... and highlights insights from research. It also describes justifications for industrial policy (e.g. climate (negative externalities), innovation spillovers (positive externalities), coordination-failures, foreign subsidies, supply chain resilience,...), as well as... (6/n)
... risks (e.g. subsidy races, distortions to competition, insufficient government knowledge, not letting losers go, etc.). Their intermediate conclusion: any industrial policy needs very strong justification, which is no doubt correct (and we have argued for e.g. here: (7/n) tinyurl.com/dragi-IP)
After this descriptive part, the authors derive recommendations. Most of them should be followed, such as not overusing a fluffy concept of 'resilience' to subsidize whoever is calling loudest. And it's true that the EU's 40% NZIA objectives shouldn't have treated all technologies the same. (8/n)
Other policy recommendations one can argue at lengths about, like whether buy-EU clauses in lead markets make sense (the report opposes them). But three of the recommendations are, in my view, simply mistaken, and acting on them would be highly destructive for EU growth & decarbonisation: (9/n)
For one, the authors claim that with ETS, "many [clean industrial policy] measures are superfluous or even harmful”. That's shortsighted: ETS will politically only survive if prices don't skyrocket, and that needs various complementary measures. I criticized this here: tinyurl.com/TSB-Energie (10/n)
Also surprising to see them jumping to such strong conclusions on climate policy, with very little analysis or engagement with the policy framework. The critique mostly looks at the NZIA (where their assessment seems fair to me) and does engage little with any of the substantive proposals of the CID
It's, frankly, quite surprising to me that the scientific board doesn't acknowledge this relatively obvious fact of the political economy around the EU's climate policy architecture. The second problematic recommendation concerns the role of the EU level. (11/n)
The report correctly points out that industrial policies at EU level can have heterogeneous distributional effects, i.e. subsidies at EU-level might be concentrated on some countries. But from that, they jump to the conclusion that the EU should not do vertical policy at all, just coordinate. (12/n)
But, as argued convincingly by Draghi, EU policies with common financing are the only way for the EU to do industrial policy at the needed scale! (I have argued myself that, given lack of EU funds, coordinating member state action is needed - but only as temporary fix tinyurl.com/JDC-Jaeger) (13/n)
What's worse, it's precisely bcs of a fragmented IP landscape that we'll have a hard time 'letting go of losers' (which MS is going to be convinced to let go of their national champion + €bn they've spent bcs the neighbouring champion won the tech race...) they (rightly) fret about
Third, the report argues against declaring certain industries as strategic priorities, since 'strategic' is hard to define and causes all industry to lobby. These are indeed risks, but they can be mitigated with good policy design. More importantly, though,...(14/n)
... doing industrial policy without strategic prioritization won't work: the EU must play to its strengths and be mindful of its weaknesses vis-a-vis China&US. And if this prioritization is not done explicitly, it's still done implicitly, revealed by government focus & allocation of subsidies.(15/n)
Conclusion: The German government should help advance common EU industrial policy, instead of taking two steps back by following the scientific board's advise on these three critical issues. Given the board's obvious expertise, perhaps its next report can show how to operationalise this. (end).