The Eu 2020 strategy, a new “pick the winner” policy?

The Eu 2020 strategy, the new agenda for growth and competitiveness in European Union, envisages, as a “flagship initiative”, “an industrial policy for the globalisation era”. The goal is “to improve the business environment, notably for SMEs (i.e. small and medium enterprises), and to support the development of a strong and sustainable industrial base able to compete globally”. It is not clear how Commission will “promote the restructuring of sectors in difficulty towards future oriented activities”, “promote technologies and production methods that reduce natural resource use”, “promote the internationalisation of SMEs”. Similarly, it is not clear how a member state can “improve the business environment especially for innovative SMEs, including through public sector procurement to support innovation incentives”. For some commentators there is a risk: that the new framework will allow governments to “pick winners” in agricultural, industrial and service sectors to help them to compete in international markets and to foster the economic activity.

Too bad! Do the Eu bureaucrats really think that a government can choose “the winner” (or, even worse) many small and medium winners)? In a developing country – say China – this would be an easy task and, actually, many emerging countries show a successful state-led economic model. For a fully developed country, which has a very complex economic structure, the same job is daunting, hugely difficult. Of course, a good government will be able to succeed, in some instances, and choose a good firm; but the risks of failure are enormous. Even a less intrusive innovation strategy led by government – think at biotechnology in Singapore – is very likely to fail. Nevertheless, the Eu 2020 strategy states “The European Investment Bank and the European Investment Fund can contribute to backing a "virtuous circle" where innovation and entrepreneurship can be funded profitably from early stage investments to listing on stock markets, in partnership with the many public initiatives and schemes already operating at national level”

Of course, an economy cannot rely on a comparative advantage strategy, a framework – as a matter of fact a prescription, not an analytical model – not applicable to a world with free capital movements, but the most likely outcome of a “pick-the-winner” strategy will be the creation of a group of heavily-protected firms, chosen – in the best scenario – through backward-looking plans and criterions, less innovative in the industrial sectors and less prudent in the financial and banking markets; an heavily-privileged élite of managers and (bureaucratic) entrepreneurs, and too many ‘liaisons dangereuses’ between companies and governments. Innovation, the main challenge of developed countries, needs a polyarchic, decentralized system: in a catchword, competition.

It is true that real markets not always choose the best: it is naïve to think that markets can ever succeed, and are without failures; or, generally speaking, that real is rational; but it would be a delusion to assume that governments, except for some “natural monopolies”, can do better.