Industrial policy

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The term "industrial policy" is used and understood in a wide variety of ways. There is still a widespread view that industrial policy essentially involves (a) targeted government interventions to protect domestic companies against foreign competition and/or (b) government subsidies to nurture domestic industries of the future. The German government, however, opposes protectionism in general and takes the position that markets of the future cannot be determined by policymakers. Instead, we believe that market participants acting within the process of fair competition are much better at finding out which markets and technologies possess key potential for future growth. For this reason, the German government's industrial policy places its top priority on improving the general policy conditions for doing business. The guiding vision here is that of the Social Market Economy, which was conceived by Ludwig Erhard in the early days of the Federal Republic of Germany. According to this model, the state should largely limit its industrial policy to the establishment of a general policy environment that is conducive to dynamic economic development. A central priority is to ensure that domestic companies and their employees enjoy a level playing field - i.e. conditions of fair competition - on international markets. Direct government interventions must be restricted to rare exceptional cases. The responsibility for attaining and enhancing competitiveness lies first and foremost with companies themselves.

For industrial policy to be effective, it is not necessary to develop strategic visions, to pursue prestige projects or - much less - to subsidise uncompetitive sectors. Rather, in order to foster growth and jobs, industrial policy must place a priority on establishing the right conditions for innovation and production in a broad spectrum of economic sectors. Key tasks range from the identification of attractive business sites by local communities to the negotiation of global trade and climate agreements that take the interests of domestic companies into due account.

Thus modern industrial policy is a multi-level, interdisciplinary task that, in a strict sense, has very few instruments of its own at its disposal. Rather, its task is to ensure that the justified interests and concerns of industrial companies and their employees flow into the general political decision-making process and that these interests are taken into appropriate consideration so that domestic industries and industrial sites can engage in fair competition on world markets. At the same time, there can be special situations in which government support is in order. For example, within Germany's federal government, the Federal Ministry of Economics and Technology is responsible for coordination procedures between policymakers and industry in the strategically significant maritime and aerospace industries. This coordination task is performed at the level of State Secretary.

Because of its horizontal orientation, industrial policy must feed into nearly every realm of policymaking in order to prevent excessive or unjustified barriers to economic activity that exist in other countries, especially countries outside the EU. Policy areas that have crucial relevance for industrial policy include research and innovation; education, training and skills development; taxes, social insurance contributions and bureaucracy; energy and raw materials; the environment; foreign trade and investment; and infrastructure.

Developments in Germany in recent years have shown that it is possible to make the shift to environmentally compatible economic activity without sacrificing prosperity. When it comes to environmental protection, markets require clear targets from policymakers - but these targets can be developed only in co-operation with industry. The state must provide companies with reliable and quantifiable policy conditions not just in industrial policy, but in environmental and climate policy as well. Furthermore, the state should remain technology-neutral - in other words, it should refrain completely from imposing requirements regarding the development and use of specific technologies. The decisive factor for solving environmental problems is the cultivation and application of innovative ideas.

And it is precisely in research- and knowledge-intensive sectors such as mechanical engineering and measurement and control technology that German companies are pioneers in the production and export of environmental and climate technologies. As part of its policy to foster sustainable economic activity, the German government backs German industry's efforts in these areas by providing support for resource-efficient and environment-friendly products and processes and by offering extensive guidance to boost the sales of environmental technology on international markets.