ industrial policy in Europe
Throughout the different communications on industrial policy, a new vision on ‘modern’ industrial policy has
emerged. The main building blocks of this new European approach are:
1. The strong emphasis on the knowledge society through strong support to R&D and innovation:
- Innovation: innovation action plans, innovation governance, technology transfer and diffusion,
intellectual property rights, access to finance for innovative SMEs, innovation clusters and
networks between businesses, public authorities and universities
- Research & Development: the 3% Barcelona objective, the creation of a European Research
Area, the strongly increased budget for the 7th Framework Programme, the creation of a
European Institute of Innovation and Technology, etc.…
- Deployment of a strategy for key enabling technologies: biotechnologies, ICT,
nanotechnologies, new materials, advanced manufacturing systems, etc.
2. The rediscovery of sectoral polices based on:
- Making use of existing horizontal instruments (but in a sector-tailored way)
- Soft tools: high-level panels, technology roadmaps, technology platforms, cluster policies, lead
markets, public procurement, etc.
- The principle that all sectors are important by not only focusing on high-tech sectors but also
on low- and medium-tech sectors, which can be highly innovative and also capable of reinventing themselves. Industrial policy is no longer about picking winners (to support) or losers
(to close or to bail-out). Many traditional industrial sectors have developed the capability to
successfully integrate and apply technologies (often from outside their sector) in specific and
innovative ways in order to enter ‘up-market’ or high value-added product segments. As a
result, and despite intense restructuring processes, traditional industry in the EU has proved
capable of remaining globally competitive.
- The fact that the development of supply chains should be taken into consideration (from
access to energy and raw materials to outsourced activities, after-sale services and the
recycling of materials). As parts of these supply chains are globalised, the concepts of national
sectors or industries with little interaction with other sectors or the rest of the world are
becoming less relevant.
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As a result, sectoral action plans have been launched for almost all of the strategic metal sectors:
shipbuilding (LeaderShip), automotive (Cars 21), mechanical engineering (EnginEurope), defence
(high -level group), electrical engineering (Elektra), ICT (taskforce) and metals (communication).
3. Integration of the dimension of sustainable development with a view to disconnecting economic
growth from environmental degradation. The main aspects of this sustainable industrial policy
being:
a. The development of eco-industries and eco-technologies
b. Support to eco-efficient production and clean technologies in traditional sectors
c. Promotion of renewable energy and energy efficiency
d. Integration of a global dimension: global sectoral aspects, emission trading, carbon
leakage, etc.
e. Access to raw materials: recycling, substitution, countering monopolies in extraction and
trade, fair trade agreements, renewable raw materials, and strategic partnerships to
ensure supply
f. Product policy: eco-design5 and integrated product policy6
4. Promoting ICTs as an important driver for productivity and growth
a. ICT-research represents 20% of all research
b. the European digital agenda
c. promotion of e-demand (e-government, e-Health, etc.)
d. broadband policies
e. integration of ICTs in established industrial sectors
5. Integration of a social dimension
a. Recognition that industrial change needs to be counterbalanced by social policies to
accompany this change: creation of the Globalisation Adjustment Fund, promotion of
Corporate Social Responsibility, active labour market policies for redundant workers,
structural funds in support of managing industrial change
b. Promotion of intangible assets and human capital: tackling skills gaps, promotion of social
innovation, knowledge diffusion, lifelong learning
6. New ways of public intervention
a. Joint technology initiatives: large-scale public-private partnerships in support of applied
and industrial-based research in breakthrough technologies such as nano-electronics,
clean air transport, fuel cells, embedded computing systems, development of concepts for
‘factories of the future’ 7, green cars, etc.
. Eco-design refers to performance criteria to be met by producers.
. An integrated product policy aims to make products and services more eco-efficient by looking at all stages of their life cycle in
an integrated way.
7. Factories of the future: development and integration of enabling technologies for adaptable machines and industrial processes
in order to deliver smart, networked, high performance and sustainable production systems.
5
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b. Development of lead markets. Six lead markets have been identified so far: eHealth,
protective textiles, sustainable construction, recycling, bio-based products and renewable
energies. Lead markets aim to create markets for a given technology in a targeted way by
creating conditions to facilitate the transformation of technological and non-technological
innovation into commercial products and services and by setting technological and
regulatory standards, labels, procurement measures in order to foster market-friendly
framework conditions.
c. An institutional framework to support green/innovative public procurement: public
procurement represents 16% of EU GNP but the green potential, whereby environmental
criteria are taken into account in the weighting of bidders, has only been marginally
exploited.
7. Improved governance
a. Establishment of the Competitiveness Council as a main political body resulting from the
merger in 2002 of the existing councils on internal market, industry and research
b. An integrated approach to industrial policy by better exploitation of the synergies between
different policies (much more has still to be done in this respect)
c. Impact assessments
d. ‘Better regulation’ strategies (legislative and regulatory simplification)
e. Improved use of the Open Method of Coordination.
All these initiatives show that the European Commission no longer shies away from industrial policy and
that industrial policy has moved to the top of European decision-making. There clearly is a renewed
commitment from the Commission to protect and strengthen the industrial base of Europe and to take into
account the specific needs and characteristics of individual sectors. The result is a clear recognition of the
role of industry as an engine for social, ecological and economic progress. This revival of industrial policy is
also resulting from the failure of neo-liberalism and market liberalization to address the structural
challenges that industry is confronted with. The creation of the internal market did not contribute to growth
and jobs as expected, nor was it able to prevent the burst of the dotcom-bubble in 2001 or the financial
crisis of 2008. It became gradually clear that a more balanced economic strategy was needed, leading to a
new, broader - but also softer and less ideological - redefinition of industrial policy, with close links to
sustainable development and social policies.
After many years of neglect, there is now a clear commitment to put the needs of industry centre stage
again. The debate on industrial policy has been re-opened and European industrial policy is now high on
the European political agenda.
5. The Third Industrial Revolution as an engine to build a green economy
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‘I think we are now standing on the brink of a Third Industrial Revolution: the Low Carbon Age.
Like the previous industrial revolutions, this will be driven by technology and new forms of energy. It will
also transform our societies”. 8
“…the nation that leads the clean energy economy will be the nation that leads the global economy. And
America must be that nation” 9
Are we at the dawn of a new industrial revolution? Climate change and the depletion of oil reserves and
other natural resources are changing the energy and resource landscape of our economies. This will have
far-reaching consequences and will lead to a radical transformation of industry and society. At the same
time, such a transformation presents opportunities for technical, social and political innovation/progress.
The question then is how industrial policy, as the main tool for shaping the production sectors, can steer
and foster this development.
Any “industrial revolution” should be perceived as a radical and abrupt - but also long-lasting - change at all
levels of society. Due to fundamental technological innovations in the energy field, a new balance is
developing between the economy and the institutional framework. These industrial revolutions have to be
differentiated from the “long waves” observed by Kondratieff and Schumpeter as they refer to
comparatively shorter cyclical fluctuations of growth rates, which are linked to a broad spectrum of
fundamental innovations and are not restricted to the energy sector.
A nice description of this third industrial revolution in comparison to the first and second ones can be found
with Jänicke and Jacob. 10
The table in the appendix shows very concretely that we are presently on the verge of an exciting
transformation of our economy. It takes the changes in the main energy source as the driver for a complete
overhaul of the existing economic system. The move to renewable energy (linked to a strong emphasis on
energy efficiency) will entail a deep economic transformation. It will oblige the current economic sectors to
develop sustainable structures. The dominant production models of the future will be based on innovation
and knowledge rather than on cheap resources. At the same time sustainable consumption patterns will
gradually become dominant on the demand side. This development will be supported by regulations and
market-based instruments (taxes, subsidies, feed-in tariffs, etc.). The enormous social and financial
implications of this transformation require a broad societal acceptance and a broad mobilization of society.
It will lead to a new institutional framework.
The first industrial revolution required the respect of property rights, free trade, creation of markets and
increased productivity through a far-reaching division of labour. All this increased the pressure for the rule
of law and political participation, hence the creation of a liberal state (the ‘liberal’ revolution).
The second industrial revolution meant the transition to mass production. As mass production is only
possible when met by mass consumption - and thus mass income, income distribution and social
standards were key to creating the necessary purchasing power. In turn this led to the creation of the
. José Barroso, President of the European Commission, October 1st, 2007.
Obama, State of the Union, Jan. 2010
1010 . Martin Jänicke, Klaus Jacob, A Third Industrial Revolution, Solutions to the crisis of resource-intensive growth, Berlin,
February 2009
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welfare state, with a key role for the social partners (the ‘social’ revolution). Besides unleashing an
impressive potential for innovation, the third (or green) industrial revolution will lead to a redefinition of our
societal systems and structures. Deep technological changes have an impact on social and institutional
structures and enter also the broader societal context through changes in social norms, cultural values and
institutional structures. Although blueprints do not exist, there will be a clear evolution to an ‘environmental’
state which will include sustainable functions (supporting sustainable production and consumption). The
term ‘sustainable welfare state’ has also been launched in this respect (the term was even used in the draft
Communication on the EU 2020 Strategy). Today we are probably in the prior phase of this Third or Green
Industrial Revolution, where basic innovations are developed and prepared for the market. This phase is
characterized by unexpectedly strong growth of renewables and new, low-carbon or eco-efficient
technologies. With the transition to an eco-efficient economy, the longstanding contradiction between
environmental protection and economic growth will come to an end. Economic growth and sustainable
development will become mutually reinforcing processes. It must be clear however that this transformation
needs to be supported by an appropriate industrial policy. The scope of traditional industrial policy should
be extended in order to integrate the challenges of sustainable development, eco-efficient production,
renewable energy, energy-efficiency, climate change, the protection of natural resources, sustainable
transport systems and the scarcity of resources.
The main challenge for industrial policy will be how to transform ecological challenges into economic
opportunities and how to create synergies between economic growth and environmental protection. By
combining climate change policies with the development of sustainable production and consumption
structures, new jobs, markets and activities will underpin economic growth.
6. Looking into the toolbox for a sustainable industrial policy
As global economic growth bumps into planetary boundaries and a resource and carbon-constrained
world, the decoupling of the creation of economic value from natural resource use and environmental
impacts becomes most urgent. The central challenge for a sustainable industrial policy is the need to
decouple rising living standards from economic growth. In order to do so industrial policy has to move from
a merely defensive to a much more pro-active approach to environmental issues by looking for synergies
between economic growth and environmental protection, by transforming ecological challenges into
economic opportunities, by creating a virtuous circle between the development of ecotechnologies/innovations and new environmental regulations, by engaging industry in a learning process
geared to more environmentally responsible activities. And in order to do so, the array of industrial policy
tools needs to be extended.
A sustainable industrial policy should shift away from the narrow focus on competitiveness by:
- developing a strategic approach that goes beyond enhancing framework conditions and
promotes life-cycle thinking and the need to close the ecological loop
- implementing broader, socially accepted goals to solve societal problems as a starting point
- supporting the development and diffusion of more eco-efficient technologies
- fostering the development of the markets for sustainable goods and services
Toolbox for a Sustainable Industrial Policy
13
-
adjusting industry to these upcoming sustainable markets and technologies
preparing industry for the scarcity of energy and other resources
and promoting sustainable industrialization in other parts of the world.
We have identified the following cornerstones for such a sustainable industrial policy:
1. Development of broad policy frameworks able to mobilize society for sustainable development
objectives, e.g. the EU Climate Package, action plans regarding energy efficiency, the promotion of
the use of renewable energy or the promotion of sustainable production and consumption. Also
flagship initiatives such as Sustainable Cities (large demonstration projects based on the
integration of sustainable transport, sustainable housing, waste recycling and renewable energy at
city level) contribute to the promotion of the values of sustainable development.
2. Ambitious and intelligent environmental regulations (prohibition, requirements and threshold
values). Properly designed environmental legislation may trigger innovation, support the market
uptake of new products and technologies, create competitive advantages and contribute to job
creation (e.g. the energy certification schemes and building requirements in the construction sector,
the CO² rules for cars, the energy-efficiency rules for domestic appliances, waste prevention, takeback obligations, etc. But better links between the development of regulations and eco-innovation
policy and a better coordination of the national approaches are needed.
3. A life-cycle oriented environmental product policy (integrated product policy) in order to
encourage producers to design products bearing in mind the environmental impacts throughout the
life cycle. An integrated product policy goes beyond the production phase and aims to improve the
environmental performance at each stage of the life cycle of a product (design, raw materials,
assembly, distribution and disposal. An integrated product policy is based on tools such as ecolabels, energy labelling, eco-design, substance bans, voluntary agreements between producers
and governments and the introduction of ecological footprint-labels.
4. Setting dynamic standards and benchmarks (performance-based or based on the specific
characteristics of a product) provides a strong market pull for eco-efficient innovation, technological
development and promoting sustainable consumption. Also voluntary agreements between
governments and businesses and codes of conduct/guidelines - often developed by trade
associations or NGOs - can be very successful. In this respect, a bit of public pressure is often
needed via the threat of mandatory regulations, technical assistance or subsidies. Companies that
participate can also take advantage of improved relations with stakeholders, cost reductions or firstmover advantages. But the main challenge here is to move to more dynamic standards whereby
the best performance in a product category serves as a standard to be achieved by other
producers.
5. Boosting resource efficiency by
 Developing clear indicators for measuring the increase in resource productivity and as a
basis for setting standards
 Dissemination of best available technologies, promotion of resource efficiency networks
and materials efficiency agencies
Toolbox for a Sustainable Industrial Policy
14
6. Tools for the internalization of external costs to ensure the optimal allocation of limited resources Market-based instruments:
 Taxes (including the introduction of carbon taxes) which fix a price for pollution and then
allow the market to determine the level of pollution. Environmentally related taxes can be
broadly broken down into two categories: ‘”polluter pays” and “user pays”
 Cap-and-trade systems - as opposed to taxes tradable permit schemes - first establish an
overall level of pollution allowed and then let the open market determine the price.
 Subsidies
 Tax credits,
 Green certificates that can be traded in order to achieve a quota obligation
 Feed-in tariffs: obligation for the distributors to pay a given price in order to promote the
development and deployment of renewable energy.
Market-based instruments use the price mechanism as a lever to steer behaviour. They help
prices ‘to tell the ecological truth’ and create incentives ‘to do better’ (in contradiction to
regulations or standards where there is no reason for further improvement once the required
levels are reached). Rather than prescribing a certain technology, they leave room for the
development of new technological solutions and therefore they are more flexible than
regulations. Today, eco-taxes compose only 7% of the total tax revenue in the EU against
48% taxes on consumption and 45% on labour. So there is clear evidence for the scaling-up
of eco-taxes while reducing the tax burden on labour .
7. Industrial Action Plans to support the development of eco-industries (currently in the EU
some 3,5 million employees or 1,5% of the total are employed in waste management, waste water
treatment, eco-construction, renewables, energy-efficiency) and eco-technologies: identifying
barriers to their expansion, creating a friendly regulatory environment, providing financial resources,
and diffusing eco-technologies in traditional industries The European worldwide leadership in many
environmental technologies should be supported. Moreover, renewable energies and energy
efficiency are the new growth markets with a large potential for job creation e.g. in the green makeover of buildings or the development of energy efficiency services. According to the European
Renewable Energy Council, the objective of 20% renewables in Europe by 2020 has the potential
to create 2 million new jobs. Moreover, developing, installing, operating and maintaining renewable
energy systems will create jobs which are mainly local in nature. The European Commission
estimates that the Directive on the energy performance of buildings will create between 280,000
and 450,000 jobs in Europe as the directive will result in a steep growth in energy service
companies offering energy audits and facility management. Finally, the French consultant Syndex
sees 670,000 new jobs emerging in the European machinery sector until 2020 thanks to the
deployment of environmental technologies.
8. Developing roadmaps for the transformation of traditional sectors (often the key sectors that
acted as drivers of the previous industrial revolution) to decrease carbon intensity and to improve
resource efficiency. Long-term sectoral industrial strategies and policies are needed in line with the
EU roadmap for a low carbon economy by 2050, Traditional industrial sectors and their employees
may find themselves called into question due to the challenges of an environmentally sound
sustainable development and the related rise in energy and raw material prices and more
demanding standards. Jobs will be lost, e.g. as a result of a move from private to public transport,
Toolbox for a Sustainable Industrial Policy
15
the dematerialization of products, longer durability of products, the phasing-out of fossil fuels (e.g.
end of the internal combustion engine), the transition from hardware to software, from fixed to
wireless networks, the reduced production of primary materials, etc..Tools for managing change in
a socially respectable way have to be developed in order to secure broad acceptance of
sustainable development. By definition, z shift to a green economy entails economic restructuring
and measures will be required to ensure a just transition for affected workers.
9. Specific research programmes for environmental technologies like SET (the Strategic Energy
Technology plan) and ETAP (the Environmental Technologies Action Plan)11. Environmental R&D
is often a complex process because it usually involves various scientific and technical disciplines.
Therefore eco-innovation should be supported by the development of strategic roadmaps for new
technologies/activities while including all related institutional and societal dimensions (as the
markets for these technologies also need to be developed).
10. Developing a strategy for key enabling technologies such as nanotechnology, micro- and
nanoelectronics, advanced and renewable materials and biotechnology. These technologies are at
the forefront of managing the shift to a low-carbon, knowledge-based economy. Indeed, the
contribution of ICTs to the objectives of sustainable development can hardly be under-estimated.
ICTs are key in energy management, eco -monitoring, the de-materialisation of products,
developing soft infrastructure/social capital (eHealth, eGovernment, eEducation), solid state lighting
and intelligent transport systems/logistics.
11. The growth of eco-industries and the deployment of eco-technologies are particularly challenging
for vocational training systems as they will change the structure of industrial jobs and will entail new
skill sets with much more focus on maintenance, repair, the provision of technical solutions,
computer-based control and measuring. Furthermore, support will be needed to re-skill redundant
workers from traditional sectors and to shift them to new sustainable jobs. Also many existing jobs
(e.g. plumbers, electricians and construction workers) will be redefined as profiles are greened.
More generally, there is a need to develop the new generic skill of ‘green competency capacity” learning to think green. Timely anticipation of new skill needs will become absolutely imperative.
12. To achieve the transformation to sustainable industrial structures, it will be necessary to shape the
demand side (moving away from the throwaway consumption culture) by means of educational
instruments to change behaviour, better identification of resource- and energy-efficient products by
means of labels and information campaigns - there is often a lack of demand from consumers
because of a lack of knowledge about costs and benefits throughout the life-cycle or
underdeveloped distribution channels. Shaping the demand-side also requires the development of
new demand-side policies::
 Activating the public sector as an innovation-driving demand factor: green/innovative
public procurement
The Environmental Technology Action Plan was launched in 2004 as an instrument to coordinate all programmes that promote eco-innovation, with inclusion of the promotion of uptake (creation of incentives, regulations and removing non-technological
barriers)
11
Toolbox for a Sustainable Industrial Policy
16
 Fostering of the emerging low carbon markets by the creation of lead markets which aim
to lower barriers to bringing new products and services to the market by means of
regulation, public procurement, standardization and supporting activities
13. A sustainable energy policy, which guarantees appropriate prices and security of supply,
prevents carbon leakage, supports low-carbon production (by steadily increasing the share of
renewables and promoting energy efficiency) and promotes the upgrade of energy networks to
incorporate ‘smart’ grids that facilitate the integration of renewables and improve security of supply.
14. Developing the concept of ‘sustainable factories of the future’ based on:
 Sustainable production processes fuelled by the societal demand for sustainable
development, which creates a strong business case for green products. Going green
strengthens the ‘license to operate’ for businesses. Therefore strategic decision-making in
companies should integrate the sustainability dimension as it will contribute to the longterm survival of any company.
 Wide adoption of best environmental management practices: corporate social
responsibility, company sustainability reports (to complement the annual financial
reports), introduction of ISO14000 (the standard for environmental performance),
promotion of the EMAS (the European Eco-Management and Audit Scheme)12
 Greater emphasis on redesign, remanufacturing and recycling, which constitute the core
of closed-loop manufacturing. Designing sustainable production systems would involve
the redesigning of products to extend their useful life by making them easy to repair,
recondition, remanufacture and recycle, thereby providing the basis for closed cycle
manufacturing,
 A human-centred work organization (of autonomous, creative and responsible
employees) with a large role for social innovation
 Business models oriented towards providing solutions instead of products e.g. by means
of service-extended products that can extend the lifecycle of products
 Development of eco-industrial parks and establishment of CO² neutral factories as a basis
for the effective implementation of closed-loop manufacturing.
15. The third industrial revolution is a serious challenge for trade unions as the transformation to green
jobs happens at the shop floor. ‘Green’ social relations at company level should focus on the
development of eco-factories through an integrated preventive environmental strategy leading to an
increase in overall resource efficiency, an optimized utilization of energy streams, the elimination of
emissions and wastes, recycling and sustainable products. Greening social relations will require
capacity-building, designation and training of ‘green reps’, the extension of the scope of health &
safety policies to sustainability issues, and the integration of innovation and sustainability-strategies
into the information and consultation-rights/procedures.
16. Introducing a global approach to the challenges of sustainable development: developing global regulations,
creating global markets for trade in sustainable products, promoting trade in sustainable products, global
diffusion of sustainable technologies and global sectoral agreements to reduce greenhouse gases.
EMAS is a voluntary eco-management and audit scheme in order to optimize production processes,
promote more resource efficiency and reduce environmental impacts
12
Toolbox for a Sustainable Industrial Policy
17
17. Development of appropriate governance structures :
 These structures should be able to balance issues such as climate change, energy and
resources with economic growth, jobs and welfare. They should permit capitalization on
synergies and opportunities while at the same time should be mindful of potential
conflicts.
 Need for an integrated approach that ensures the coordination between industrial policy
and sustainability strategies (inclusion of the Ministries/Departments for the environment,
research, energy and employment in the development of industrial policy).
 Policy coordination and cooperation between the EU, the member states and the regions.
 Need to address the social dimension: the restructuring of traditional industrial sectors into
sustainable structures needs broad social acceptance and may not negatively impact on
the distribution of welfare (a “just transition”).
 An effective and transparent monitoring system with implication of all relevant
stakeholders. This would require capacity to develop indicators, collect data, and analyze
and interpret results for guiding policy development.
 Support capacity-building, training and education to seize green economic opportunities
and implement supporting policies. The shift towards a green economy will require the
strengthening of government/company capacity to analyse challenges, identify
opportunities, prioritize interventions, mobilize resources, implement policies and assess
progress.
18. As the scale of financing required for a green economy transition is large, it can be mobilized by
smart public policy and innovative financing mechanisms. The European roadmap for moving to
a competitive low carbon economy in 2050, aiming to reduce greenhouse emissions by 80%,
requires an additional investment of around 1.5% of EU GDP per annum.13 As public finances will
not be sufficient, appropriate policy frameworks are needed to help leverage private financing and
improve the access to finance. Credit availability is still not back to normal and financial markets
remain risk averse. The interesting thing here is that, although upfront costs can be high and payback time long, many green investments pay for themselves because of the energy savings made.
In particular, further development of venture capital is needed in order to support the financing of
start-ups, growing firms and R&D. Other innovative financing solutions such as micro-credits, green
investment funds, project bonds, green loans (with payback in relation to the energy savings
resulting from the investment) and private-public partnerships should also be developed.
Furthermore, the European Investment Bank and the European Bank for Reconstruction and
Development should play a role in providing additional financing. Finally, re-regulating financial
markets should tackle the focus on short-term profits and support long-term investment strategies.
Banking on a low-carbon and sustainable economy has a huge potential to create new green jobs across
many sectors of the economy and indeed can become an engine of economic growth. Green investments
tend to be more employment-intensive so the net direct employment impact of the green transition will be
positive e.g. in public transport, in the installation of energy efficiency systems and retro-fitting in buildings,
European Commission, A Roadmap for moving to a competitive low carbon economy in 2050, COM(2011à112/4, Brussels,
2011
13
Toolbox for a Sustainable Industrial Policy
18
in replacing fossil fuels by renewable energy sources and in waste management and recycling. The new
jobs will largely offset the job losses in the “brown economy”. There is now substantial evidence that the
greening of economies does not inhibit wealth-creation or employment opportunities and that the global
economy still has untapped opportunities to produce wealth using less material and energy resources.
Many of the tools to support this transformation are already available, but they need to be fine-tuned and
applied on a larger scale, in a more dynamic and better integrated way, and with greater urgency. Only
then can a sustainable industrial policy become an engine for jobs.
The EU has established itself as a leader in the mitigation of climate change as well as in managing other
global environment issues (Europe currently accounts for about one-third of the world market in
environmental goods). The EU should be eager to retain this role. Europe has the technological basis, the
human capital, the political and institutional environment and the societal values to actively shape the
transition to a sustainable economy. Therefore, a sustainable industrial policy should position Europe’s
industry at the cutting edge of sustainable development. It should provide industry with the capacity to
improve and innovate continually, based on foresights into environmental challenges and future changes in
attitudes and consumption patterns. Europe is on track towards an eco-efficient economy, but the journey
has barely begun and the continued pursuit is likely to entail many more challenges and the need for active
public intervention.
__________________________
Toolbox for a Sustainable Industrial Policy
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Appendix
Table: Overview of industrial revolutions (Jänicke and Jacob, 2009)
1st Industrial Revolution
(1780)
2nd
Industrial
(1890)
Dominant technology and raw
material
Steam engine, power loom,
iron processing
Electricity,
chemistry,
combustion engine, assembly line
ICT, microelectronics, new
materials, eco-industries
Dominant Energy Source
Coal
Coal, oil
Renewable energies, energy
efficiency
Raw material
Steel
Plastics
Renewable
raw
biotech, recycling
Transport/communication
Railway, telegraph
Car, plane, radio, TV
High-speed
railways,
internet, mobile telecom
Dominant factor
Labour
Capital
Knowledge
Society/state
Liberal state, freedom of
trade,
constitutional
state, property rights
Welfare state, mass production,
mass society, social partners,
parliamentary democracy
Civil society,
global
environmental
demography
Core countries
UK, Belgium,
France
USA, Japan, Germany
EU, USA? China? Japan?
Toolbox for a Sustainable Industrial Policy
Germany,
Revolution
3rd Industrial
(1990)
Revolution
material,
globalisation,
governance,
state,
20
Discussion outline
1. In your opinion, what are the three main challenges that industry in your country is
confronted with? Try to agree within your work group.
(Make use of the overview in point 1).
2. Do you see some revival of industrial policy in your own country?
(See point 2)
3. What are the main proposals in the EU-2020 strategy of your country (the so-called
national reform plans)?
(Only for EU member states)
(See point 2)
4. Try to assess good and bad industrial policy practices in your country by making
use of the toolbox mentioned in point 3.
5. The building blocks of industrial policy have changed over the years. Do you see
the same developments in your own country?
(See point 4)
6. When looking at the changes in the industrial structure of your country, do you see
a tendency towards a low-carbon and resource-efficient economy?
(See the description of the ‘Third Industrial Revolution’ in point 5)
Toolbox for a Sustainable Industrial Policy
21
7. To what extent are the policy instruments for a sustainable industrial policy (as
described in point 6) already applied in your own country?
Toolbox for a Sustainable Industrial Policy
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