The Challenge To European Industrial Policy

Impacts Of Redirected Military Spending

Bernard Udis

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000315219
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Examining recent European experience with industrial policy, Dr. Udis explores ways to ease the transition to reduced or redirected levels of military spending. He surveys government policies in Great Britain, France, West Germany, Sweden, Belgium, the Netherlands, and Italy, identifying strategies for individuals, firms, and regions as they adjust to shifts in the economy. Regional development, science and technology, and labor market policies are analyzed in conjunction with public procurement strategies and government aid for exports and international ventures. The book includes material drawn from the author's interviews with government officials and industry leaders, illustrating practitioners' perspectives on these measures and on the nature of diversification and conversion. Their views and experience, the author argues, will be valuable tools for policymakers weighing the costs and benefits of implementing industrial policies in the United States.

1
Introduction

The goal of this effort is to extend an earlier study of European policy instruments available to ease the adjustment to reduced levels of military spending.¹ That study found few relevant European examples of mechanisms to aid effectively the transition of military productive capacity to civilian output. The updating effort was conducted during January 1985 in France, the Federal Republic of Germany, Sweden and the United Kingdom, supplemented by mail and telephone communications with sources in Belgium, Holland, and Italy.

All countries studied have an array of existing policies which might be helpful in easing a transition to lower levels of military spending, which collectively might be described as industrial policies.² Such policies typically fall into two categories:³ micro-policies designed to help firms in depressed traditional industries and their dependent workers and communities, and specific policies whose purpose is to aid promising new industries (usually based on advanced technology) in gaining a foothold in the market. What these policies have in common is their going beyond the "macroimpersonality" of traditional monetary and fiscal policy. They include regional development programs, labor market programs, financial aid to firms at below market rates of interest, subsidies for research and technology, export promotion and financing, aid to innovation, etc. They will be described in some detail in the individual country sections. To give the reader a sample of the variety of such policies across the countries studied, a series of summary tables (Tables 1.1-1.7) appears at the end of this section tracing their evolution from the pre-1974 period through the reactions to the first series of oil price shocks of 1973-1974 and most recently through the changes of 1979-1980. Despite their diversity, they are linked by the fact that they were not designed specifically to aid a military to civil transfer of resources. Their origins are, of course, less important than their possible effectiveness in easing the strain of economic conversion. For this reason, the question of their potential relevance and usefulness in dealing with the economic conversion issue was repeatedly asked of government officials, industrialists, and other informed persons. Their responses appear throughout this volume.

Widespread concern over the economic and social strains which might result from a substantial reduction in the level of military expenditures was not encountered in any of the countries studied. The principal reason for this relative complacency is that military expenditures are seen as being a normal part of the government budget and likely to remain that way. While military expenditures represent a relatively small share of the gross national product, they do show some cycling over time, reflecting changes in geo-political conditions and the more prosaic completion of large procurement projects with gradually lengthening periods of slack in between.

The typical government position is that cycles in military markets are sufficiently familiar to permit most firms to plan in advance for adjustment and the development of alternative products and markets. In other words, preparation for and adjustment to variations in military procurement is viewed as a normal managerial responsibility in a dynamic economy. This pattern is probably made more explicit in the Federal Republic of Germany than in most other countries, but the position is not unique. The Swedish government has demonstrated more interest in the general issue of economic conversion, as evidenced by several government studies and reports, but even there, few explicit policy actions can be identified.

A distinction must be made between government positions and the concerns of minority political parties and private groups. There is no shortage of concerns about easing the adjustment process among certain trade union groups, "peace" groups, and out-of-power political groups. It should be noted however, that while questions in the West German Parliament concerning the utilization of defense industry production capacity in the event of disarmament agreements often are raised by individual Social Democratic legislators, the official position of the current Christian Democratic government is almost indistinguishable from that of the predecessor Social Democratic administration; namely, that the responsibility of planning to meet such transitions is principally that of industry.

The logical question one would wish to ask is which policy measure "works" and which does not. Unfortunately, the answer is more complex than that. There is not an exact formula for successful economic conversion. Similar measures in the different countries do not yield similar results. This should not be surprising since every country's economic history contains a record of firms in the same industry and at the same point in time with widely differing profitability. Conversion or transfer of resources from military to civilian use is an example of adjustment to changing market pressures. Since the challenge to firms in this situation is to "adapt or die," one may reason that national environments which encourage such adaptation will enjoy higher success rates. The society's views and attitudes to adaptability and change may be as important as specific policy measures in explaining differential success.

In this context, the view of a French banker was particularly interesting. He expressed concern that the French economy's adaptability to change would remain low as long as French society continues to draw its leaders essentially from two institutions of higher education: the Ecole Nationale d'Administration and the Ecole Polytechnique. While acknowledging them to be excellent educational institutions, he saw them as stifling new ideas with their oppressive application of the old school tie or "old boy's network," thereby effectively locking the door to the "self-made man" type of executive who might be more inclined to consider less traditional approaches to problem solving.

The importance of flexibility applies to workers as well as to managers. European workers have long been noted as tradition-bound and resistant to geographical mobility. Sweden's active labor market policy appears to deal with these issues directly. An impressive program to subsidize geographic mobility exists there.

Regional development programs exist in each country, but they all face a common dilemma: the existence of depressed areas attesting to their loss or lack of attractiveness to industry. Efforts to develop new industry or to encourage the expansion of existing industry in such regions require measures to counteract this perception of industrial unattractiveness. In an ideally operating economy, both labor a...

Table of contents

• Cover
• Half Title
• About the Book and Author
• Title
• Copyright
• Contents
• List of Tables and Figures
• Acknowledgments
• 1 Introduction
• 2 The Economics of Diversification
• 3 France
• 4 Federal Republic of Germany
• 5 Sweden
• 6 United Kingdom
• 7 Belgium
• 8 The Netherlands
• 9 Italy
• 10 Conclusions
• Index