Industrial policy

In the 1990s and 2000s, industrial policy was considered an outdated concept that belonged to the Cold War era. Horizontal policies that improve the business environment across the board were favoured over selective policies targeting specific industries or firms. Horizontal policies included public investment in education, research, development and innovation and infrastructure. Functioning financial and labour markets, stable institutions and reliable energy supply were deemed necessary for the development of new industries.

Yet Western states did not always do as they preached. In the US the vast mission-oriented research and development expenditures and public procurement by various organisations of the defence administration were clear examples of active industrial policy while Germany and France, for instance, have guaranteed the competitiveness of Airbus planes with vast subsidies. In Finland, the success of Nokia was partly based on the assistance that the state provided through state-owned enterprises and R&D subsidies.

In the 2010s, industrial policy staged a comeback as various countries of the Global North again began to prepare industrial strategies. Now in the early 2020s, we witness the return of selective and strategic industrial policy. Crises such as the covid pandemic and climate change and the hardening geopolitical tensions have contributed to the revival of industrial policy. President Biden`s key legislations (Inflation Reduction Act, Science and Chips Act and the Bipartisan Infrastructure Law) symbolise a paradigm change in the American economic and industrial policy while the EU has responded to the changing environment by relaxing state subsidy regulations in certain key sectors such as the green economy and micro chips.

The Finnish Centre for New Economic Analysis seeks to document and analyse the industrial policy turn in OECD countries and outline what a new kind of industrial policy in the EU and Finland should look like. While industrial policy is not necessarily only a positive development for a small country such as Finland, as it can lead to harmful subsidies, it is a reality that should be addressed.

UTAK supports the aims to strengthen the strategic autonomy of the European Union. The EU cannot be left too dependent on the goods and raw materials produced by authoritarian regimes. The potential world-political significance of the strategic autonomy of the EU has yet to be profoundly understood in Finland and other reluctant countries. Active industrial policy is both a necessary part of green transformation and a vital component of the self-defence of liberal democracies.