The IRA and European industrial policy (Inflation Reduction Act)

[Celerity]

With the US turning interventionist, the EU will look foolish still backing ‘free markets’. Time for an enterprise policy.

https://www.socialeurope.eu/the-ira-and-european-industrial-policy



The IRA threatens Europe. This IRA is not the paramilitary organisation which blighted so many of our lives in Ireland, Britain and even mainland Europe. It is the Inflation Reduction Act—embodiment of the new, state-led, interventionist industrial policy of the United States.

The IRA threatens European jobs. Promoted by the president, Joe Biden, the act entails massive subsidies of $369 billion to companies, American or not, which invest in the US, creating green jobs. The first European casualty may be a major car-battery plant which was to be built by Volkswagen in eastern Europe. The company is now considering investing in the US, where it will receive $10.54 billion in subsidies for building the plant and creating the jobs—unless the European Union can match this.

Thrown into disarray

The IRA has thrown European leaders into disarray. EU economic policy has been quite neoliberal for decades, faith in the ‘free market’ being associated with a distrust of ‘industrial policy’. Yet now it has been challenged by a very interventionist US, offering many subsidies to investing companies. In practice, many states in Europe are highly interventionist themselves, in their subsidies to companies in manufacturing and other areas. The stringent EU rules against state aid, originally aimed at states’ own commercial state enterprises, now seek to stop governments propping up ailing private firms (including banks), thus threatening competition. But this is not a strategic approach, being firm-led, patchy and underestimated.

EU leaders should recognise the extent of corporate welfare in member states and assess realistically the value of state aids in achieving their objectives. All member states intervened deeply during the financial crisis, rescuing banks, insurance companies and so on. That was followed by Keynesian-style intervention in favour of firms during the pandemic. This in turn has been followed during the energy crisis with further support for private firms (and households). All on top of existing subsidies and grants, such as those for research and development, manufacturing and regional policy.

Shift to clean energy.......

snip