Industrial policy has been gaining prominence in public, political and academic debate. After decades of relative neglect, major economies are relaunching their industrial policy strategies.
There is now a growing consensus that new industries need support to establish themselves and grow. It is recognized that innovative ecosystems need stimulation to flourish, as it is in these environments that innovation becomes a true engine of growth.
That technologically advanced sectors, with high added value, face high levels of uncertainty, which require public interventions to mitigate risks and create contextual conditions for their development.
“If not now, when?”
The question is Ha-Joon Chang, one of the most recognized industrial economists, Professor at the University of London, at the launch of IPSA (Industrial Policy Strategic Assessment), a project that coordinates, promoted by a wide range of public entities, the IAPMEI, PlanAPP, GPEARI and the GHG, and what was presented in Lisbon.
The recommendations of the recent Draghi Report entitled The future of European competitiveness – A competitiveness strategy for Europe underline how the European Union must become more competitive in strategic industrial sectors, proposing measures to improve its position, particularly vis-à-vis the US and China.
This is also why the IPSA is particularly timely. This exercise aims to assess and reformulate Portugal's industrial policy, presenting a new strategic framework, with a governance model and respective monitoring and evaluation mechanisms.
Portugal has been developing industrial policies since the Estado Novo, with the Development Plans being an example. With the advent of democracy, this importance disappeared, mainly due to the accession to the community space, where the priority was the creation of a single European market.
However, in the context of structural funds, many instruments have a clear industrial vocation, such as incentive systems in operational programs linked to the economy, as was initially the case with PEDIP – Specific Program for the Development of Portuguese Industry in the 1990s and today is the COMPETE 2030.
Although there have been and are interesting experiences in Portugal, such as the one designated Porter Report that celebrates 30 years or the smart specialization strategies (RIS3) in implementation since 2014, there remains a need to rethink the national industrial policy – ambitious, capable of responding to current and future economic challenges.
“And if it is now, how do we do it?”
For effective design and implementation, industrial policy should be based on a number of key principles. Industrial policy should be selective, focusing on areas with the greatest potential for innovation, growth and competitiveness, chosen on the basis of robust evidence-based analysis and collaboration between the public and private sectors.
Public investments in strategic areas need to generate additional benefits to those that would be achieved by private initiatives alone, creating synergies that amplify impacts, the so-called super-additionality. Furthermore, an integrated articulation of various instruments – fiscal, financial and regulatory – is essential to ensure a cohesive and effective approach.
For a new industrial policy in Portugal to be successful, it is essential to take into account, among others, some fundamental aspects of the national reality:
Positioning matters: It is crucial to clearly define priorities. Which sectors, companies and territories will be prioritized by industrial policy in Portugal? We must ask: which are the strategic areas that could lead the transformation of the Portuguese economy? Activities linked to digitalization, marine resources, green energy? Others? It is also important to clarify the role of tourism: should it be considered an industry like the others, to be included in industrial policy, or a sector that catalyzes demand for other industrial sectors?
Places matter: Industrial policy should consider regional specializations and the competitive advantages of different territories in the country, some of which are well developed in the context of the implementation of RIS3. Portugal currently has areas of excellence that can be enhanced through a well-designed industrial policy, aligned with regional capabilities and different industrial intensities.
Scientific knowledge matters: The creation and exploitation of scientific knowledge are central elements in a dynamic and competitive innovation system. Industrial policy should promote the transfer of knowledge between universities, research centres and companies, ensuring that national science, which has been consolidated in recent decades, translates into technological and social innovation.
The combination of instruments matters: Investments, particularly in infrastructure, foreseen in the Recovery and Resilience Plan and other initiatives within the framework of Portugal 2030 must be aligned with the needs of industrial policy. The implementation and monitoring of these investments must ensure that they contribute to the strengthening of sectors considered strategic.
People matter: The diagnosis of labour market needs must be improved, with particular attention to the tensions arising from reindustrialisation, migration and the decent work agenda. The development of workforce training and reskilling policies will be essential to align labour supply with the needs of the industries of the future.
There is probably no policy that generates as much controversy among economists as industrial policy. It is important to clarify that defending an industrial policy is not synonymous with rejecting the benefits attributed to the functioning of markets.
Industrial policy can coexist with the principles of a market economy, provided it is implemented strategically and judiciously. Industrial policies play a crucial role in stimulating systemic and long-term transformation in economies.
They help shape a country’s sectoral composition. In addition, they directly impact the diversity of the economic base, determining the ability to compete globally and ensure a more resilient economy.
Industrial policy is therefore a long-term strategic necessity in Portugal, across the different governments. It is not an instrument that should be dependent on EU funds or isolated responses to economic cycles.
It is a State policy, with vision and commitment, to guide Portugal towards the future it chooses.
Author Hugo Pinto is an economist, professor of Regional and Urban Economics at the Faculty of Economics and Researcher at CinTurs – Research Centre in Tourism, Sustainability and Well-being at the University of Algarve.
Note 1: The content of this article does not reflect the position of the Faculty of Economics, CinTurs, IPSA or the DR of the Order of Economists. The opinion expressed is the sole responsibility of the author.
Note 2: article published under the protocol between the Sul Informação and the Algarve Delegation of the Order of Economists
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