politics-of-constraints-presentation

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**The Politics of Constraints** <br> *EU Industrial Policy Under Limited State Capacity*]]

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.center[ 
*Political Economy of European Integration <br> Cologne - 24 January 2024*]

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## The argument

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1. EU member states have proactively engaged to label certain industries and sectors as ‘strategic’

2. EU industrial policies take a project-based form

3. Both are shaped by politics, and more specifically the politics of constraints
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## I <br> Context

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## Context I: Discoursive and coalitional shifts

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<img src="data:image/png;base64,#jcms.png" width="85%" style="display: block; margin: auto;" />

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## Context II: EU-level policy shifts

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<img src="data:image/png;base64,#sunshine.png" width="95%" style="display: block; margin: auto;" />
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## Context III: Mais Il n'y a pas de hors-texte?

We now have a fairly clear understanding of what the discursive shifts towards market-shaping policies look like, which actors push for them, and when it started.

Equally, we know what kind of repurposing of the treaties has made all of this possible.

We lack knowledge on two things:

1. Why do certain sectors prevail over others? What determines whether a sector is understood as 'strategic'?

2. How do these new industrial policies work 'on the ground'?

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## IPCEIs as the perfect case study

Article 107(3)(b) TFEU (formerly article 87)

> The following may be considered to be compatible with the internal market:

> (b) aid to promote the execution of an **important project of common European interest** or to remedy a serious disturbance in the economy of a Member State

This clause has existed since 1957, but has only sparsely been used until the 2010s. Since then, it has been formalized and now underpins projects in batteries, hydrogen, microelectronics, and cloud infrastructure worth over €75 billion.

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# The politics of constraints

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## Three types of constraints that shape industrial policy in the EU

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1. Macrofinancial constraints 'from above'
> The EU does not have the macrofinancial institutions to replicate an IRA-style industrial policy spending spree

2. Micro-economic constraints 'from below'
> Bureaucracies at the regional and national level have undergone an attrition in terms of know-how and ability to discipline firm behavior (e.g., through conditionality)

3. Sui-generis constraints
> Fiscal constraints, state aid constraints, dispersion of competence between governance levels

]

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## Beyond differentiation

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<img src="data:image/png;base64,#SA.svg" width="80%" style="display: block; margin: auto;" />
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<img src="data:image/png;base64,#Rplot.svg" width="80%" style="display: block; margin: auto;" />
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# III <br> The paper

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## Empirical approach:

1. Reconstructing the history of strategic sector identification

2. Understanding how project-based industrial policy works

3. Identifying the participants and their hold over the entire process

Data collection:

- Interviews

- Firm-level data (Orbis (revenue, size, sector))
> Expand with ownership data, 'export-orientation' of firms?

- EU consultation (2021), 'Strategic forum' documents

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## Back to the future: 1980s revisited

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## Why did the 1980s programs fail?

‘The absence of public sector strategic insight’ meant that there were no ‘clear criteria for potential technologies’ and much of the project definitions were left to ‘quasi-cartel formations’ of large European technology companies (Cobby 2023)

EU-programs of the day thus were ‘as much managed by industry as the Commission itself in a highly insular, initiative-level policy community’ (Peterson 1991, 277)

Project-based industrial policies can galvanize collaboration and political support, but projects might collapse under their own weight due to complexity, transaction costs, and lack of public sector oversight (Sandholtz, 1992)

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## The end to strategic sectors in the EU?

‘Any attempt to effectively protect strategic sectors, or nurture ‘national’ into ‘European champions’ is‘doomed to fail’ (Bangemann, 1992, 16-18)

The ‘magic word key industry must not be a guarantee for subsidies’; Europe should be very careful to ‘promote so-called ‘strategic’ future projects’ (Bangemann, 1992, 134)

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## Since 2014: relaunching project-based industrial policy

1. Strategic forum

2. Friends of industry

3. State aid review and IPCEI communication

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## Strategic forum?

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The Strategic Forum consists of 44 members representing Member States, industry and the
research community, and was established by Commission Decision C(2018)475 of 30/01/2018.

It has convened six times between 2018-2020, idenfitying the following six strategic value chains:

- Connected, clean and autonomous vehicles

- Hydrogen technologies and systems

- Smart health

- Industrial Internet of Things

- Low-CO2 emission industry

- Cybersecurity

In most of these areas, we now have one or multiple IPCEIs

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<img src="data:image/png;base64,#strategic-forum.png" width="65%" style="display: block; margin: auto;" />
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## IPCEI communication

The Important Projects of Common European Interest and 107(3)(b) were taken up in the 2012 State Aid Modernisation program as a way to bring state aid rules in line with the Europe 2020 strategy.

In 2014, a communication set out the guidelines for how an IPCEI must work. Inter alia:

- A project is 'important' if it contributes to the EU's competitiveness qualitatively or quantitatively

- Its benefits must be dispersed across more than one member state

- It must include co-financing by the beneficiary (i.e., the firms involved)

- A national matchmaking process must identify potential projects that can be bundled into an IPCEI state aid request

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## Cui bono?

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## Cui bono II

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<img src="data:image/png;base64,#revenue-ipcei.svg" width="95%" style="display: block; margin: auto;" />
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<img src="data:image/png;base64,#ipcei-employees.svg" width="95%" style="display: block; margin: auto;" />
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## 2021: revision of IPCEI communication

As the 2014 Communication would expire in 2021, a stakeholder consultation was launched to inform a new Communication

Key points:
- Lack of transparency

- Small member states fall by the wayside

- SMEs suffer the same fate

> Re-iterated in 2021 non-paper by Czech Republic, Denmark, Finland, Ireland, Latvia, Lithuania, Poland, the Netherlands, Slovakia, Spain and Sweden

Future work: cross-referencing what firms say with beneficiaries of IPCEI projects

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## The situation on the ground

(Preliminary, subject to change)

- Ad-hoc coordination, even in 'strong' member states

> VDI/VDE-IT is partnering with the BMWi and offering its proficient support to the IPCEI on battery cell manufacturing, both by managing the project on behalf of the BMWi and by providing scientific guidance. (VDI/VDE-IT, 2023)

Is this just a feature of how modern governments work, or should this be problematized?

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## Wrapping up

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## Discussion

- Strategic sectors in Europe are primarily defined by business actors, rather than politicians and technocrats

- The politics of constraints shape the way IPCEI projects are managed

- The conspicuous absence of labor

- EU industrial policy: Everything must change for everything to remain the same?

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## Thank you!

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