Since leading global states such as China and the USA have been pumping enormous amounts of money into their economies, industrial policy has been back in vogue. The American government wants to use theirs Inflation Reduction Act (IRA) With the help of tax credits, enable the reindustrialization of your own country and ensure the resilience and independence of production and supply chains.
In this country, too, industrial policy comes in a wide variety of guises: from billions in subsidies for chip manufacturers to subsidized industrial electricity prices and climate policy. Former minister Matthias Machnig and economist Oliver Holtemöller have different opinions on how much the state should intervene in the economy.
Pro from Matthias Machnig
Matthias Machnig works as a business and transformation consultant and is Vice President of the Economic Forum of the SPD eV. Until April 2018, he was a civil servant State Secretary in the Federal Ministry for Economic Affairs and Energy, responsible, among other things, for economic, industrial and foreign trade policy. From 2009 to 2013, Machnig was Minister for Economic Affairs, Labor and Technology in the Free State of Thuringia. From 1999 to 2002 he was federal manager of the SPD.
Initial situation
We have been pursuing industrial policy for a long time. The only question is whether this was the right policy to address the problems and achieve the goals of sustainable transformation and greater resilience for the economy.
Empirical
With its new strategies, China has developed clear guiding principles for industrial policy. The IRA shows that the investment dynamic is growing and there is an increasing shift from Germany to the USA, while the level of investment here is weakening and is not even sufficient to renew the aging capital stock – let alone to stimulate the necessary investments for the transformation.
Core argument
For Germany, industry is a core sector for prosperity, employment and securing regional value chains. If you want resilience, you also have to reduce dependencies in strategic sectors. This applies to chip production as well as to batteries and battery cell production for e-mobility.
Recommendations for action
The transformation can only succeed through an intelligent interaction of public and private investments as well as competitive framework conditions. This requires setting up a European transformation fund, adapting the aid regulations, introducing super depreciation for certain investments and a temporary industrial electricity price. A real de-bureaucratization and acceleration strategy is also necessary.
Contra by Oliver Holtemöller
Prof. Dr. Oliver Holtemöller is deputy president and head of the macroeconomics department at the Leibniz Institute for Economic Research Halle (IWH) and professor of economics, especially macroeconomics at the Martin Luther University Halle-Wittenberg. He plays a leading role in the regular spring and autumn reports of the economic research institutes on behalf of the federal government (joint diagnosis).
Initial situation
The German economy is weakening, especially the energy-intensive industries. The question is whether industrial policy, i.e. measures aimed at government support of individual industrial sectors and the control of the economic structure, improves the prospects.
Empirical
Empirical evidence suggests that subsidizing individual companies or sectors of the economy does not have major positive effects on prosperity and employment. An economic policy that focuses on the causes of market failure, such as promoting education and innovation due to positive external effects, is more promising.
Core argument
One problem is that certain types of industrial policy can theoretically have positive effects, but in practice particular interests tend to drive political decisions. Large and politically well-connected companies have a greater influence on political decisions than small or new companies, which are often more innovative.
Recommendations for action
Politicians should better pursue location policy instead of industrial policy. The biggest hurdles lie in bureaucracy, deficits in digitalization, bottlenecks in greenhouse gas-neutral energy supplies and the demographically shrinking working population. These problems need to be addressed across the economy.
Pros & Cons were compiled by Jörg RiegerWürzburg.
A notice: The pros and cons appear in issue 10 (2023) of the trade magazine Knew.
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