A new approach for the future of industry in Europe

By Bruno LE MAIRE, French Minister for Economy and Finance

We are at a time of great political change.
According to economic theory, growth and the global production of wealth are cyclical. Growth periods are followed by periods of economic downturns in which resources are reallocated.

I believe there are political cycles too. Not simply those created by elections, but those we experience every thirty or forty years when the balance of power is totally reshuffled. We are at that turning point.

On the one hand, China has had tremendous economic success in the last couple of decades. And its ambitions today which it now makes no secret of are not just economic. It has technological ambitions, with its Made in China 2025 plan.

China is no longer the workshop but the laboratory of the world. It has the will and the capacity to develop and control all strategic technologies in the coming years: artificial intelligence, energy storage, quantum technologies etc. But it also has geopolitical ambitions : these are set out clearly in its project The New Silk Roads project. China is striving to become the new economic and political geostrategic power of the 21st Century.

On the other hand, the United States maybe temporarily but maybe for many years to come, is shutting itself from the outside world with a populist and protectionist political project: America first.

Europe is caught between these two giants and their ambitious political projects and is struggling to find its place. It has also been weakened first by the financial crisis, then the eurozone crisis, then populist movements taking over in many countries and of course the referendum in the UK which embodies many of the ills of Europe. Brexit also reminds us all that the European project is not permanent : it can come to an end.

Faced with this situation : what should those of us who believe in the European project and in the future of Europe as a global power? I think we have a simple choice.

Either we allow ourselves to be dragged down into old European rivalries that will lead us to new forms of feudalization, with countries no longer working together. Such an approach will undermine our economies but also our ability to be a European political power. Or we unite behind an ambitious and common project, stable and proud of its values: a new empire.

I do not mean an empire of domination but a peaceful empire, in the words of Alexis de TOCQUEVILLE. An empire based on rules, on shared values and a shared culture, with strong external borders, an empire where the history and language of each nation is fully respected but also capable of looking towards and embracing the future.

It would be an empire with a unique approach to sovereignty which reflects what Europe is : a combination of national sovereignty and European sovereignty.

In some areas welfare states, education or justice systems, it is for national government to be the ultimate decision makers and that won’t change. In other areas, if we want to be truly sovereign, able to exercise our power on the global stage, we must work together. Pooled or shared sovereignty does not undermine national sovereignty as populists like to claim. On the contrary, it strengthens national sovereignty and we should not be ashamed to say so.

Industrial sovereignty or technological sovereignty is a case in point. Joining forces in these areas is the condition to be sovereign.

The alternative is that we lose the global race and end up being vassalized. This peaceful empire has strong economic values. It champions a renewed capitalism which is neither capitalism «with Chinese characteristics», nor the capitalism of the «American way». It is a fairer and more sustainable capitalism that must meet the challenges of today: the unacceptable rise in inequalities, among and between nations, as well as the desperately urgent climate change challenge.

One of the pillars of this peaceful empire should be a common industrial policy. We think, with my counterpart Peter Altmaier, that we have to work on three key aspects.

First, we need to create, develop and produce new technologies. Innovation is the only way forward to ensure our industry remains competitive.

That is why France has decided to create a 10 billion euro fund for disruptive innovation. We hope that this fund will pave the way for a similar European fund. We all can have our own and separate funds at the national level in France, in Ireland, or Poland. But then we won’t be able to compete with the USA or China. If we want to fund innovation, we need to pool our funding.

It is also why we need a fully functioning Capital Markets Union. It is needed to finance innovation. Why is there no European Google or Apple? Why are there more than 150 unicorns in the US, more than 80 in China and only 40 in Europe?

It is not a matter of creativity or talent, it is a matter of financing. And today we’re lagging behind our main rivals.

A couple of interesting figures on venture capital financing in the world in 2018: 100 billion (euros) in the United-States, 80 billion in China, 20 billion in Europe. We need to invest much much more to stay in the innovation race – on artificial intelligence, on space, on energy storage. The technologies of the future require massive investment. And we are not doing nearly enough today.

But innovation isn’t just a matter of financing. It is also a matter of smart industrial partnership. We need to develop new ways for companies to work together, share research and development costs and the outputs too.

That is what we are doing with Germany and Poland and hopefully other European countries for fourth generation batteries. And that is what we must of our time do on artificial intelligence, perhaps the greatest techno- logical challenge.

Europe was powerful in the twentieth century, in great part because of its success in mastering the nineteenth century industrial revolution. To be powerful in the twenty-first century, Europe must become a global leader on AI. And we have all the assets: top universities, engineers, data scientists and great innovation policies. But we now need to make it happen.

Second, we need to adapt our regulatory framework.

European competition rules need to be adapted to the global economy. Competition is global. We need to agree on a new set of rules, more in tune with the world as it is today. A world that is more brutal and less fair.

Despite our best efforts, there is no regulatory global level playing field. And there won’t be one any time soon. This puts European companies at a massive disadvantage. When some countries heavily subsidize their own companies, how can companies operating mainly in Europe compete fairly?

This entails changes to European compe- tition rules. I strongly believe it needs to be one of the key priorities for the next European Commission.

Finally, we have to be capable of defending our technologies, companies, and markets.

When you develop a new technology, it doesn’t come for free. It entails billions in spending and years of hard work. We cannot let these technologies be spied upon or simply stolen. France has reinforced its control over foreign investments in key sectors. And I am glad that Europe has recently agreed a more rigorous screening of such strategic and sensitive investments.

Protecting our industry also means protecting our capacity to trade as we choose. Along with Great Britain and Germany, we have created a new financial vehicle called Instex. It will enable our companies to avoid unfair extra-territorial sanctions and to trade freely when it is legitimate to do so. It also means using trade policy effectively: we are the biggest trade bloc in the world, we should not underestimate our own ability to frame trading relationships and make them fairer.

This simple choice between a Europe that turns on itself and a Europe that embraces the future is the choice European citizens will have to make in the May European elections. More than ever, their choice will shape the future of the European project.

A European renaissance is possible, but only if we are united. And only if we act now.