Opening Remarks; Isabell Koske, Acting Director OECD Country Studies

FRANCE STRATÉGIE & OECD WORKSHOP ON NEW INDUSTRIAL POLICY TOOLS Paris, 17 October 2022

Opening remarks Isabell Koske Acting Director, OECD Country Studies Branch

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2| A warm welcome to everybody also from my side.

I am very pleased to introduce this joint France Stratégie – OECD workshop on new industrial policy tools together with Gilles de Margerie.

As some of you may know, the Hôtel de Cassini, where this workshop is taking place, houses the General Secretariat for French Investment (“Secrétariat Général pour l’Investissement”), which promotes investment in technology of the future.

So, in addition to being a beautiful building, it certainly bodes well for discussing industrial policy here today!

Industrial policy has always been a sensitive topic in the economic debate, often framed as pitting proponents of greater government intervention against those in favor of open competition.

The OECD is not immune to such debate, and we are keen to bring together diverse points of view to work towards a solid consensus through organizing this workshop with France Stratégie.

Now, let me highlight why there is a renewed discussion on the role of industrial policy in Europe.

One of the key challenges facing Europe is lackluster growth, notably compared to the US. Insufficient growth is compounded by still wide European regional disparities in economic development.

While Central and Eastern Europe has been catching up, Southern Europe has lost ground, especially after the global financial crisis.

Furthermore, as shown in our last economic survey on the European Union, inequality within most countries has increased. Notably gaps between large cities and rural areas have widened.

This could threaten social cohesion or even the European project itself.

In fact, some regions are struggling with the industrial transition. They face employment losses or protracted meagre GDP growth, which has tended to stir opposition to European integration.

In this context, industrial policy has been seen as a potential tool to boost innovation in “key” sectors, enhancing productivity and ultimately growth. The Dutch policy of identifying “top sectors” is a case in point and we will be happy to learn more on that experience from our Dutch colleague soon.

But other factors that are not specifically European have also led to a renewed attention to industrial policy as a way to smooth economic adjustment and strengthen resilience to shocks. Prime examples are globalisation, digitalisation, climate change, and, more recently, COVID19.

Technological progress and globalisation have yielded important aggregate benefits in terms of growth and purchasing power, but have also made regional convergence more challenging.

In Europe, as elsewhere, high-value added services have become more concentrated at the regional level.

This has mainly benefitted large cities, increasing the gap between urban and rural areas.

Productive upgrading is a challenge even for the most prosperous European regions, which face increased global competition and must innovate to remain at the technological frontier.

|3 The transition towards a greener economy could support growth, but also worsen regional divergence, if not accompanied by appropriate complementary policies.

Coal extraction and some coal-using industries (e.g. steel) tend to be geographically concentrated, often in less prosperous regions with limited productive diversification, as in the case of some German, Polish and Czech regions.

Closure or restructuring of coal-related activities to meet climate mitigation targets could therefore further impoverish those regions.

Furthermore, a sharp reduction in CO2 emissions from transport, also key for climate neutrality by 2050, could disproportionately weigh on rural households, given their stronger dependence on cars for mobility.

Finally, the coronavirus pandemic made Europe realized it was highly dependent on key health products imported from abroad such as some vaccine components.

What form of industrial policy can help Europe weather these challenges?

The thinking of industrial policy has come a long way since its early days. For example, subsidies to specific sectors were generally found to be rather ineffective, with significant dead-weigh costs.

Instead, the debate on industrial policy has evolved towards developing place-based policies that emphasize the coordination of different sectoral interventions.

Place-based policies should avoid “picking the winners” by favouring the emergence of competitive companies and activities through sectoral interventions. Professor Rodrik will certainly tell us more about that!

In Europe, such sectoral interventions can be as diverse as training, transport, or R&D. In our last EU economic surveys, we have underlined the need for better cross-regional cooperation of European policies to this end.

At the same time, it is important to ensure that industrial policy does not conflict with competition and trade policies, which are also strongly associated with the European project and its success.

I am thinking in particular of the development of digitalisation, seen frequently as a way to strengthen European industries, which can lead to strong dominant positions in certain sectors. Or subsidies by foreign countries to support domestic industries, which could lead to trade distortions.

Overall, we believe at the OECD that competition and industrial policies do not necessarily have to contradict each other. For example, competitive markets are essential for the success of place-based strategies, as they strengthen incentives to innovate.

After these few introductory words, I think it is time to open the discussion.

The first session of our workshop should shed light on European challenges in terms of growth convergence, and the positive role industrial policy could play.

The second session of our workshop will allow us to see how these competition, trade and industrial policies can work together more harmoniously by retaining the advantages of free trade and competitive markets without giving up on industrial policy to support growth.

I now look forward to a fruitful and interesting discussion!