European industry is stuck in mid-tech while pressure from new competitors mounts. Industrial policy should focus on creating new champions, not propping up the old ones, argues economist Daniel Gros.
At the turn of the century, automakers around the world dominated the lists of companies with the highest R&D expenditures. In Europe, the top three consisted of Mercedes-Benz, Volkswagen and Siemens; in the US, it was Ford, Pfizer and General Motors. But whereas today Mercedez-Benz, Volkswagen and Bosch still lead the way in Europe, software companies Alphabet, Meta and Microsoft have long since ousted the auto industry in the US.
The comparison puts the finger on the sore spot: European industry doesn’t renew itself sufficiently. That makes it vulnerable, as Europeans found out the hard way. Almost daily, newspapers report about the precarious situation in which the European (car) industry finds itself. On the one hand, a new competitor with considerable cost advantages (and lavish subsidies) is knocking on the door. On the other hand, the arrival of the electric car changes the rules of the game: it’s software and batteries that breed success, two areas in which Europe doesn’t excel.
This article is exclusively available to premium members of Bits&Chips. Already a premium member? Please log in. Not yet a premium member? Become one for only €15 and enjoy all the benefits.
