The challenge of industrial modernisation: focus on the role of regions

16th April 2019

While European institutions improve the framework for jobs, growth and innovation, tools already exist at the national and regional level to stimulate and support industrial competitiveness. The aim of strengthening European industry at the EU level must be supported by national and regional reforms. In the face of this multi-level governance, it is clear that the role of regions in this industrial modernisation strategy is important and takes various forms.

Europe’s new industrial strategy
In his annual State of the Union address in September 2017, European Commission President Jean-Claude Juncker presented a new industrial strategy for Europe, which would enable European industry to “become the world leader in innovation, digitisation and decarbonisation”. The new strategy brings together both existing and new initiatives under a global industrial strategy. The implementation of this overall strategy is a shared responsibility. Its success will depend on the efforts and cooperation of the EU institutions, Member States and regions, but above all on the active role of industry itself. This cooperation requires the mobilisation of thematic expertise at the different levels involved – regional, national and European – and therefore some form of multi-level governance to coordinate the overall effort.

The role of regions in Europe’s new industrial strategy
At the regional level, we know that industrial policies, especially industrial modernisation, are explicit objectives of economic development. But only a limited number of regions (such as Catalonia and Lombardy) have policy documents that explicitly define their industrial policy. More commonly, industrial policy is linked to regional innovation policy. Industrial modernisation, and advanced manufacturing, are thus strongly linked to the innovative capacity of regional companies.
Similarly, there is a strong overlap between industrial policy and regional smart specialisation strategies (RIS3). Indeed, many RIS3s have been developed in parallel with the updating, or designing of, industrial policy-related documents and instruments. Often there is alignment between national and regional policies for supporting Industry 4.0, an approach towards automation, and data exchange in manufacturing technologies. In this context, the level of interest in advanced manufacturing technologies has increased sharply.

Who determines industrial policy?
The industrial policy governance of regions is generally determined by national institutional frameworks and tends to be influenced by national regulation of the business environment and tax regimes. In the Eurofound (2017) study Developing Regional Industrial Policy Capacity – Future of Manufacturing in Europe, it is argued that in countries such as Germany, Italy and Spain, where regions enjoy a high level of autonomy, the regional level plays a stronger role in industrial development.

In countries such as Finland and Romania, the regions have more limited powers in the sense of classical industrial policy. To quote from Eurofound’s 2017 study, “Higher levels of regional autonomy amount to higher discretionary authority (at the regional level) over the design and implementation of industrial policy. However, even in regions that enjoy high levels of autonomy, the national level is involved in regional industrial development to some extent”. The report also observed that regions frequently set up mechanisms to coordinate the actions of regions, and sub-regions, to align the different priorities with those at the national level. These are considered essential for the successful implementation of industrial policy.

Whether the regional authority represents a programmer, funder, facilitator or inspirer, the role of the regions in the design and implementation of industrial policy is changing. Regions no longer just stimulate bottom-up approaches — characterised by limited state intervention and driven mainly by non-governmental industrial actors — or exclusively top-down approaches driven by government support and regulation. Regions are deploying an array of tools aimed at fostering formal and informal dialogue between regional policymakers and the wider industrial ecosystem.

The private sector’s role in European industrial policy

Thus, the private sector (through several organisations and intermediary structures, most often chambers of commerce, industry associations and cluster organisations) is increasingly involved in designing industrial policies, as well as in regional economic governance. According to Eurofound’s 2017 study, the range of policy areas covered by the different frameworks in the implementation of these regional industrial policies varies considerably from one region to another. These regional differences are most often based on research and innovation (R&I), small and medium-sized enterprises (SMEs), competitiveness and entrepreneurship, internationalisation, industry-science cooperation (clusters), and access to finance (more frequently via financial instruments than grant schemes). In a few cases, regional marketing and investment promotion (which generally includes foreign direct investment) and spatial development are considered as areas of industrial policy. Higher education and vocational training are generally not addressed in regional economic development policies, although these strategies usually refer to their importance.
Another area of action for regional industrial policies which is gaining importance is digital transformation. Indeed, digital technologies reshape all areas of economic activity and the regions are fully embracing this challenge. These include promoting regional and local innovation ecosystems, facilitating stakeholder collaboration, encouraging investment, stimulating the digital sector, promoting sectoral digital transition and managing the data economy.

Ile-de-France — an example of a smart industrial strategy
For example, the Ile-de-France has taken up the issue by defining a Smart Industry 2017-2021 strategy. Its ambition is to become a leading region in artificial intelligence, robotics and additive manufacturing. This action is intended to “irrigate” all the priority sectors in the region: in other words, it targets all economic sectors rather than just focusing on one.
The Ile-de-France region aims to use all the instruments at its disposal, whether on economic development, investor attractiveness, training, education, research, public procurement, transport and land policy. With the help of European funds, it is mobilising €300 million over the five years of the plan. It aims to meet four main challenges: to develop “industries of the future”; to train them to meet tomorrow’s needs; to attract and encourage industrial activities in Ile-de-France through the development of major innovation centres, and an innovative territorial policy; and to boost the image of Ile-de-France as an industrial location among new generations and internationally.

Many other regions have also decided to take up this challenge by developing similar strategies, which meet the challenge of industrial modernisation.
 
Karine Lanoix, a senior consultant for Technopolis Group in Paris, has 18 years of experience in economic development, including international promotion, and entrepreneurship. Her experience is built on defining strategies, providing policy advice and evaluating public policies