European Industrial Policy: The Twentieth-Century Experience

Published by EH.NET (May 1, 2000)

James Foreman-Peck and Giovanni Federico, European Industrial Policy: The

Twentieth-Century Experience. Oxford: Oxford University Press, 1999. xvi +

466 pp. $105 (cloth), ISBN: 0-19828998-7.

Reviewed for EH.NET by Francesca Fauri, Professor of Istituzioni Economiche

Europee, Faculty of Political Sciences, University of Bologna in Forl?.

The aim of this multi-authored volume is to contribute to an understanding of

European industrial policy, broadly interpreted, by introducing an historical

perspective. The collection of case studies allows the reader to become

familiar with the differences among countries, and the remarkable continuity

within countries, of European national industrial policies.

The book analyses the industrial policies of four broad groups of countries:

the largest Western European states – Britain, France, Germany and Italy – a

group of small, but highly productive nations – Sweden, the Netherlands,

Belgium and Ireland – three states with a long tradition of state industrial

regulation: Spain, Portugal and Greece, and finally the case of Russia, a huge

economy with a deep-rooted tradition of centralized decision making and state

intervention.

British industrial policy from the nineteenth century was characterized by

economic liberalism, and despite the greater industrial role of the government

after the First World War, it clung to the liberal precepts of minimum state

expenditure and ‘self-regulation’ during the inter-war period. It was only

after 1945 that the Labour government took a much more interventionist

stance-nationalizing industries such as the coal industry, gas, electricity and

railways and adopting a variety of measures including import controls and

industrial subsidies at levels unknown in the past. In the 1980s, the state

reversed to more market-oriented industrial policies: it abandoned state

ownership and direction of industry, radically improving the performance of

British economy (even though the author claims that the redirection of economic

activity was not necessarily ideal and skill and learning deficiencies began to

emerge).

The French claim to have invented the concept of industrial policy and, as a

matter of fact, since Colbert, the idea that productive capacity can be

increased by state aid has never been abandoned by French governments.

Curiously enough, the chapter on Germany is titled “The Invention of

Interventionism,” contending with the French for the primacy. The first and

most important industrial policy instruments used by the German government

since the 1880s have been tariffs and subsidies. In this case economic

performance has shown that state interventionism and a positive economic trend

are not incompatible at all. Also the Italian state has a long-standing

tradition of intervention, progressively shifting its range of interest from

railways, tariffs and public procurements to bailouts, planning regulation,

subsidization and the use of state-owned enterprises. Albeit, not with German

results, being in the words of the authors “much less effective than it may

have been given the large resources allocated to industrial promotion.”

Small states such as Sweden, the Netherlands, Belgium and Ireland, all

experienced, though in different historical periods, state attempts to

influence industrial growth, usually ranging from rare selective interventions

(protection, subsidies, nationalization) in the past, to general efforts to

facilitate and stimulate industrial growth in more recent times. The

Netherlands is a case in point: arguably the most liberal country in Europe

since its creation in the sixteenth century, between 1948 and 1963 the

government actually intervened in support of declining industries as had never

done before (or has done since).

Spain, Portugal and Greece, three latecomers in the industrialization process,

all present, with different degrees of intensity, a key state role in the

promotion of industrial development. Spain, as the other two, was characterized

by a long-term presence of an authoritarian government, but it was the only one

to combine authoritarianism with a political ideology of intense and

large-scale industrialization. Yet, results were meager: the state

interventionist approach proved not very efficient, supporting the

implementation of a rigid system of import substitution that soon became not

only superfluous, but harmful to overall economic growth.

Russia is the utmost example of industrial policies with maximal state

intervention, at least until the 1990s. During the Tsarist peacetime economy

(1890-1913) the state promoted the development of heavy and defense industry in

order to remedy the technological backwardness of the country. The main

beneficiaries of Tsarist industrial policies were the railway, engineering,

iron, steel and defense industries, with much of the burden falling on the

agricultural sector as a result of tax policies. After the New Economy Policy

interval (1921-27) in which the Bolshevik policy-makers tried to reverse the

policy of nationalization by privatizing small industrial enterprises,

industrial policy in the Stalinist era became highly centralized, the state

owned all productive assets and quantity-oriented plans were utilized as the

main coordination mechanism. State planning was retained as the key industrial

policy instrument until 1992 when economic decision-making started being

decentralized to banks, firms and regions and Russia started its difficult

transition to a market economy. Yet, historical traditions are likely to

influence the pattern of industrial organization and policies that Russia will

develop in the future.

The introduction of a cultural theory of industrial policy in the last chapter

helps explaining why European industrial policies show different degrees of

state intervention. Inter-country differences in the propensity to intervene

also depend on the dimension of trust: industrial policy requires an adequate

degree of trust to succeed.

Surely this volume has two great merits: it provides a collection of case

studies constructed along the same line of discussion themes, thus facilitating

comparative analysis, and it offers a synthesis of a great deal of literature

unavailable in English. Undoubtedly, the book has fulfilled its task of

rendering the future writing on the history of European industrial policy more

manageable.

Francesca Fauri is author of “A Comparative Analysis of Italian and British

Management before World War II” in Vera Zamagni and Lars Engwall, editors,

Management Education in Historical Perspective (Manchester University

Press, 1999) and “Economic Miracle and Italy’s Chemical Industry: A Missed

Opportunity” in Enterprise and Society (forthcoming, summer 2000). She

is currently working on a book on “L’Italia e l’integrazione economica europea

(1947-2000).”