Covid 19: Scaling up industrial policy at regional level

L’Observatoire de la finance a lancé ce printemps «From Virus to Vitamin», un conseil rassemblant différents économistes. Chaque mois, ils proposent des idées pour tirer parti de la crise actuelle afin de reconstruire une économie résiliente et soutenable. «L’Agefi» publie leur synthèse. QUESTION: Should the present crisis be used by policy makers as an opportunity to leverage and accelerate the sustainability and climate change agenda even if it could imply a kind of national «industrial policy» with its potentially distorting effects on national and international market game? If yes, how governments should strike the balance between the aspiration of «back to normal» and the needs of accelerating structural adjustment for climate changes? The Covid-19 pandemic has revealed the structural weaknesses of our global economic system while revamping attention on the need for state intervention. As production dynamics in every country has been severely affected, industrial policy has been considered as one of the pillars of the recovery strategies. While some plead for a return to the pre-crisis “normal” as quickly as possible, others view the crisis as an opportunity to reshape our industrial policy along a new sustainable path. The need to adopt a “fresh approach to industrial policy that will put the economy on a dynamic growth agenda supporting effectiveness, growth and jobs, and enabling transition to a low-carbon and resource - efficient economy” is widely accepted. But it is more difficult to reach an agreement on the means required to achieve that end. To tackle climate change, it may be necessary to “change the game’s global rules”, “question existing globalization” and adopt “policies at supranational level” such as a Green New Deal in Europe. In other words, a national industrial policy may be ineffective. Instead, a “regional industrial policy” could be better adjusted to the task as it would “bring together countries subject to the same monetary and social regulations.” For a new regional industrial policy to succeed, it is indeed essential that rules on a common level playing field be established. The present crisis thus provides a window of opportunity for reinforced regional integration in Africa, Asia and Latin America, where much remains to be done. Such proposal also raises the question of the potentially distorting effects of a new industrial policy, the impact of which should be “weighed against local macroeconomic specific situations.” Some show scepticism about the effectiveness of a “too detailed industrial policy” and would rather recommend “a carbon tax to steer economic activity towards less polluting forms and stimulate innovation”. One thing is certain however: social inequalities and environmental imperatives should be tackled together, not separately. If governments neglect the interactions between social justice and environmental sustainability, “recovery from the pandemic could quickly turn into further polarization”. We may well have reached a turning point on the connection between industrial policy, sustainability and development, highlighting the need to rethink “recourse to novel policy responses requiring thoughtful design but probably in many cases going beyond the scope of normal economics”. This could lead to massive public investment in infrastructures – which amounts to de facto industrial policy -, for example to respond to the needs of “cleaner energy for industry and transport equipment”. * Project manager / Director Observatoire de la finance