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MPIfG Discussion Paper
MPIfG Discussion Paper 20/12
The Political Economy of Industrial Policy
in the European Union
Fabio Bulfone
Fabio Bulfone
The Political Economy of Industrial Policy in the European Union
MPIfG Discussion Paper 20/12
Max-Planck-Institut für Gesellschaftsforschung, Köln
Max Planck Institute for the Study of Societies, Cologne
October 2020
MPIfG Discussion Paper
ISSN 0944-2073 (Print)
ISSN 1864-4325 (Internet)
© 2020 by the author
About the author
Fabio Bulfone is a postdoctoral researcher at the Max Planck Institute for the Study of Societies in Cologne,
Germany.
Email: bulfone@mpifg.de
MPIfG Discussion Papers are refereed scholarly papers of the kind that are publishable in a peer-reviewed
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Bulfone: The Political Economy of Industrial Policy in the European Union iii
Abstract
e Great Recession renewed calls for a return of state activism in support of the European
economy. e widespread nationalization of ailing companies and the growing activism
of national development banks led many to celebrate the reappearance of industrial policy.
By reviewing the evolution of the goals, protagonists, and policy instruments of industrial
policy since the postwar period, this paper shows how state intervention never ceased to be
a crucial engine of growth across the EU. It argues that the decline of the Fordist wage-led
production regime marked a turning point in the political economy of industrial policy
with the transition from inward-looking to open-market forms of state intervention. e
main features of open-market industrial policy are then discussed referring to the cases of
the internationalization of national champions in public service sectors and the prolifera-
tion across the EU of industrial clusters. Finally, the paper reviews postcrisis instances of
state intervention and highlights how, rather than breaking with past tendencies, the Great
Recession further accelerated the shi towards open-market industrial policy.
Keywords: comparative capitalism, European integration, Germany, industrial policy, na-
tional development banks
Zusammenfassung
Die Große Rezession hat Stimmen wieder laut werden lassen, die nach neuen Eingrien des
Staates zur Stützung der europäischen Wirtscha verlangen. Die allerorts zu beobachtende
Verstaatlichung angeschlagener Unternehmen und der wachsende Aktivismus staatlicher
Entwicklungsbanken veranlassten viele dazu, die Wiederbelebung der Industriepolitik zu
feiern. Anhand eines Rückblicks auf die Entwicklung der Ziele, Protagonisten und politi-
schen Instrumente der Industriepolitik seit der Nachkriegszeit zeigt dieses Papier auf, dass
staatliche Interventionen nie aufgehört haben, ein entscheidender Motor für das Wachstum
in der gesamten Europäischen Union zu sein. Es vertritt die ese, dass der Niedergang des
fordistischen lohngetriebenen Produktionsregimes einen Wendepunkt in der politischen
Ökonomie der Industriepolitik markierte, an dem ein Übergang von nach innen gerich-
teten zu an oenen Märkten orientierten Formen staatlicher Interventionen stattfand. Die
Hauptmerkmale dieser marktwirtschalichen Industriepolitik werden dann anhand von
Fällen der Internationalisierung nationaler Champions im öentlichen Dienstleistungssek-
tor und der Verbreitung industrieller Cluster in der EU diskutiert. Abschließend werden
Beispiele für staatliche Interventionen im Nachhall der Krise untersucht, die aufzeigen sol-
len, wie die Große Rezession den Wandel hin zu einer marktwirtschalichen Industriepoli-
tik weiter beschleunigt hat, anstatt mit früheren Tendenzen zu brechen.
Schlagwörter: Deutschland, europäische Integration, Industriepolitik, staatliche Entwick-
lungsbanken, Vergleichende Kapitalismusforschung
iv MPIfG Discussion Paper 20/12
Contents
1 Introduction 1
2 Analytical framework: e alleged decline of industrial policy 2
3 Inward-looking industrial policy: From the postwar period to
the demise of Fordism 5
4 Open-market industrial policy and its main features 8
e commanding heights of the economy: From nurturing
domestic champions to creating global rms 10
FDI attraction and the emergence of industrial clusters 13
5 Industrial policy aer the Great Recession: Return of the state
or rhetorical shi? 16
6 Conclusion 19
References 20
Bulfone: The Political Economy of Industrial Policy in the European Union 1
For comments on earlier dras the author is particularly grateful to Sebastian Billows, Dorothee
Bohle, Benjamin Braun, Björn Bremer, Donato Di Carlo, Martin Höpner, Marina Hübner, Manolis
Kalaitzake, Andreas Nölke, Arjan Reurink, Sidney Rothstein, Fritz Scharpf, Matthias iemann, and
participants of the European University Institute workshop on “e Return of Industrial Policy” held
in Florence, May 27–28, 2019, and the Annual Meeting of the Society for the Advancement of Socio-
Economics held in New York, June 27–29, 2019.
The Political Economy of Industrial Policy
in the European Union
1 Introduction
Over the last decade, industrial policy has become something of a buzzword in debates
about the European economy. Or, as e Economist famously argued, the term was
“back in fashion” among policy-makers, journalists and academics alike (Economist
2010). is revival was mainly caused by the dramatic economic repercussions of the
Great Recession, which called into question the neoliberal consensus and forced even
the US and the UK to bail out large domestic banks and struggling carmakers. e fact
that the two bastions of neoliberalism were at the epicenter of the crisis unavoidably
tarnished the aura of infallibility of “self-regulating” markets (Wade 2012, 244).
Between 2007 and 2009, nationalizations reached a value of between 220 and 320 bil-
lion dollars (Voszka 2017, 96). Despite the fact that these operations were deemed to
be temporary, governments across the advanced world still retain many participations
acquired at the peak of the crisis. e meltdown of Anglo-American capitalism was
counterbalanced by the resounding success of myriad Chinese state-inuenced multi-
national enterprises (Aiginger and Rodrik 2020, 189–90). In another evident sign of the
resurrection of state capitalism, even countries that historically showed little appetite
for public intervention like Germany and the UK are now embarking on long-term
industrial policy strategies (Federal Ministry for Economic Aairs and Energy 2019;
HM Government 2017). German state authorities stand out for their recent activism,
with the implementation of many initiatives ranging from the “Industry 4.0” plan to the
Industrial Strategy 2030 and the manifesto for a new European industrial policy recently
signed with France (Buigues and Cohen 2020, 276).
Like the Great Recession, the recent coronavirus emergency prompted once again calls
for the state to play a more activist role in the economy. e European Commission li-
ed state aid restrictions and allowed, even encouraged, member states to acquire stakes
in strategic companies to fend o the threat posed by Chinese cash-rich state-backed
giants (Financial Times 2020a; 2020b). is paper aims to show that this postcrisis re-
discovery of industrial policy amounts more to a rhetorical shi than to a real policy
change, as state intervention never ceased to be an important ingredient of industrial
2 MPIfG Discussion Paper 20/12
upgrading across Europe, as elsewhere (Cherif and Hasanov 2019, 9). It does this by
tracing the evolution of goals, protagonists, and policy instruments of industrial policy
in the EU since the postwar period to show how the Great Recession did not mark a
watershed moment, but was rather the last step in a process of reconguration of the
role of the state in the economy dating back to the transition to the Post-Fordist model
of production in the 1970s (Volberding 2016, 5).
e rest of the paper is organized as follows. Section two outlines the analytical frame-
work calling for an integration of industrial policy in current debates on the political
economy of European integration. e third section reviews the main elements of the
inward-looking patterns of state intervention characterizing the rst three decades of
the postwar period. e fourth section argues that the transition from the Fordist to the
Post-Fordist production system caused the decline of inward-looking industrial policy
and the emergence of new open-market patterns of state intervention characterized by
new goals, protagonists, and policy instruments. e penultimate section reviews some
high-prole cases of state intervention in the aermath of the Great Recession. It high-
lights how, rather than marking a radical discontinuity, let alone a return of the state,
they should be seen as accentuations of precrisis tendencies. e conclusion discusses
the ndings and outlines pathways for future research.
2 Analytical framework: The alleged decline of industrial policy
is section reviews the recently revived debate about the political economy of indus-
trial policy in the EU. In doing so, it aims to meet four goals: to provide a denition of
industrial policy, to point to the scant attention given to this theme among scholars of
European capitalism, to call into question the analytical leverage of the frequently re-
iterated distinction between horizontal and vertical forms of state intervention, and to
engage with the liberal economic patriotism framework as developed by Ben Cli and
Cornelia Woll.
Industrial policy is dened as any state intervention aimed at channeling resources to
specic industries, sectors, or rms through an array of instruments including credit,
equity, tax exemptions, and public procurements (Ahrens and Eckert 2017, 25–26). A
range of state actors can engage in activist industrial policy, from the central govern-
ment to regional or municipal authorities and from state-owned development banks to
sovereign wealth funds and unelected specialized investment agencies. e expected
industrial upgrade is ultimately meant to serve long-term economic policy goals such
as fostering employment, growth, and export competitiveness (Katzenstein 1985, 25).
Despite signs of a recent reappraisal (Brazys and Regan 2017; Clion, Díaz-Fuentes, and
Revuelta 2010; Colli, Mariotti, and Piscitello 2014; Mertens, iemann, and Volberding
Bulfone: The Political Economy of Industrial Policy in the European Union 3
2020; Ornston and Vail 2016; atcher 2014b), industrial policy is still understudied
among scholars focusing on comparative capitalism and EU public policy. According
to a widespread view within the eld, by limiting the eectiveness of protectionist mea-
sures and Keynesian demand management, from the 1980s the deepening of EU market
integration has caused the demise of activist industrial policy (Häusermann and Kriesi
2015, 208; Leibfried et al. 2015; Levy 2006, Introduction; Cohen 2007, 207).
e wave of privatization and liberalization within the European economy between the
1980s and 1990s further corroborated this diagnosis, leading academics to shi their
focus to the study of state intervention in rising economies like Brazil, China, or India
(Ban 2013; Ban and Blyth 2013; Nölke et al. 2015). Despite the many merits of this re-
focus, it came at the cost of neglecting the eorts the old states of Europe were making
to engineer new forms of industrial policy compatible with the Post-Fordist regulatory
framework (Cli and Woll 2012; Naqvi, Henow, and Chang 2018; Ornston and Vail
2016; V. A. Schmidt 2009).
A less pessimistic take on industrial policy has it that the transition from the Fordist to
the Post-Fordist model of production led to the demise of “vertical” industrial policies
targeted at specic rms or sectors, in favor of pro-business “horizontal” interventions
(Genschel and Seelkopf 2015, 236; Trouille 2007, 506; Vukov 2019). Underlying this
shi of focus is the idea that, rather than “picking winners,” state actors should imple-
ment measures aimed at establishing a favorable regulatory environment for all compa-
nies. Prescribed horizontal measures include reducing corporate taxation, strengthen-
ing the education and vocational training system, improving the infrastructural net-
work, and exibilizing the labor market (Aiginger and Rodrik 2020, 195; Durazzi 2019;
Wade 2012, 226). Within the EU, the European Commission has emerged since the
1980s as the main advocate of horizontal industrial policy interventions (Cohen 2007
222; Pianta 2014, 278–79).
is view was recently espoused by Torben Iversen and David Soskice, who argue that
advanced capitalist states can help the emergence of knowledge-intensive industrial
clusters by establishing competitive product markets and fostering investment in re-
search and development (Iversen and Soskice 2019, 10). Although few would deny that
state actors increasingly engage in pro-business horizontal policies, this did not lead to
the demise of vertical measures targeted at specic rms or sectors altogether. To the
contrary, in a globally interconnected economy dominated by a handful of corporate gi-
ants, industrial policy increasingly takes the form of bilateral interactions between state
elites and large multinationals (Bohle and Regan 2019; Brazys and Regan 2017, 411–17;
Colli, Mariotti, and Piscitello 2014, 488–95).
Hence, while the neoliberal turn taken since the 1980s by the process of EU market
integration profoundly altered the patterns of state intervention in the economy, the
very nature of this transformation cannot be captured by relying on a dichotomous
distinction between vertical and horizontal forms of intervention. Instead, the follow-
4 MPIfG Discussion Paper 20/12
ing sections show how the evolution of state intervention in the EU can be better traced
by distinguishing between the inward-looking industrial policy carried out by elected
ocials characterizing the Fordist era and the open-market interventions carried out
by technocratic actors employing nancialized products typical of the Post-Fordist era.
To trace the evolution of state intervention across the EU, this work builds on Cornelia
Woll and Ben Cli’s (2012) seminal contribution on liberal economic patriotism. Ac-
cording to Cli and Woll, supranational market integration presents elected ocials
with the dicult task of reconciling “their mandate to pursue the political economic
interests of their citizenry” with an environment “where large parts of economic gov-
ernance are no longer exclusively within their control” (308) as capital mobility made
most traditional tools of postwar state intervention ineective.
is analysis complements Cli and Woll’s contribution by taking a dierent angle in
terms of its focus and level of analysis. In terms of the focus, Cli and Woll follow An-
drew Shoneld (1965) in seeking cross-country variation in the instruments and goals
of state intervention. e present work aims instead at identifying the common prob-
lems EU member states were faced with when adapting their industrial policy tools to
the transition from the Fordist to the Post-Fordist production models. is does not
equate to espousing the tautological assertion that the state matters everywhere and in
the same way (Alami and Dixon 2020, 78), as variation exists in particular when looking
at the outcome of state intervention. It will be shown how this variation is further ac-
celerating the divergence between the German core and the many peripheries of the EU
market. is type of approach serves instead the purpose of highlighting that industrial
policy has always been a key factor in shaping the many forms of European capitalism.
In terms of the level of analysis, the scope of this inquiry is narrower than that proposed
by Cli and Woll. While Cli and Woll remain agnostic as to the precise nature of the
patrie, which could be the nation state, a supranational institution, or subnational gov-
ernments (Rosamond 2012), this work focuses on EU member states, studying the way
in which their national governments (or other state actors) used industrial policy to
carve out niches of competitiveness for their domestic economies. is is because, de-
spite long-standing eorts by the EU to launch Europe-wide industrial policy projects
in support of SMEs or high-tech investments (Ahrens and Eckert 2017, 23–26; Medve-
Bálint and Šćepanović 2019; Pianta 2014, 290–91), most measures of state intervention
are still conducted at member state level (Defraigne 2017; Mertens, iemann, and Vol-
berding 2020).
is does not mean to say that the process of European integration plays a marginal role
in this analysis. To the contrary, it is precisely the pervasiveness of supranational market
integration that makes the European economic space an ideal vantage point to study
industrial policy (Scharpf 1999, chap. 2). In fact, the many multilevel overlaps between
economic and judicial spaces of competence resulting from market integration alter the
patterns of state intervention in a non-univocal matter. While on the one hand the EU
Bulfone: The Political Economy of Industrial Policy in the European Union 5
competition policy and state aid regimes constrain member states in the range of policy
instruments they can deploy to support selected sectors or industries (Cli and Woll
2012; Jabko 2006), on the other the opening of formerly protected markets to competi-
tion broadens the geographical and sectoral scope of state intervention, allowing for
the adoption of outward-looking industrial policy strategies (Colli, Díaz-Fuentes, and
Piscitello 2014; Di Giulio 2018; atcher 2014b).
3 Inward-looking industrial policy: From the postwar period
to the demise of Fordism
State actors played a decisive role in the reconstruction of the European economy aer
the Second World War (Linsi 2020, 866–68; Warlouzet 2017, Introduction). Industrial
policy was a key pillar of the economic order underpinned by the Fordist production
regime and Keynesian-inspired macroeconomic policies (Buch-Hansen and Wigger
2010, 26). In this phase, state intervention mainly focused on developing a solid manu-
facturing base in Fordist sectors like steel, car-making, and chemicals, with the atten-
tion gradually shiing since the 1970s towards electronics, aircra, and biotechnology.
Another pressing concern for governments was to create reliable infrastructures in sec-
tors crucial for economic development like electricity and telecommunications (Pianta
2014, 277–78).
Industrial policy was inward-looking, as its ultimate goal was to protect the domestic
economy from foreign interferences while attempting to reduce regional disparities in
economic development, foster employment, and ensure the provision of basic services to
the entire population (Scharpf 1999, chap. 2). Governments around Europe were open in
expressing their concerns about the harmful impact excessive FDI inows could have on
their economies. is mercantilist attitude was widespread in France and Italy, but also
in self-proclaimed free trade supporters like Germany and the UK (Linsi 2020, 855–56).
Between the 1950s and 1970s, member states faced limited restrictions on their capac-
ity for economic intervention, as European integration did not aect the co-existence
of heterogeneous models of capitalism (Höpner and Schäfer 2010, 349). Membership in
the European Coal and Steel Community (ECSC) and later in the European Economic
Community (EEC) did not limit the scope for the implementation of activist industrial
policies. In fact, despite the pro-competition rhetoric of the Treaty of Rome, very few
concrete provisions were included to prevent the formation of dominant positions on
the market or the existence of monopolies. In line with the then prevailing Keynesian
consensus, EU competition policy was shaped by concerns over employment and pub-
lic service provision rather than market eciency, merger control was still decentral-
ized at member state level, and state aid was largely tolerated (Buch-Hansen and Wigger
2010, 29–31).
6 MPIfG Discussion Paper 20/12
Behind “semi-permeable economic boundaries” (Scharpf and Schmidt 2000, 25) mem-
ber states could therefore deploy a wide array of policy instruments to strengthen stra-
tegic sectors, including state-owned enterprises, credit rationing, long-term planning,
legal monopolies, and merger control. Firms, industries, or sectors could be subsidized
via state-led circuits of credit as in France and Spain (Pérez 1997; Zysman 1984), state-
owned banks as in Italy (Deeg 2005), or private banks providing long-term lending or
subsidized export credit lines1 as in Germany (Höpner and Krempel 2004; Naqvi, He-
now, and Chang 2018, 676–77). Voluntary export restraints and other trade measures
adopted at the European level protected strategic companies from external competition,
while governments made extensive use of public procurement to foster their growth
(Pianta 2014, 279).
National champions were the undisputed protagonists of postwar industrial policy.
Across Europe, strategic sectors like gas, electricity, railways, banking, and telecommu-
nications were dominated by state-owned monopolists tasked with fullling “public
service” obligations (Majone 1997, 144; atcher 2007, Introduction). Until the emer-
gence of the European competition policy regime in the 1980s (Buch-Hansen and Wig-
ger 2010), member states leveraged their full regulatory authority over domestic merg-
ers to speed up industrial consolidation in strategic sectors (Hall 1986, chap. 6). Aer
the rst oil shock and the consequent slowdown of the postwar boom, state interven-
tion was retooled to support declining industries like steel, shipbuilding, and textiles
with measures of defensive industrial policy (Warlouzet 2017, chap. 5). In the absence
of European rules to regulate state aid, strategic rms received grants and subsidized
loans for a variety of purposes, including R&D investment, unemployment benets to
laid-o workers, and early pension schemes (Germano 2012, 73–74).
In terms of the protagonists, the priorities of industrial policy in the postwar era were
still largely dened by the central government. Although managers of state-owned
companies and planning bureaucrats could enjoy a certain degree of autonomy in im-
plementing day-to-day market interventions (Barca 2010, chap. 1; Hall 1986, chap. 6
and 7), there was widespread agreement on the fact that governments should have a
1 e inclusion of subsidized export credit lines under the banner of inward-looking industrial
policy might appear puzzling, as these are clearly export-promotion measures. However, in-
ward-looking measures should not be interpreted as univocally focused on the development of
the sheltered segment of the economy. To the contrary, export promotion was already an impor-
tant concern of state actors across Europe, particularly in Germany (Höpner 2019). But export
competitiveness was a means to attain the ultimate goal of protecting strategic industries from
foreign intrusions and strengthening domestic sovereignty. With the shi towards open-market
industrial policy, state intervention instead becomes mainly concerned with opening domestic
rms, sectors, or regions to international competition. A further dierence between these early
measures of export promotion and later eorts is that, in the postwar period, EU member states
could freely deploy direct instruments like subsidized export credit lines or voluntary export
restraints. Since such measures were later prohibited under the EU legal order, export promo-
tion needs now to be achieved through indirect policy instruments, such as internal devaluation
or the concession of corporate benets to large export-oriented companies.
Bulfone: The Political Economy of Industrial Policy in the European Union 7
say in dening long-term industrial priorities, and most executives around Europe had
a Ministry devoted to the administration of state-owned companies. Germany was the
main exception to this general trend, as the Federal government was willing to mark a
distance both with the Nazi past and with the planned economy of the GDR (Trouille
2007, 511). is does not mean that the German state did not have an industrial policy,
but rather that industrial policy was done sotto voce and delegated to subnational gov-
ernments or technocratic institutions like the development bank Kreditanstalt für Wie-
derauau (KfW) (Warlouzet 2017, 104–5).
e crisis of the Fordist wage-led production regime since the mid-1970s triggered a
series of interrelated events that ultimately sanctioned the demise of postwar industrial
policy. e abandonment of Keynesian macroeconomic management in favor of ina-
tion targeting by independent central banks and the parallel institutionalization of scal
austerity reduced the scope for the implementation of activist measures in support of
the economy. e anti-dirigiste turn (Cli 2013, 110) taken by the process of European
integration with the Cassis de Dijon ruling further accelerated this dynamic, paving the
way for the adoption of the Single European Act (SEA) and the single market project
(Scharpf 1999, chap. 2; Höpner and Schäfer 2010, 349–51; Bohle 2018, 241). Two of the
central planks of the single market project proved fundamentally incompatible with
the forms of state activism practiced in the postwar period: the liberalization of capital
ows and the opening to competition of formerly protected public service industries.
On the one hand, the interconnection of formerly protected capital markets shied the
balance between labor and capital in favor of the latter, making the pursuit of inward-
looking investment strategies untenable (Scharpf and Schmidt 2000, chap. 2). e con-
sequent proliferation of cross-border capital inows put member states in direct com-
petition with each other for attracting FDI from large corporations (Reurink and Gar-
cia-Bernardo 2020). To avoid capital ight, member states had to curb state aid, reduce
corporate taxation, abandon explicit credit rationing, and deregulate strategic sectors.
Monetary integration amplied the impact of these dynamics, as the Maastricht con-
vergence criteria forced eurozone member states to bring public debt and decit levels
under control, while the adoption of a single currency among countries with dierent
growth patterns strengthened capital volatility. In parallel, from the 1990s the Commis-
sion started advocating for the demise of vertical industrial policy in favor of horizontal
light-touch measures aimed at ensuring favorable investment conditions without neces-
sarily targeting specic rms or sectors (Defraigne 2017, 219; Trouille 2007, 506).
On the other hand, the liberalization of “hitherto protected, highly regulated and oen
state-owned service-public industries and infrastructure functions, including nancial
services, air, road and rail transport, telecommunications and energy” (Scharpf 2002,
647) limited the scope for the pampering of national champions. e strengthening of
the EU competition policy framework curtailed the power of member states to regulate
domestic mergers, and more generally to selectively discriminate in favor of domestic
8 MPIfG Discussion Paper 20/12
production (Buch-Hansen and Wigger 2010; Majone 1997; Billows, Kohl, and Taris-
san, forthcoming). As a consequence, EU countries had to nd new ways to conduct
“o balance sheet” (Mertens and iemann 2018, 189) outward-looking forms of state
intervention.
4 Open-market industrial policy and its main features
e demise of postwar industrial policy did not mean that state intervention ceased to
be an important engine of growth altogether. Rather than relegating industrial policy to
the dustbin of history, the wave of liberalization, market integration, and privatization
of the 1980s and 1990s triggered a reorientation of state intervention with the emer-
gence of new protagonists and the deployment of new policy instruments (Table 1). e
goal of state intervention shied from sheltering domestic markets from foreign compe-
tition to strengthening the international competitiveness of domestic rms, industries,
sectors, and regions.
Due to growing budgetary constraints, member states had to nd scally neutral policy
instruments to support their economy. For instance, tax policy has become a key tool
for mid-range interventions aimed at favoring specic sectors, industries, or rms on
account of its less evident scal repercussions (Haert 2019). Fiscal constraints also
pushed state actors to intervene in the market through the deployment of nancial-
ized products like public-private partnerships, derivatives, and leveraged instruments
(Lagna 2016; Nölke 2014, Introduction). In terms of the specic state actors engaging
in economic intervention, industrial policy underwent in this phase a double process of
decentralization and technocratization, with a relative decline in the importance of cen-
tral government counterbalanced by a growing activism among subnational authorities
and unelected specialized agencies.
e remainder of this section describes in more detail the main features of this second
generation of industrial policy by focusing on two patterns of state intervention that
emerged as a result of the integration of capital markets and the opening to competi-
tion of public service sectors: the internationalization of formerly protected national
champions and the emergence of FDI-dependent industrial clusters. ese two forms of
state intervention were chosen because of two features they share: the dening impact
they have on European economies and the fact that their emergence was a direct conse-
quence of the deepening of the process of economic integration.
Bulfone: The Political Economy of Industrial Policy in the European Union 9
Table 1 The evolution of industrial policy since the postwar period
Type of State
Intervention
Timeframe Logic of Intervention Protagonists Policy Instruments Constraints
Inward-looking
industrial policy
1950s–1970s Shield domestic companies,
industries, and sectors from
foreign markets
Support employment
Reduce regional disparities
Improve infrastructures
Provide basic services
Central governments
Elected officials
State bureaucrats
Public managers
State-owned enterprises active
in public service sectors
Legal monopolies
Procurements
Merger control powers
State-subsidized credit
provision
Voluntary export restraints
Long-term planning
Limited budgetary constraints
Limited impact of EU
legislation
Open-market
industrial policy
Since late 1970s Carve out niches of
international competitiveness
for domestic firms, industries,
sectors, urban areas, and
regions
Create employment
Foster growth
Specialized unelected
investment agencies
National development banks
Regional and local authorities
Central governments
Partially state-owned and
highly internationalized
private-law companies
Economic diplomacy
Selective market opening
Residual merger control
powers
R&D grants
Market-based financing
Financialized products
Severe budgetary constraints
EU state aid restrictions
EU merger control framework
10 MPIfG Discussion Paper 20/12
The commanding heights of the economy: From nurturing domestic
champions to creating global firms
Sectors like electricity, telecommunications, gas, banking, and air transport make up
a large chunk of the European economy. Formerly populated by inecient inward-
looking lame ducks, they are now home to many of the largest and most dynamic EU
multinationals. e emergence of global leaders like Deutsche Telekom, Telefonica,
EDF, ENEL, BNP Paribas, or Banco Santander is a direct consequence of the progres-
sive opening to competition of service industries that has been taking place since the
mid-1980s on the initiative of the European Commission (S. K. Schmidt 1998). e
liberalization of entry regulation and the consequent cross-border integration of the
EU market meant that the most ecient national champions could expand abroad, tak-
ing over foreign competitors (Clion, Díaz-Fuentes, and Revuelta 2010; Colli, Mariotti,
and Piscitello 2014; Hayward 1995).
While until the 1980s national security and public service obligations were the ma-
jor imperative for state-owned monopolists, today’s service multinationals have shi-
ed their focus towards protability (Beyer and Höpner 2003, 186–90; Hayward 1995,
Introduction). However, this also means that the national champions which failed to
adapt to the new regulatory environment were taken over by foreign competitors. Large
and economically powerful member states deployed a wide array of policy instruments
to make sure their domestic rms would emerge victorious from this wave of consolida-
tion. In this sense, the integration of formerly protected industries paved the way for a
process of cross-border consolidation, with a handful of winners and many losers.
e Commission supported market integration as a way to realize its long-term ambi-
tion to have European champions capable of competing on an equal footing against
American and Japanese service multinationals (Clion, Díaz-Fuentes, and Revuelta
2010, 988–90; Shoneld 1965, 376; atcher 2014a, 443–48).2 State intervention was
also favored by the fact that market opening is not a one-o event, but rather the result
of a gradual process that granted member states a relatively ample window of opportu-
nity to support domestic rms (Bulfone 2020; Di Giulio 2018).
e gradual pace of market integration meant that member states could shape domes-
tic liberalization so as to favor home-based incumbents (Colli, Mariotti, and Piscitello
2014; atcher 2014b). Market liberalization itself became an instrument of industrial
2 Under the EU merger control framework established in 1989, the European Commission has
regulatory power over mergers and concentrations “with a Community dimension.” A quantita-
tive review of the decision taken by the European Commission in banking, telecommunications,
and energy corroborates the idea that the Commission follows an integrationist logic, support-
ing the cross-border integration of strategic rms as a way to favor the emergence of European
champions (atcher 2014b). However, this evidence is partially contradicted by a recent analy-
sis pointing to a much more competition-driven approach by the Commission (Billows, Kohl,
and Tarissan, forthcoming).
Bulfone: The Political Economy of Industrial Policy in the European Union 11
policy. On the one hand, state authorities could use selective market opening to push
domestic incumbents and their management to seek investment opportunities abroad.
is is the case for instance in the energy sector, where governments forced former
monopolists to shed part of their productive capacity to make space for new market
entrants (Bergami, Celli, and Soda 2012, 31–36).
On the other, liberalization was not pushed to the extreme, as state authorities delayed
the dismantling of some protectionist measures to make sure that incumbents retained
an important advantage vis-à-vis new entrants even aer market opening (Clion,
Díaz-Fuentes, and Revuelta 2010, 1002–03). For instance, banks and telecommunica-
tions companies were automatically granted licenses to operate on the domestic market,
while their competitors had to participate in onerous auctions to acquire them (Epstein
2014, 778). is need to strike a dicult balance between market opening and incum-
bent protection created tensions between the management of domestic companies and
the newly established independent regulatory authorities eager to speed up market lib-
eralization. In their role as arbiter, governments would typically side with the former.
Despite the fact that public service providers went from being departmental agencies
incorporated within the public administration to private-law companies, direct state
ownership did not disappear (Schmitt 2013, 552). Many electricity, telecommunica-
tions, railways, and air transport companies across Europe still have the state as the
largest shareholder today (Holzinger and Schmidt 2015). Even in cases in which direct
ownership is limited to a small participation, governments can retain a rm grasp over
strategic rms via control-enhancing measures like dual voting shares, poison pills, or
voting caps (Hayward 1995, 351).
When rms are fully private, the state can exert indirect forms of control over their
shareholders. is can be done by leveraging the state’s regulatory power over private
investors – as the Spanish state did on many occasions with Telefonica’s banking share-
holders – or through informal agreements (Bulfone 2019, 763–65; Colli, Mariotti, and
Piscitello 2014, 502–3). Golden share powers, another source of indirect ownership
control over strategic rms, have instead been progressively abandoned due to a se-
ries of unfavorable rulings from the European Court of Justice. Since the early 2000s,
France, Germany, and Italy have transferred the direct ownership of strategic rms to
state companies such as national development banks (NDBs). is enabled them to use
the proceeds from the sell-os to shore up public nances while maintaining indirect
control over the rms. e British, Italian, French, and German governments as well
created sovereign wealth funds linked to their NDBs and tasked with providing equity
investment to strategic rms facing the threat of a foreign takeover (Mertens, iemann,
and Volberding 2020, Introduction; atcher 2014b, 18).
Although the evidence concerning the relationship between state ownership and suc-
cessful internationalization is inconclusive (Mariotti and Marzano 2019), most of the
fastest-growing companies in sectors like electricity and telecommunications are still
12 MPIfG Discussion Paper 20/12
partially state-owned. Direct state ownership, or more rarely the provision of patient
capital by private investors loyal to the state (Deeg, Hardie, and Maxeld 2016; atcher
and Vlandas 2016), helps to shield strategic rms from the vagaries of the market, al-
lowing the management to implement long-term investment plans (Bulfone 2020, 105–
6; Nölke 2014, 189). In other words, in order to successfully complete the transition
from sheltered monopolist part of the public administration to private-law company
operating on the open market, the management of public service companies needs to
rely on the protection of long-term investors that are ready to shoulder the unavoidable
short-term losses deriving from the process of internal restructuring.
Along with direct share ownership, state actors retained, and actively used, another
policy instrument inherited from the previous era of industrial policy: their (residual)
regulatory power over domestic mergers. For instance, throughout the 1990s the Ger-
man and Spanish authorities favored a process of sheltered consolidation among re-
gional electricity companies that was aimed at favoring the emergence of two large com-
petitors per country (Colli, Mariotti, and Piscitello 2014, 500–2; Mariotti and Marzano
2019, 677–78). A similar dynamic of sheltered consolidation occurred across the entire
EU in the banking sector (Goyer and Valdivielso del Real 2014; Pérez 1997). Merger
control powers could also be used defensively to block or slow down the foreign acqui-
sition of strategic companies, although this could ignite a legal confrontation with the
Commission (atcher 2014b).
e growing foreign activism of incumbents made economic diplomacy a central tool
of state intervention. Economic diplomacy is particularly important in network indus-
tries and other service sectors characterized by high sunk costs, as foreign acquisitions
are the preferred form of internationalization. Cross-border takeover battles involving
iconic national champions are likely to spark outraged reactions from the public, forc-
ing the central government to take a position on the issue. In this context, the negoti-
ating skills of elected ocials and diplomats might prove decisive in determining the
successful outcome of a foreign takeover (Colli, Mariotti, and Piscitello 2014, 492–93;
Prontera 2018, 516–20). While high-prole takeovers will be dealt with directly by cen-
tral governments on a bilateral basis (Chari 2015; Prontera 2018), other state actors can
engage in diplomatic eorts to support strategic rms before the Commission or the
European Court of Justice (Fioretos 2011).
Compared to the Fordist era, from the 1980s national champions had to seek new forms
of nancing. e separate circuits of credit allocation used to channel subsidized -
nancing towards strategic companies or industries were dismantled (Deeg and Perez
2000, 136–41), while the liberalization of banking meant that state-owned banks were
privatized and forced to operate at market conditions. NDBs partially lled this nanc-
ing gap by stepping up their export-credit capacity, but they were restricted in their
activity by the obligation to abide by state aid regulations. Consequently, strategic rms
were encouraged to embrace market-based nancing strategies such as multiple listings
(Clion, Comín, and Díaz-Fuentes 2011, 771–73).
Bulfone: The Political Economy of Industrial Policy in the European Union 13
Successful internationalization of the strongest public service companies was condi-
tional on the availability of open markets for investment. Service rms from large mem-
ber states generally found two investment outlets for their foreign venues: small old
member states that shared strong economic and cultural ties with a larger neighbor;
and new member states from the Central and Eastern periphery. During the accession
process, Central and Eastern European countries allowed the foreign colonization of
protable public service markets including energy, telecommunications, and banking.
Taking banking as an example, in 2004 the average rate of foreign ownership of branch-
es and subsidiaries in the euro area was 15.5 percent compared to well over 70 percent
in the Eastern periphery (Nölke and Vliegenthart 2009, 680). is dynamic was favored
by the fact that EU authorities forced new member states to prioritize the creation of a
favorable legal and judicial environment for foreign investors over the support of do-
mestic rms (Bruszt and Vukov 2017, 672). In other words, the promotion of horizontal
market-friendly industrial policy in the East created the ideal conditions for the success
of the vertical industrial policy interventions in support of national champions prac-
ticed in core member states.
e opening of formerly protected sectors to competition led to the concentration of
corporate control in a few large countries, with France and Germany leading the way
and followed at a distance by Spain and Italy (Chapman 2003, 321–22; Colli, Mariotti,
and Piscitello 2014). is trend is conrmed by the fact that the acquisition of European
competitors is by far the most frequent form of internationalization for German and
French state-owned companies (Babic, Garcia-Bernardo, and Heemskerk 2020, 451–
55). Two factors seem to play a role in explaining this success: the size of the domestic
market and the backing of nancially solid sovereigns that were, as a consequence, un-
der less severe pressure to privatize protable companies. Scandinavian countries could
also punch above their weight by leveraging their ample nancial resources and the
early market integration of public service sectors in the region.
e UK is oen portrayed as an outlier in studies of the internationalization of service
companies. In fact, in the 1980s, British state authorities prioritized market opening
over the protection of electricity and telecommunications companies, leading domestic
incumbents to underperform vis-à-vis their European peers (Clion, Comín, and Díaz-
Fuentes 2011, 773–76; Colli, Mariotti, and Piscitello 2014, 498–500). However, this does
not hold true across sectors, as the British government engaged in an activist industrial
policy eort to favor the internationalization of domestic banking champions (Macart-
ney 2014; Silverwood and Woodward 2018).
FDI attraction and the emergence of industrial clusters
According to Michael E. Porter’s (Porter 1998, 78) denition, clusters “are geograph-
ic concentrations of interconnected companies and institutions in a particular eld”;
14 MPIfG Discussion Paper 20/12
along with private actors they include “governmental and other institutions – such as
universities, standards-setting agencies, think tanks, vocational training providers, and
trade associations.” Inspired by the works of Porter and other management scholars,
state actors shied their priority from sheltering the domestic economy from foreign
predators to making it attractive for foreign investors interested in establishing indus-
trial clusters. As a result, FDI went from being portrayed as a threat to economic devel-
opment to a crucial ingredient for economic success (Linsi 2020). is form of cluster
policy bears a resemblance to the strategic and selective use of inward and outward FDI
ows practiced by rising economies like China and Brazil (Nölke 2014, Introduction).
e liing of capital controls and other investment restrictions has led since the 1990s
to an exponential increase in FDI inows among advanced economies. Between 1990
and 2013 the value of FDI went from about 20 percent to over 120 per cent of GDP
(Iversen and Soskice 2019, 147). While in some instances investment banks and venture
capital funds acted as intermediators channeling investment towards service and manu-
facturing clusters, in other cases FDI came directly from multinational enterprises seek-
ing cutting-edge research facilities, skilled workers, or lower labor costs (Iversen and
Soskice 2019, Introduction).
While benetting from a favorable tax regime is undoubtedly a priority for foreign in-
vestors, investment decisions are not solely driven by scal considerations (Brazys and
Regan 2017; Reurink and Garcia-Bernardo 2020). e ideal mix of incentives for FDI
attraction depends on the sector of activity, or corporate function, a country is willing
to attract. High-tech companies or venture capitalists focusing on prime investment
will prioritize the presence of a qualied labor force, possibly organized in cooperative
trade unions accustomed to centralized bargaining, combined with a thick institutional
network of universities, government agencies, and research centers (Iversen and Sos-
kice 2019, Introduction).
Winning and retaining comparative advantage in FDI attraction requires an eort of re-
regulation, institution building, and economic diplomacy led by state actors, be they re-
gional governments, city councils, unelected investment agencies, or NDBs. Hence, like
in the case of national champions, industrial clusters are not the result of state retreat,
deregulation, and cut-throat tax competition, but of constant state involvement to fend
o competition from other potential destinations as well as to react to the structural
changes aecting strategic industries.
State aid still plays an important role in cluster policy. While in the postwar era a large
share of support was directed to declining industries, the bulk of nancing now goes to
R&D and start-ups in high-tech sectors. State aid is oen accompanied by other incen-
tives that are scally neutral in the short term, such as tax exemptions and the exibi-
lization of labor conditions (Bohle and Regan 2019). Oen, clusters develop around
a large national champion that acts as anchor rm catalyzing industrial investment
from smaller companies (Wade 2012, 230). Leveraging their close connections with the
Bulfone: The Political Economy of Industrial Policy in the European Union 15
government, anchor rms constantly coordinate with state actors in shaping the pat-
terns of state intervention. Anchor rms typically operate in the same sector in which
the cluster emerged, or in a closely connected industry (Ornston 2013, 716–23). Large
public service companies are also involved in clustering dynamics as they typically pro-
vide nancial support and other services to foreign investors.
Industrial clusters depend on the creation of a long-term relationship between foreign
investors, domestic rms, and local authorities. is is particularly true when state ac-
tors seek to attract large multinationals with a global reach that can choose between
multiple investment destinations. Hence, clustering policy oen takes the form of verti-
cal bilateral interactions between state actors and foreign companies (Brazys and Re-
gan 2017, 415–17). Given the need to create long-term relationships with prospective
investors, clustering policy is oen le in the hands of specialized unelected investment
agencies (Bohle and Regan 2019; Linsi 2020, 869–72; Wade 2012, 230). Compared to
elected ocials, specialized agencies have less frequent turnover in their personnel and
can therefore combine superior technical expertise in tailoring industrial policy mea-
sures with close personal connections with prospective investors (Bohle 2018; Brazys
and Regan 2017; Ornston 2014; Parker and Tamaschke 2005).
e geographical distribution of industrial clusters seems to mirror the developments
in terms of national champions’ internationalization, with large economies underper-
forming vis-à-vis smaller member states (Reurink and Garcia-Bernardo 2020). Smaller
markets are an asset in this case, as they allow for more leverage in the use of taxation
for industrial policy purposes and facilitate the coordination between state actors and
private companies. Historical legacies also play a role, since, given their size, the small
economies of Northern Europe had to nd a way to cope with foreign investors earlier
than their larger counterparts (Katzenstein 1985).
e same goes for Central and Eastern European countries that were encouraged by the
Commission during the process of EU accession to create a favorable business environ-
ment instead of supporting declining sectors or inward-looking companies (Bruszt and
Vukov 2017, 669–73; Vukov 2019). Industrial clusters are very heterogeneous in their
structures. e Nordics provide prominent examples of indigenous high-tech cluster-
ing focused on mobile communication (Finland), soware development (Sweden), and
biotechnology (Denmark) (Ornston 2013).
Ireland developed another variant of high-tech clustering based on the attraction of
FDI from large US-based high-tech multinationals (MNEs). In the Central and East-
ern periphery, the Visegrád countries were particularly successful in attracting FDI
from (predominantly German) MNEs producing medium-quality goods like cars, car
components, machinery, electronics, and electrical products. ey did so relying on
important comparative advantages including the geographical proximity with the Ger-
man market, historical ties with the German production system, and a relatively cheap,
well-qualied, and docile labor force (Bohle and Regan 2019; Nölke and Vliegenthart
16 MPIfG Discussion Paper 20/12
2009, 674–79). e Iberian Peninsula, and more recently Romania and Bulgaria, also
emerged as an important production platform for German, French, and Japanese car-
makers (Reurink and Garcia-Bernardo 2020; Šćepanović 2019). Peripheral regions in
core economies can also opt for FDI-dependent clustering as a development strategy.
e most discussed case in this regard is that of the former GDR Land of Saxony, where
the local government engaged in an eort of investment attraction targeting small and
large companies active in biotechnology, nanotechnology, new materials, and micro-
electronics (Broll and Roldán-Ponce 2011).
5 Industrial policy after the Great Recession: Return of the state or
rhetorical shift?
is paper argues that the decline of the Fordist wage-led production system, not the
Great Recession, marked the real turning point in the evolution of industrial policy in
the EU. While the Great Recession prompted the state to step up its activism in support
of the economy, there are evident signs of continuity with the precrisis period in terms
of the protagonists, goals, instruments, and content of industrial policy. In other words,
the Great Recession did not lead to a return of the state, but rather to a strengthening
of existing patterns of intervention. is continuity is evident when assessing the logic
behind four postcrisis instances of state intervention routinely portrayed as signs of a
“return of the state” (Buigues and Cohen 2020, 276): the clash between the Commission
and large member states over competition policy, the attempted merger between the
two large German lenders Deutsche Bank and Commerzbank, the growing activism of
NDBs in support of the European economy, and the shi towards a (selective) nativist
industrial policy in the Central and Eastern periphery.
In 2019 the Commissioner for Competition, Margrethe Vestager, vetoed a merger be-
tween the transport equipment and service activities of Siemens and Alstom, having
judged the remedies oered by the merging companies inadequate (Commission 2019).
In supporting the deal, the French and the German governments argued that it would
lead to the creation of a global train maker capable of competing on an equal footing
with the state-backed Chinese producer CRRC (Financial Times 2019b). However, the
Commission dismissed this argument on the grounds that the growing industrial con-
centration resulting from the merger poses a more concrete threat to European con-
sumers than CRRC.
is prompted a harsh reaction from Paris and Berlin, culminating in the signing of
a joint manifesto for a new industrial policy for the twenty-rst century. e mani-
festo puts forward two requests aimed at making the merger control framework more
conducive to the creation of globally competitive European champions. First, updating
the current merger assessment guidelines to consider competition at the global rather
Bulfone: The Political Economy of Industrial Policy in the European Union 17
than the European level. Second, giving the Council the possibility to appeal and over-
ride decisions taken by the Commission under the merger control framework (Ger-
man Federal Ministry for Economic Aairs and Energy and French Ministry for the
Economy and Finance 2019).
e strategy of the French and German governments is clearly in line with the national
champions policy of the precrisis period, as they used economic diplomacy to defend
the interests of their domestic companies vis-à-vis the Commission and other member
states. In fact, Berlin and Paris have been advocating for the launch of an explicit Euro-
pean champions policy since well before the crisis (Cli 2013). As in the past, behind
the reference to European champions is the idea of having French and German “na-
tional champions” in Europe (Trouille 2007, 514–15). erefore, it comes as no surprise
that smaller member states backed Verstager’s position as a way to defend their own
domestic rms from foreign takeovers (Politico 2019). e use of an external threat to
legitimize the support for European champions is another sign of continuity with the
past. While in the 1980s and 1990s the alleged challenge came from the Japanese and
US giants (Buch-Hansen and Wigger 2010; Defraigne 2017; Hayward 1995), nowadays
the external threat is epitomized by Chinese state-backed mega rms (Aiginger and
Rodrik 2020, 190). In 2019 Verstager signaled that she shares this concern by backing a
Dutch proposal to give the Commission the power to veto acquisitions of EU rms by
state-backed foreign competitors (Financial Times 2019a).
In 2019 the German Federal government tried as well to promote a merger between
the two largest domestic banks, Deutsche Bank and Commerzbank. Both lenders were
severely aected by the subprime meltdown, which led to a partial nationalization of
Commerzbank (Goyer and Valdivielso del Real 2014). Given this weakness, the ex-
ecutive saw the merger as a way to give Germany a global banking champion while at
the same time sheltering both banks from foreign takeovers (Financial Times 2019c).
Even though the deal derailed due to resistance from both private shareholders and
the Bundesbank, the attempt clearly shows how, very much like in the early 2000s, the
German government is willing to promote a process of sheltered consolidation among
domestic rms to prevent the foreign colonization of a strategic sector (Colli, Mariotti,
and Piscitello 2014, 500–502).
In 2019 the executive launched an ambitious industrial policy plan labeled National In-
dustrial Strategy 2030. e plan called for the creation of a state-backed fund to provide
equity investment to strategic companies facing the threat of a foreign takeover (Bun-
desministerium für Wirtscha und Energie 2019). Similar funds had been established
in France and Italy in the early 2000s. e coronavirus pandemic further strength-
ened these protectionist attitudes, with the Federal government tightening the rules
on foreign takeovers of companies active in strategic sectors such as tech and robotics
(Bloomberg 2020).
18 MPIfG Discussion Paper 20/12
Perhaps the most evident sign of state activism over the last decade has been the rise
to prominence of NDBs. All across Europe, NDBs adopted measures of countercyclical
support to the economy, such as providing credit and equity investment to SMEs and
strategic companies, and nancing infrastructural networks (Mertens, iemann, and
Volberding 2020, Introduction). is growing activism is epitomized by the remarkable
growth in assets of the three main players KfW, the French CDC, and the Italian CDP,
the mushrooming of new NDBs in countries historically lacking them, and the growing
synergies established between NDBs, the European Investment Bank, and the Com-
mission (Mertens and iemann 2019). However, even in this case the crisis further
accelerated a dynamic dating back to the early 1980s, when EU governments started
turning to their NDBs as conduits for activist state intervention (Volberding 2016, 1).
NDBs share two important features that make them ideal instruments for carrying out
open-market industrial policy operations compatible with the EU regulatory frame-
work. First, aer their transformation into private-law companies they are excluded
from public debt calculation, thereby allowing for “o balance sheet” state interventions
(Mertens and iemann 2018, 186). Second, as long as they abide by market principles
they are exempted from state aid restrictions. Hence, like many other instruments of
open-market industrial policy, NDBs allow member states to pursue national econom-
ic goals without violating EU regulations (Volberding 2016). e growing activism of
NDBs further accelerates the trend towards the nancialization of industrial policy al-
ready evident since the 1980s, as for their operations they routinely tap into market-
based sources of nancing, including leverage, securitized products, fund-of-funds in-
vestment, synthetic transactions, and venture capital funds (Mertens, iemann, and
Volberding 2020, Introduction).
e most apparent discontinuity compared to the precrisis period is represented by
the spread in Hungary and Poland of an activist, and nativist, industrial policy. During
the accession negotiations these countries had to allow foreign acquisitions in sectors
like energy, telecommunications, and banking. However, the severe recession and deep
current account imbalances hitting the region as a result of the Great Recession led to
a critical reassessment of a model shaped around volatile FDI inows (Bohle and Gres-
kovits 2018, 1084–88; Naczyk 2014).
In Hungary, Viktor Orban used sectoral taxes and renationalization to increase the
share of domestic ownership in public service sectors like telecommunications, bank-
ing, and electricity. However, this protectionist attitude was not extended to manufac-
turing sectors such as automobile, pharmaceuticals, and chemicals. In the latter case,
the government conrmed its long-term commitment to FDI attraction by designing
generous aid packages based on cash grants and tax incentives. According to Bohle and
Greskovits, “the rise of economic nationalism … prioritises ‘good’, manufacturing, busi-
ness service, and export-oriented FDI over ‘bad’, speculative, nancial, or monopolistic
FDI” (Bohle and Greskovits 2019, 1079).
Bulfone: The Political Economy of Industrial Policy in the European Union 19
Rather than a radical break with the past, this attitude, shared also by the conservative
government in Poland, represents an extension to the Eastern periphery of the open-
market industrial policy practiced by old member states. On the one hand, Hungary
and Poland did not call into question the cluster policy that had allowed both countries
to emerge as important production bases for German MNEs. On the other, this protec-
tionist attitude towards public service companies is reminiscent of the national champi-
ons policies practiced in “old” member states. Similarities are evident also in the policy
instruments deployed to support strategic companies. For instance, both governments
engaged in activist eorts of economic diplomacy aimed at favoring the expansion of
domestic rms in the Asian market. Furthermore, they protected strategic sectors and
companies by establishing control-enhancing ownership mechanisms and promoting
waves of sheltered consolidation (Naczyk 2014).
6 Conclusion
is paper has reviewed the evolution of industrial policy in the EU since the postwar
period, showing how the transition from the Fordist to the Post-Fordist model of pro-
duction marked a watershed moment for the logic of state intervention in the economy.
e inward-looking industrial policy of the postwar period was replaced by open-mar-
ket interventions aimed at carving out a niche in the global economy for domestic rms,
industries, or geographical areas. Rather than altering this logic of open-market inter-
vention, the Great Recession further strengthened existing tendencies towards a tech-
nocratization and nancialization of industrial policy. ese ndings open up at least
three pathways for future research aimed at better integrating industrial policy within
current debates on the political economy of European integration.
First, state intervention seems to reinforce patterns of unequal economic development
among member states. In fact, both the internationalization of service companies and
the emergence of industrial clusters led to a concentration of corporate power in Ger-
many and in Nordic countries. e opening of formerly protected sectors to competi-
tion favored incumbents from large member states like Germany, France, and, albeit to
a minor extent, Italy, Spain, and the Scandinavian countries (Chapman 2003, 321–22;
Colli, Mariotti, and Piscitello 2014). e regionalization of manufacturing production
created a center dominated by German producers and a ring of surrounding countries
in the Central, Eastern, and Iberian peripheries acting as production bases (Pianta, Luc-
chese, and Nascia 2019). Former manufacturing centers like France or Italy, lacking
either the quality production to compete with German companies or the cost-com-
petitiveness to join German production chains as suppliers, witnessed an erosion of
their manufacturing base. Similarly, the most successful high-tech and nancial clus-
ters emerged in wealthy Nordic countries, while peripheral countries had to focus their
eorts on the attraction of less protable investment in lower value-added sectors or
20 MPIfG Discussion Paper 20/12
cross-sectoral corporate functions (e. g., manufacturing activities, R&D, or back-oce
services) (Reurink and Garcia-Bernardo 2020). is nding aligns with existing politi-
cal economy analyses observing the dicult coexistence of dierent models of capital-
ism in the eurozone and the EU more generally (Bohle 2018; Johnston and Regan 2018;
Nölke 2016; Perez and Matsaganis 2018), calling for a more careful assessment of the
role state actors play in exacerbating or reducing these cross-national disparities.
Second, while this paper identies the internationalization of national champions and
the mushrooming of industrial clusters as two key instances of open-market indus-
trial policy, the relationship between the two is still understudied. is is an important
shortcoming given the role national champions oen play in catalyzing investments in
industrial clusters.
ird, and nally, the analysis provided here calls for an integration of industrial policy
in the growth model debate (Baccaro and Pontusson 2016; 2019). Despite having the
merit of refocusing the study of comparative capitalism on the demand side of the econ-
omy, the growth model literature has so far remained silent regarding the role state ac-
tors (elected governments, specialized agencies, or national development banks) play in
favoring the emergence, strengthening, and stability of growth regimes. A theorization
of the role industrial policy plays in the emergence of a new growth regime could help
to integrate demand-side intuitions with a supply-side analysis of the pivotal industrial
sectors underpinning a growth model.
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