Industrial Change, Barriers to Mobility, and European Industrial Policy

Abstract

Corporate competitiveness in Europe Paul A. Geroski and Alexis Jacquemin In the 1960s, European industrial policy sought to create European super-firms large enough to compete with those in the United States. This policy has had limited success. Economies of large scale operation are less important than had been supposed, and the super-firms enjoyed considerable market power within a fragmented European market. This had several drawbacks. Most notably, it shielded these firms from the challenges of new rivals, the pressures to leave a declining industry, and the incentives to innovate and to respond to change. In protecting their national champions, individual European governments have reinforced this process. Inflexibility was further accentuated by the internal dynamics of large corporate bureaucracies. Europe needs to rethink its industrial policy. Barriers to mobility must be attacked by a more vigorous anti-trust policy. More finance must be channelled to new and expanding firms. The European market must be integrated to achieve a genuinely common market in which competitive pressures are increased; for this, a set of common standards, laws, and institutions is necessary. In many areas, European governments must pursue a concerted industrial policy and abandon the inward-looking, beggar thy neighbour, policies which are presently pursued.