Welcome everybody to this new episode of FEPPS Talks. I'm David Rinaldi, Director of Studies and Policy at FEPPS, the Foundation for European Progressive Studies, and I'm super happy to have you here today for a talk and a podcast on a very important issue for our Union Industrial
Policy. It was treated quite for a long time as a bad word, but now it's a little bit more in vogue also thanks to the EU competitiveness agenda and the need to relaunch our economy and our industry, to decarbonize it and to relaunch it so that we can ensure prosperity for the
Union. We have the talk today with Lucas Bertram, super happy to have you here Lucas, economist at the Zoey Institute for Future Fit Economies, an Institute, you know, future fit economists that more than perfect to exactly talk about how to transform our industrial sector
for the future. The occasion to have you here today is also because among the different work that you've done at the Zoey Institute for Future Fit Economies, you have published exactly this week for FEPPS and the Friedrich-Kerber-Stiftung, a nice study that I show here for the benefit of the camera available on FEPPS and FES website, a unified industrial strategy for the EU with an important subtitle, industrial policy recommendations to promote decarbonization,
competitiveness, and cohesion in Europe. Lucas, my very first question is probably very broad, but I am still interested in one of the words in this title, strategy. What it means to be strategic once we look at industrial policy and who has to be strategic? Is there a role for the EU, European public sector, is it just the market or is it a national public sector? What's the strategy here? First of all, thanks a lot for the invitation, David. Pleasure to be here and very
excited to discuss this interesting topic with you. Actually, when I started this work, I looked up the definition of strategy because I was interested in what does it actually mean. And the definition that I liked most was around a structured approach to achieving multiple objectives in the long term.
And I think that's exactly what we're talking about here and what basically the whole Brussels is talking about, these different objectives that we pursue with an industrial strategy, recognizing that between these objectives we have on the one hand some synergies,
but we also have many trade-offs and tensions. And that makes it very interesting because we need to manage these trade-off intentions and we should leverage the synergies to an extent that we can actually be successful with this strategy and achieve multiple objectives at the same time. And I think this probably we have the best shot at actually achieving that with a good interplay between the public and the private sector. So I would say it needs both the private
sector and the public sector. But I think in this specific context, there's definitely a significant role for the public sector to play. I think we can easily explain that with the concept of market failures, because market failure, they are like the very prominent example of justifying why do we need public sector intervention. And if we look at different objectives that we pursue with the strategy, we can start, for example, with decarbonization,
then we see these market failures. So again, very prominent example for a market failure is companies polluting our air and not paying the social costs for that. We already have the European emissions trading scheme for that, but it doesn't cover all the sectors that we have. But it's a typical example of why we need the public sector and you can also then extend that to other objectives.
So for example, very hot topic at the moment, economic security, strategic autonomy. Here we see that because of commercial interest, understandably, companies have built up some dependencies, for example, by producing in China or exporting to China. So from a private company perspective, that might have been an efficient or good decision, but from a societal political perspective, it
created some dependencies that we now want to reduce. And I think these examples nicely illustrate why the public sector needs to play a significant role in this industrial strategy. The direction of this multiplicity of objectives. I think it's a good way to put it. Sometimes I would even refer to them as buzzwords. And I would try to benefit from your presence here to help us make a little bit of clarity among all these concepts that are floating around
around Brussels, for my sake, for our listeners. Of course, there's the competitiveness, but then also the industrial strategy. Then we're also looking at strategic autonomy. We are looking also at economic security. We are looking at the Green Deal industrial plan. So what's the correlation of this? What is the objective and actually maybe even more relevant? What is the goal and what are the tools to arrive to the real goal?
Good question. Let me try to disentangle these concepts a bit. Maybe starting with competitiveness, because that is very, obviously very central at the moment to the debate. I would say when we talk about competitiveness, the basic idea is the ability to compete. Actually, the concept comes more from the business sector. So that's about how can one single company compete in the market. And then this concept was transferred to more the sectoral level or even the whole national level.
But anyway, the concept is about the ability to compete in markets. And what is very important here to distinguish is cost competitiveness versus technological competitiveness. And that has many implications because if we talk about cost competitiveness, then we often hear something like cost of labor and arguments for we need to stop the increases in wages, which would make us more
cost competitive. But that totally neglects the euro of strengths, mainly lie in sectors where it's not mainly about cost competitiveness, but rather about technological competitiveness. And that we actually need to have the best technologies and we need to be very innovative. So I think this is really important to keep in mind when discussing this concept. In terms of the other concept you mentioned, I already alluded to the aspects of open strategic
autonomy and economic security. So they are roughly similar, both following the idea that we need to reduce our external dependencies that we've built up in this era of globalization, where we strengthened our trade ties to China, for example, but also other regions. And we've seen it with Russia's invasion of Ukraine. And we're also sort of afraid that something similar might happen to Taiwan. And in these situations, we want to have some leverage
over these countries, and we don't want to be too dependent on them. So that we can, for example, enact sanctions as we did towards Russia. So at the moment, it's also a lot about how can we decrease our dependence on China. What I really found interesting is your question about what are then actually objectives and what are more the tools. Personally, I always struggle to understand this differentiation between objectives and tools as a binary concept. I think it's probably more
like a continuum. And I would say at the very end of this continuum, to me, is the overall purpose of the economy. So at ZOE Institute, we've recently wrote a paper about economic resilience. And there we have defined what is actually the ultimate objective of the economy. And we have defined that as providing well-being for present and future generations within planetary boundaries. And I would actually argue that anything that is not that is not an ultimate objective, and probably
more a tool. And of course, you can still argue about which of these things that we just mentioned are then closer to the ultimate objective, and which are quite far away and really only tools. So I guess if we talk about things like jobs and prosperity that is relatively close to the ultimate purpose, other concepts like competitive, for example, I would rather consider to be definitely a tool that we want to employ to achieve the objectives that are more on the
other side of the spectrum. I have to confess that I have a little worry while congratulating you for the great definition of the real objective. One of my worries is that these, I wouldn't say obsession, but prioritization that the European Union is doing of competitiveness might actually ultimately create problems to the prosperity and well-being of people
within the boundaries of the resources given in this planet. Particularly when it comes to a EU competitiveness agenda that is very much about picking winner and picking some technologies or picking champions, do you see the risk of undermining cohesion and convergence? So up to which level we need to prioritize on competitiveness or having a competitiveness agenda that is not
supporting all regions. I say this worry because by observing the economy at the moment we see that there is already some divergence, plus some countries have higher cost of energy, one of the costs of the competitiveness, sometimes same countries have even higher cost of capital that is very heterogeneous within Europe and often the same countries have also less state aid. So in some European countries you have less support from the state.
Capital cost more and energy cost more. How can we have a level playing field? How can we have convergence if doing business is so much more difficult in some countries? Do you actually see a clash, potential clash between convergence and the competitiveness agenda? I definitely share your concerns. I think there are fortunately also solutions to that, at least approaches that we should engage with. The tricky part about territorial cohesion is that it,
that there are often login effects. So precisely the things that left behind regions would need in order to attract investments and build up future fit value chains are often the things that they tend to have less of compared to their more developed counterparts and you've already mentioned some of these things, ability to ground state aid to companies, technological
capacities, the skills of the workforce for example. So there's really a risk of a vicious circle where exactly those regions that don't have these conditions fail to attract investment and fail to develop these future fit value chains and thereby get left behind even more compared to the more
developed regions. So I'm fully on board in terms of sharing these concerns. I still think there can be solutions to that because fortunately the current momentum around the clean industrial deal and the whole discussion about industrial policy generally offers a window of opportunity to overcome these logins especially because the twin transition that we're engaging with, so the green transition and the digital transition requires some conditions for regions that can,
that we can actually find in these regions that we want to help and that we want to help get out
of these traps. So for example for the green transition obviously what is super important is the solar energy capacity and we see that in southern Europe where we tend to see more less developed regions than in northern Europe but there's also research showing that regions in central and eastern Europe have capacities due to the, for example due to the manufacturing that we've outsourced to these regions that can be useful for the digital transition and I think
a successful EU industrial strategy should really try to create a win-win situation between these things. So if we leverage these untapped potentials then we can on the one hand help these regions because promoting value chains and industries in these regions will definitely help them with providing jobs and income but at the same time it can also be beneficial to the whole EU because it actually means building up future fit value chains that in the long run are very competitive
because we build them up in the regions where we have the best long-term potentials. So I think that's exactly the challenge that we're facing trying to create as many of these win-win situations
as possible. Of course I don't want to be naive because I know that it won't work for every region there will still be regions that unfortunately don't have these capacities to contribute to these value chains and these regions continue to rely on cohesion policy for example but I think there's definitely some room for improvement in Europe in terms of untapping these potentials that I mentioned.
And if I'm not wrong you have already done some work on this because in the in the in the paper you actually present what you call a map of regional potential so there is already some I would say data and analysis on the added value of different of different regions even here what type of strategic approach we need what type of capacity we need and why your map can be actually
useful. Indeed we have developed this regional potential map which is supposed to help decision makers with developing this strategy that I that I just outlined for untapping regional economic potentials. So the idea of the map is that for each value chain segment of strategic industries that we want to promote in the EU we look at multifaceted dimensions of what do regions
need to be in a good position to contribute to developing these value chain segments. So that can include what I just mentioned solar energy capacities it can also include technological capacities infrastructure whatever is needed for these for these value chain segments it's important that it's context specific because obviously different value chain segments need different conditions but if you collect data on this and you all bring it together in one map then you
can identify regions that have the best potential for these respective value chain segments. If you have a hard time imagining what that would look like envision a heat map where you basically have different layers and the more layers a region performs well in the darker the color of that region becomes and that helps decision makers to spot these regions that have
the highest potential. Now obviously there's sort of a dilemma here because on the one hand we want to help left behind regions we want to sort of discover their hidden potentials especially the long-term potentials so we really want to look at what are the left behind regions that have long-term potential to contribute to our value chains at the same time of course the current political geopolitical environmental situation is so urgent that we need short-term success so we
We really need to bring this together. Water then actually-- the potentials of regions that really can also help us in the, let's say, medium term. So not only selecting then regions purely for the sake of cohesion, but rather selecting
cohesion regions for the sake of competitiveness. And as I already said, the solar potential is one good example of that because that means that on the one hand, we can support regions that tend to be more left behind like in southern Europe, but it also means lower energy prices in the future because we know that solar energy is in the long term way cheaper than other forms of energy. So it could really be actually a cost competitive advantage to support regions in,
to support companies in these regions. Coming back to your question of what exactly is needed for that, of course, we need to support the regions with exactly those conditions where they don't perform well. So let's look at Andalusia, for example, in southern Spain, they have a lot of land, they have a lot of solar energy, but they might not have the same infrastructure or technological
capacities as we have in Germany. So then we need careful decisions, and it also depends on the time horizon of our decision making, which parts of the value chains can we then actually maybe build up in these regions in the long term? And what do these regions need for that? Do they need to build up infrastructure? Do they need support with upscaling workers? Do they need
some sort of new technology to build up these certain value chain segments? So I think that's the approach that we need to address these dilemma that I just outlined.
Allow me to stay on this topic of regions and EU a little longer, because in the policy study, a unified industrial strategy for the EU, you also have a great contribution on the multi-level governance aspect on actually how the strategy should be combined, what's the role of the different line, of the different level of governance, because even from a pro-European organization like us, like FEPPS, we also believe that Europe alone cannot do everything, cannot transform
if there's not a combined and unified approach. So what is your take about the multi-level governance? How to plan it? How to thinking? And what are the responsibilities of the different levels? Yeah, we start by exactly this observation of that we need to combine the European level with the national and the regional level. So I think generally there are very strong arguments for why we need the European level. We need to untapped the potential
of all regions. We can make use of economies of scale, for example, but at the same time, it shouldn't be a top-down approach that comes from Brussels and that member states and regions have to adhere to, but it should rather be something that they can shape and that they can engage in as a process. So this is why we're advocating for this multi-level governance approach.
So that would mean on the one hand that member states do not only engage with the commission, so there's always the with the EU level, there's not only this type of engagement, but there's also engagement between the member states and regions, because the regions most likely will have the best knowledge about what are their unique potentials that they can contribute. So that should be one aspect of that, that there's a dialogue between member states and regions.
And then the member state is supposed to or we propose that the member state then engages in a bilateral dialogue with the commission to then sort of bring the regional strategies from the national level to the EU level, so that in the end we have a coherent approach on the EU level and make sure that the national strategies and regional strategies do not pull in opposite directions, but that they are actually aligned. So what we concretely propose, for example, is
integrating this type of exchange into the European semester. So in the European semester, we already have sort of coordination between the EU level and the member state level on budgetary policies, and we propose to also integrate an exchange on industrial modernization, where then the member states can share with the commission what they think are the potentials that they can
contribute. And the commission's job would then be to sketch out a strategy that then is in the best case also supported by the member states that would then take into account all the different potentials that come from the regions and so that in the best case in the end, everyone, both the EU level and the member state and regional level, agree on an overall strategy.
The frequent and difficult questions at the time. I think one of the questions that all progressives here in Brussels and in many capitals have asked themselves or are trying to respond. Basically, what is the social and employment angle of this competitiveness agenda and the Green Deal industrial plan? So there has been a lot of debate on the Letta report first, the Draghi report after that. We know we will go into the direction of
competitiveness and also deepening of the single market. If you are to mention what are the, I would say, less strictly economic policy measures, but very relevant for the economy and for the prosperity and well-being that you said that are the ultimate objectives. What would come to mind as important policies to accompany or to substantiate the employment and social matters? So maybe let me start with a like actually "hardcore economic analysis" and then derive from that
what we need in other policy areas. So the whole discussion around competitiveness that you mentioned and especially the Draghi report has nicely shown that we need some bold changes and reforms in Europe to the extent that we fundamentally need to reform our economic model mostly in Germany, but also in the US as a whole, because the current economic model is way too dependent on creating
external surpluses and then generating revenues from exports. That has worked quite well in the age of or in the decades of globalization, but we now live in a different world and looking across the Atlantic to Trump, looking at looming trade wars, it's pretty clear that this won't work
to the same extent in the future. So Draghi is quite good in sort of outlining what are the economic reforms that we need and this is one point that he mentions and I find that quite interesting because that naturally implies that we need to think a bit more about our internal
demand instead of looking at export markets. We need sufficient internal demand in the EU, sufficient productivity and I think we haven't devoted sufficient attention to that in the past and then I would also like to raise the question what type of internal demand do we then need and this refers maybe to what I mentioned earlier about the highest purpose of the economy, which is providing well-being. Then we quickly get to the more social sectors, which will be super
essential, for example in aging societies that we have mostly across Europe. We need more carework, for example. We also probably need a better health system. So I think those are then like policies that we need and we need to strengthen these sectors and this can then be about universal basic services, for example, that could be an interesting avenue, but also maybe to connect
it again a bit to the economic level. I think what is also very important then is if we actually engage in giving subsidies from the public sector to the private sector, then why not tie that to social conditionalities? Ensuring that in the long run we only support the companies that actually perform best in terms of environmental and social ambitions. So that could mean handing out subsidies that are tied to social conditionalities, for example, around collective bargaining,
labour conditions and things like these. So I think there are many different aspects that we need to think along when we want to connect this like more economic analysis to the social aspect, which is definitely super important. I think that's exactly what we need to do. Quintly label as the engine of Europe, but now even the economy of Germany is somehow
reportedly suffering and needs to change fast. So if you look literally domestically at the national level in Germany, you have also a lot of employment-rich industries that need transforming and we still have a lot of resistance in using fiscal policy, monetary policy to support industrial transition. More than asking for a recommendation, I'm literally maybe asking for
a very informed person to share some of the insights about the current situation. Where do you see the problems and what do you think of the current problems that Germany is facing? I think it's a very complicated situation, at least if you combine the economic perspective and the political perspective. If you only look at economic analysis, to me it's pretty clear what is needed for Germany. So I've mentioned that before, Germany is way too dependent on exports.
So there we would need to reinvent ourselves, invent a new economic model, so to say, that is less focused on creating export surplus and more focused on internal demands. Germany also has a tendency to stick to old industries, which comes at the expense of being open to developing new industries. And then we also have this aspect of we probably need
more integrated European value chains, as I said. So we try to stick to our energy intensive industries, which in the long run probably won't be competitive because there are other regions in Europe and in the world where energy prices will be lower because the availability of renewable energy is just higher. Having said all that, I think we also need to recognize that while the
economic analysis is pretty clear, the political situation is obviously way more tricky. Because if you were to implement all that, you would probably need to sacrifice a lot in the short term to gain a long and a long term. So if we're talking about energy intensive industries, we have many jobs in these industries. And if we were to at least shift some of these value chains, like some parts of these value chains, the very first part of these value chains,
to other regions, it might mean some job losses. Similarly for the car sector, which is very central in Germany, if we talk about letting go of rather old industries and focusing more on the future fit new industries, this might also come with job losses. So I see that this is very challenging.
And I'm very far from having a perfect answer for how to deal with that. I just think in such a situation that is so complex, we need to have a complex solution that does justice to the complexity of the situation, part of which we try to outline in the study that you mentioned. If we zoom in a bit more into the into the job dimension, then I think what is really important here is to analyze the situation and opt for, let me say, job transition by design instead of job
transition by disaster. Because what we currently do is to is often trying to save jobs, where we know in the long term, we won't be able to save these jobs. So I think a more proactive approach would be needed that actually understands what are the jobs that are definitely at risk in the short, medium and long term, and really then trying to identify sectors that are complementary
to that. So sectors that require similar skills that are maybe geographically in a similar region that offer similar working conditions and wages and sketching out a strategy for where can these work is moved to that are affected by job losses. Yeah, so I would say in summary, I really see the
complexity of the situation. There's no perfect solution, but at least I think we should be a bit more daring to engage with a with an approach to that that actually looks at the problem, recognizes the problem and really thinks about long term solutions instead of only thinking about politically feasible short term solutions as important as that is obviously as well. I like that a lot transition by design, instead of being overwhelmed by the events and by the
future. That's why we have to be strategic. And maybe my last and sort of bonus question, you have mentioned a lot of things, but I will probably ask you to single out one thing that our member states or our union need to be equipped to lead the economies of the economy of the future. From the Zule Institute for Future Fit Economist, what is the one thing that the public sector needs to have or to do in order to have an economy fit for the future?
Yeah, I wish I had a one size fits all solution, but I think even for an economist working for Zule Institute for Future Fit Economist, it's not that straightforward to come up with this one size fits all solution for future fit economies. Because I think almost everything that we talked about clearly shows that we need context specific solutions. And we need to continuously rethink and potentially update these solutions as the world around us is changing in such a fast pace.
So maybe if I try to offer one size fits all solution, it's probably more on the meta level, which would then be really about we need clarity about what are the policy objectives that we want to pursue. What is the prioritization between these objectives? So whenever we have situations that are not only tensions, but really trade offs where we cannot resolve the trade offs,
then we need to prioritize between objectives. And from this clarity, we then need to derive a coherent strategy that as I said in the beginning, tries to manage trade offs, and tries to leverage the synergies between the objectives as much as possible. But as I said, what that then actually concretely means on a policy level is very context specific
and really depends on the situation. That was a very smart response. Thanks a lot, Lucas, for being with us, for sharing your knowledge in this podcast, as well as on the policy study, a unified industrial strategy for the EU, for this reflection on the multiple objectives,
and on the real goal that we that we all have. We invite you all to follow more on FEPPS website and on our social media for more content on industrial policy, competitiveness, cohesion, decadualization, and we see you soon on the next episode of FEPPS Talk.