October 12, 2012    Volume 19, No. 16

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Europe's New Industrial Policy Targets Manufacturing To Spur Economic Turnaround

By Richard A. McCormack

The European Commission has issued an official "Industrial Policy" aimed at boosting the competitiveness and output of its manufacturing sector. The Commission says that Europe must increase the share of manufacturing to 20 percent of GDP by 2020, up from 16 percent today. The reason: a stronger manufacturing sector will enable "growth and economic recovery," says the EC's "Industrial Policy," issued on October 10 in Brussels.

"We want to give a signal for people to understand that manufacturing matters and we need to reverse the trend of a declining share of industry in the European economy because industry is really key for competitiveness and growth," says Didier Herbert, European Commission Director for Enterprise.

Industrial output has dropped by 10 percent over the past four years, and the manufacturing sector has lost more than 3 million jobs. European consumer and business confidence is low, the banking sector is not making loans to manufacturing companies and investment has not picked up.

"This is happening at a time when the speed of innovation and technological development has put the world on the edge of an industrial breakthrough," notes the EC. "Several new technology areas are converting to lay the foundation of the new industrial revolution based on green energy, clean transport, new production methods, novel materials and smart communications systems. These will change the global industrial landscape, and our competitors in the U.S. and Asia are investing heavily in these areas. Europe needs new industrial investment at a time when lack of confidence, market uncertainty, financial problems and skills shortages are holding it back."

The EC does not want to support ailing industries or try to pick winning companies or industrial sectors. "In that sense, we see that there are a number of market failures which do not optimize the conditions for industry to be interested in investing and growing and employing more people in Europe," Herbert told Manufacturing & Technology News. "We would like to reverse the trend of manufacturing declining as a percentage of GDP. It's a fight against de-industrialization."

Europe does not want to follow the United States by having its manufacturing sector decline to the point where it accounts for only 12 percent of GDP. Just as the United States government has refused to even consider having an industrial policy, "there are also people in Europe who believe that the best policy for industry is to have a hands-off policy -- so the best policy for industry is no policy," says Herbert. This might sound good to economic purists, but it won't work in Europe, he adds. "We think no policy is not useful because you have some market failures such as there being deficient demand for energy efficient manufacturing or energy efficient products." Policies to encourage demand for those products and processes "would provide benefits over a longer period of time."

Europe also has a segmented market and needs to adopt more common standards and regulations. "Given that there are market failures, we have to intervene to have a real single market in Europe and to promote awareness among consumers to demand that industries provide energy efficient products," Herbert says. "It's not a question of picking the winners, thinking that the state is more clever than industry, but it's also not a policy of doing nothing. Governments can do something to create a good business atmosphere, an effective SME policy and innovation and environmental research policies that increase our companies' competitiveness. Those are all about an industrial policy that assures your country is friendly for business. There is nothing wrong about this."

The new industrial policy will direct European investment and strategies in six "priority action lines": advanced manufacturing technologies; enabling technologies such as nanotechnologies, advanced materials, industrial biotechnology, nanoelectronics, photonics and advanced manufacturing systems; bio-based products; sustainable industrial, construction and raw materials; clean vehicles; and smart grids.

The EC will create "specialized partnership task forces" to "mobilize all instruments at [their] disposal in an integrated way" to promote the development of these sectors.

Advanced manufacturing technologies such as 3-D printing, energy- and materials-efficient factory processes that employ renewable and recycled materials and recycle waste heat "represent an important business opportunity with a global market that is expected to double in size to over 750 billion euro by 2020," says the industrial policy.

In the area of bio-based products, the Europeans want to create "specific mandates for bio-polymers, lubricants, solvents and surfactants." Bio-based products are growing at an annual rate of 5.3 percent, resulting in a market that is worth 40 billion euro and providing 90,000 jobs within the biochemical industry.

"New European standards are needed for sustainable construction projects, processes and works in order to maintain a coherent Internal Market for both products and services," says the industrial policy. "The international competitiveness of EU building services can be enhanced by ensuring the international uptake of Euro codes [and] construction standards. The Energy-Efficient Buildings public-private partnership should accelerate the transition from research to market."

The commission wants there to be mandates for waste recycling so that Europe makes progress towards a "closed-loop economy." It will develop new European standards for grading qualities of recycled wood, metals and textiles. It will create demonstration projects for recycling, dismantling and sorting technologies, and will focus attention on better recycling of mixed plastics and batteries.

In the area of clean vehicles, the European Commission wants to promote the development of plug-in electric vehicles and hybrids through the development of standards for interoperability.

For smart grids, the EC wants 80 percent of European households to have an intelligent meter installed by 2020.This will set the framework for an investment over that period of 60 billion euro in developing smart grids, "rising to around 480 billion euro by 2035," says the policy document. "The EU must deliver the standards needed to ensure the interoperability of smart grids across borders, as well as a common minimum set of standards for meters and advanced metering infrastructure."

In other areas, the EC will promote the wider use of industrial design "as well as other non-technological innovations for developing high value products, increasing productivity and improving resource efficiency." The European Design Leadership Board has developed proposals to promote better access for companies to use design tools and "design-led innovation for manufacturing systems." It is promoting design competencies, raising the profile of design in the EU research and innovation system and is promoting the wider application of design in the public sector "and the differentiation of European design at a global level."

It has proposals for stimulating demand for innovative and energy efficient products; fostering entrepreneurship; creating greater protection of intellectual property rights; addressing international competitiveness issues of its petroleum refining and aluminum sectors; developing a system of taxation that is standardized across 27 different countries; addressing the growing problem of counterfeiting and pirating of products; and setting a goal of creating 17.6 million new jobs by 2020 by making investments in skills training.

The industrial policy, officially called "Communication From the Commission to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions: A Stronger European Industry for Growth and Economic Recovery, Industry Policy Communication Update" COM(2012) 582 /3, is located at http://ec.europa.eu/enterprise/policies/industrial-competitiveness/industrial-policy/index_en.htm.

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