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Remaking Manufacturing in the US and EuropeWWWfor Europe lecture Series

H:user/aig/vortrag/WWWforEurope_lectures_Berger_20_May_2013.pptx

Karl Aiginger

Vienna, 21st May, 2013

The outline of the presentation

The quest for a new industrial policyThe US challenge for E rope The US challenge for Europe

Europe as a model for US Summary

1 24.10.2013

History of thoughts (and meetings)

1983: Stresa: corporatism and flexible specialization

1991 (MIT): searching for the secret of the Japanese 1991 (MIT): searching for the secret of the Japanese Toyoda system; "Made in America" (MIT Press, 1989)

1995 Conference: US still leading in Unit Values Spec. high tech industries, but US does not concentrate on these Complementarities and supporting industries are lacking

J t t l t d d

2 24.10.2013

Japanese economy starts lost decades IT is now seen "everywhere": incl. productivity statistics

2013: US economy "alone at home"; challenge China MIT Commission: Production in the Innovation Economy

The need for a new Industrial Policy: European perspective

First push after 2000 Decline of manufacturingDecline of manufacturing Continued technology lead of US Globalization/China

Second push after the crisis Weak growth/high unemployment rate

3 24.10.2013

g / g p y In Greece and Portugal trade deficit/GDP (at max)

is as large as the share of manufacturing Rebalance economy away from finance and property Societal challenges (social, ecological, health).

The share of manufacturing in GDP decreasing (at current prices)

18

19EU15 EU27 USA

2000 18.4% 18.5% 14.2%2012 14.9% 15.3% 11.5% (2011)

13

14

15

16

17

EU27

EU15

4 24.10.2013

10

11

12

13

2000 2002 2004 2006 2008 2010 2012

USA

Industrial production Euro area vs USCrisis and quicker recovery in the US

104

105

USA2005 = 100

100

101

102

103

Euro area

5 24.10.2013

97

98

99

1999 2001 2003 2005 2007 2009 2011 2013

Elements of a "new" industrial policy:proposals by academia

Support of market forces (not against) Foster competition, not single large firms Broad technologies, not picking out one winner Support goals with long-term interest of society Based on education and innovation

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Systemic not fragmented

Different this time (Rogoff, Aghion, Aiginger) .

The Systemic Industrial and Innovation Policy (SIIP) in a nutshell (Aiginger, 2012)

Pulling forcesVision of a new growth path (welfare beyond GDP)Societal goals (health, climate, social cohesion)Excellence in specific technologies (e.g. energy) )

IIPCompetition

PolicyProcure-

ment

TradePolicy

Industrial Policy

Innovation Policy

Education

Internal Regional

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Internal Market

RegionalPolicy

Pushing forcesCompetition, openness and globalizationActivated, trained and retrained labor force ( flexicurity )Competitive advantages (supported by policy )Climate change, ageing




8 24.10.2013

The answer of the Commission No 1: Integrated Industrial Policy (614/2010)

Industrial policy for the Globalisation Area Horizontal instruments plus vertical operationalisation *

Price, cost, innovative competitiveness Standardization and innovation 6 key enabling technologies *

Monitoring the effect of other policies Transport, energy, consumer, single market, trade *

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“Competitiveness &sustainability at centre stage”

The answer of the Commission No 2: A Stronger European Industry (Update 582/2012 final)

Four pillars: Investment, innovation, Expand internal market Focus on finance of real economy & SME Human capital

Third industrial revolution:New infrastructure and renewable energy

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New infrastructure and renewable energy

Reverse downward trend: from 16% to 20% (2020).

The US as a challenge for Europe

Energy costs are much lower in the USA d f lli d t h l l it ti f ki And falling due to shale gas exploitation & fracking

Coals demand decreases exported to Europe Cheap gas and oil disencourage clean energy Energy intensive plants shift to US

Labor costs in US flat cheaper In south by one third

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Labor costs in US flat, cheaper In south by one third

1/3 cost advantage labor, 2/3 lower energy pricesthreatens EU-strategy

Energy prices EU vs. US natural gas

60

70

Germany

30

40

50

EU 15

Germany

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0

10

20

2000 2002 2004 2006 2008 2010 2012

USA

Energy prices EU vs. US electricity

160

180

100

120

140

EU 15

Germany

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40

60

80

2000 2002 2004 2006 2008 2010 2012

USA

The wrong message for Europe

To stay competitive with the US, Europe has to match US in energy pricesgy p

This sets limits to: Higher taxes/standards Reestablishment of emission trading Progress of alternative energies.

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The superior long-term response

Competitiveness : total costs must match total productivity If costs of energy are higher (4% of total costs rel. to 2%) Compensate this by:

Boosting energy efficiency Higher innovation and education expenditures Or better efficiency of innovation and education system

Technology: ultra-low carbon technology (e.g. steel).

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Europe is lagging US in R&D and higher education

Closing the difference in R&D and higher educationis more effective than closing gap in energy price.

Complementary short-run measures

Negotiate with US about carbon tax Reduce taxes on labour (increase on property) Reduce taxes on labour (increase on property) Redirect energy subsidies to clean technologies Set standards in trade agreements

Preventing "carbon leakage" Supporting technology transfer.

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Support for integrated industrial policy: WWWforEurope Project

FP7 program: Searching for a new path of development for Europe• More dynamic, more inclusive, more sustainable

33 research organization, 4 years, lead WIFO. Redefine competitiveness: ability to provide long-run goals Develop a Systemic Industrial Policy

Scientific support for systemic industrial policy in Europehttp://www.foreurope.eu/.

17 24.10.2013




18 24.10.2013

How market shares were lost:Share of exports (in % of world exports)

16.0

18.0

EU 15

6.0

8.0

10.0

12.0

14.0

USA

EU 15

Germany

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0.0

2.0

4.0

1995 1997 1999 2001 2003 2005 2007 2009 2011

China

Share of technology driven industriesin exports

48.0

50.0

USA

36 0

38.0

40.0

42.0

44.0

46.0

Deutschland

20 24.10.2013

30.0

32.0

34.0

36.0

1999 2001 2003 2005 2007 2009 2011

EU 15

Share of resource based industries in exports

10.0

11.0

USA

6.0

7.0

8.0

9.0

USA

EU 15

21 24.10.2013

3.0

4.0

5.0

1999 2001 2003 2005 2007 2009 2011

Production in the Innovation Economy MIT Report 2013

US firms currently “home alone” forced by finance in wrong direction forced by finance in wrong direction US has to cope elements of European system 'Rebuilding' industrial ecosystem, complementarities Convening, coordination, risk pooling, bridging Vocational schools and community colleagues

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Vocational schools and community colleagues Industrial centers less based on externalities MIT proposes US firms to go for cooperation

Both with other firms, community




23 24.10.2013

Towards a meaningful definition of competitiveness

“Competitiveness” does not imply to be cheaper (not even price competitiveness)cheaper (not even price competitiveness)

Relation between cost and productivity With focus to increase productivity

And better: to be able to supply other goals.

N d fi iti d i WWWf E

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New definition proposed in WWWforEurope"Competiveness is ability of a country to provide welfare (measured by Beyond GDP goals) for its citizens".

Remaking manufacturing: the rational

Reaction to slow growth (EU), large deficits (US) “making”, “producing” is the stable, necessary

basis of the economyVolatile cycles, less bubbles than finance,

construction, housing If production is relocated, services/R&D follow

25 24.10.2013

p , /

Looking for the role of industrialized countries in globalization.

The two roads ahead for the US and EU

Competing by low wages, low prices for energy “One third-two third model” of (Southern) US

Climbing up the quality ladder: education, innovation Providing capabilities, “new” industrial policy Convening, coordination, risk pooling&reduction, bridging Consider societal goals in industrial strategy.

Hopefully the MIT-project will help the US to

26 24.10.2013

p y p j ptake the high road

And Europe does not follow the ‘One third/two third model”.

Remaking Manufacturing in the US and EuropeWWWfor Europe lecture Series

27 24.10.2013H:user/aig/vortrag/WWWforEurope_lectures_Berger_20_May_2013.pptx

Karl Aiginger

Vienna, 21st May, 2013

WIFO-References

Aiginger, K., Sieber, S., "The Matrix Approach to Industrial Policy", International Review of Applied Economics, Vol. 20, No.5, 2006, pp. 573-603.

Aiginger, K., "Industrial policy: a dying breed or a re-emerging phoenix", JICT, Vol. 7, No 3+4, 2007, pp. 297-323.

Peneder, M., Technological regimes and the variety of innovation behavior: Research Policy 39, 2010, pp. 323-334.

Aiginger, K., "A systemic industrial policy to pave a new growth path for Europe", WIFO Working Paper, 421/2012.

28 24.10.2013

g

Aiginger, K., Bärenthaler-Sieber, S., Vogel, J., Competitiveness under new perspectives, WIFO, WWWforEurope project, 2013.

Policy-Documents

European Commission, An Integrated Industrial Policy for the Globalisation Era Putting Competitiveness and Sustainability at Centre Stage, Brussels, COM(2010), 614.

European Commission A Stronger European Industry for Growth and Economic European Commission, A Stronger European Industry for Growth and Economic Recovery, Industrial Policy Communication Update, Brussels, COM(2012) 582 final.

European Commission, Mission Growth: Europe at the Lead of the New Industrial Revolution, Brussels, 2012. http://ec.europa.eu/enterprise/initiatives/mission-growth/index_en.htm

European Commission, A resource-efficient Europe – Flagship initiative under the Europe 2020 Strategy, 2012.http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0021:FIN:EN:PDF

European Parliament: Resolution of 9 March 2011 on an Industrial Policy for the Gl b li d (20 0/209 ( ))

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Globalised Era (2010/2095(INI)). http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0093+0+DOC+XML+V0//EN

OECD, Beyond Industrial Policy – Emerging Issues and New Trends, Draft STI Working Paper on Industrial Policy, Paris, DSTI/IND(2012)19.

Area 1: Challenges for the European Welfare State

Area 2: The Environmental and Biophysical Dimension

The areas of WWWforEurope

Area 2: The Environmental and Biophysical Dimension

Area 3: Drivers for Change: Innovation, Industrial and Innovation Policy

Area 4: Governance Structures and Institutions at the European Level

Area 5: The Role of Regions in the Socio-ecological Transition

Area 6: Framing of the Project, Integration and Synthesis.

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The answer of the OECD: Fourth generation of industrial policy

Soft and holistic industrial policy Cooperation government/industry Establish priorities Solve coordination problems Scope for experiments Fight against particular interests Increase productivity

A ti fi ld

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Action fields Product -, labour -, capital market, technology, institutions

There is no "one size fits all” industrial policy Systems, networks, institutions, abilities matter.

New systemic industrial policyshould be continued

Employment goals, competitiveness, climate goalscannot be attained separately

If there are trade offs synergies have to be developed Permanently shifting priorities between goals will not work.

Gas maybe welcomed “transition technology” Low energy prices for a carbon emitting energy

32 24.10.2013

• Is a short-run relief • It should not destroy strife for non-carbon technologies.

Competiveness under new perspective in a nutshell

Outcome competitivenessQualitative competitivenessPrice competitiveness

Labour

Capital

Resources

Taxes

Labour (Y/L)

Capital (Y/C)

Resources (Y/E)

TFP

Exports

Value added

Pricesegment

Quality as dominant mode

Costs Productivity Structure Abilities TraditionalNewPerspective

Innovation

Education

Institutions

Clusters

Social capital

Ecological biti

GDP/capita

Employment

Beyond GDP goalsLife expectationHappinessInclusivenessDecoupling

Side conditions

33 24.10.2013

mode

Input oriented evaluation Output oriented evaluation

ambition Balanced budget

Balanced current account

Share of manufacturing in GDP(Prices 2005)

22.0

24.0

Germany

16.0

18.0

20.0

EU 15

Germany

34 24.10.2013

10.0

12.0

14.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

USA

Wages per employee:Total economy

50.00

55.00

USA

35.00

40.00

45.00

EU 15

Germany

35 24.10.2013

20.00

25.00

30.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Wages per employee:Manufacturing

55.00

60.00

USA

35.00

40.00

45.00

50.00

EU 15

Germany

36 24.10.2013

20.00

25.00

30.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Manufacturing proved to be importantIndustrial base improves performance after crisis

DE

ATFI

SE

30co

unt

BE

DK

ES

FR

IEIT

NL

AT

UKUS

CZ

HU

MT

PO

RO

SISK

EU27

1020

ma

nufa

ctur

ing

+ cu

rrent

acc

37 24.10.2013

GR

PT

CYEE

LT

LV

0Sh

are

of m

0 10 20 30Real GDP growth 2007/2012