Industrial policy takes off as a great global economic and political agitator

In an age marked by stark competition between powers, industrial policy has quickly become a central element of global economic activity. More and more States —among them the most powerful, as well as the EU— embrace different types of interventionism in strategic sectors in order to reduce dependence on adversaries or gain advantage over competitors in key aspects that will determine the strength of a country in the atlas . This is a broad movement with great potential to impact jobs, supply chains, innovation, debt or protectionist tensions.

Beijing advances on the path of industrial autonomy according to the roadmap of its mammoth plan Made in China 2025, released in 2015; Washington accelerates on the back of its most recent impulse measures in the sectors of green technology and microchips; the EU also develops its plans, as do other players of different sizes across the world map. A competitive spiral marked by mistrust, restrictive measures that, together with new opportunities, opens the way to the risk of approaching confrontation.

These issues have been the subject of reflection in The return of the State: what future for industrial policy? a debate organized by the World Economic Forum (WEF) in cooperation with EL PAÍS, and held this Tuesday in Geneva as part of the conference Growth Summit: Jobs and Opportunities for Alla conference promoted by the WEF.

The pandemic, the threat of climate change, the geopolitical risks have come together to stimulate this great return of the State —and a leap forward in the integration of the EU project—, and industrial policy is emerging as one of its most important elements. . An element loaded with problematic aspects.

A report published by the WEF in parallel to the debate —The Chief Economists Perspective— points out that 74% of the experts consulted believe that this trend towards a strong industrial policy will advance on a global scale; 90% believe that it will deepen geoeconomic tension and rivalry; 70% that will damage free competition and 68% that will lead to a problematic increase in public debt levels.

Experts are skeptical about the ability of this push to produce positive effects: 39% believe it will be a driving force for innovation; 20%, which will increase global economic activity.

The outlook for chief economists is thus bleak, but governments are determined, willing to reduce the degree of reliance on adversaries and competitors as a driving force for vigorous policies in the large economies of the northern hemisphere. This produces not only a problem of tensions between them —such as the microchip crisis between the US and China or the tensions between the US and the EU over protectionist aspects of Washington’s green program—, but also between North and South.

Mark Swilling, Chairman of the Board of Directors of the Southern African Development Bank, considered in the debate that these developments “are bad news for the Global South, which is left out of this dynamic.” “This will change the cost of capital, it will redirect investment flows along with other elements that I think will be a negative turnaround for the region,” Swilling said.

Botswana’s Minister of Industry, Trade and Investment, Mmusi Kgafela, added in this regard: “If the competition gets out of control, it will generate turbulence, global geopolitical tension and could plunge us into a war. I call on the rest of the world, including the US and Europe, to pursue an industrialization that takes due account of the interest in peaceful coexistence, that contemplates take and give, not a bulldoze attitude,” he said.

Of course, this political shift presents both enormous opportunities and risks for business. Industrial policy can pave the way for companies that receive subsidies, tax cuts, benefit from new infrastructure or a financial boost to research. But, at the same time, they must account in their strategic plans for the enormous volatility produced not only by events such as a pandemic or climate disruptions, but also by geopolitics, with its perspective of spirals of restrictive measures, reciprocal sanctions, etc.

The microchip battle is perhaps the most obvious example. The Biden Administration approved months ago a draconian measure to restrict the export of high-end microprocessors, an initiative in which it has subsequently achieved the adhesion of Japan and the Netherlands, important for being the headquarters of two key companies in the sector. China has reacted angrily.

Kellee S. Tsai, Chancellor of Social Sciences at the Hong Kong University of Science and Technology, warned during the debate of the danger of entering the spiral of the security dilemma, that dynamic whereby someone takes steps to protect their security. , which alerts others who act spurred by it, unleashing a race full of risks.

Tsai, who has studied the Chinese industrial process, highlighted how Beijing’s industrial policy has not been as successful as some think. “The most successful companies are not the result of a coherent industrial policy, and at the same time there are obvious cases of failure of that industrial policy, such as in the aviation sector, or numerous episodes of corruption.” The underlying logic of industrial policy runs into serious problems in its implementation.

“If it’s run with the old concepts of champ select, centralized management, etc., it’s going to be a huge flop,” Swilling said. “You have to bet on a new concept, the establishment of an environment and connections that allow completely new manufacturing segments to flourish.”

Meanwhile, companies that operate in global markets are looking for ways to increase their resilience in this turbulent context. A deep disconnect with China is unthinkable, as US Treasury Secretary Janet Yellen has explicitly acknowledged in a recent speech. But the context is so volatile that geopolitical risk influences, and those who can, the companies with the largest size and capacity for action, scan the horizon, looking for opportunities, avoiding risks.

Gero Corman, Volkswagen’s head of digital technologies and platforms, noted his belief that, for companies large enough, a dynamic of “vertical integration, trying to control component manufacturing” within the perimeter of a company will accelerate.

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