Reflections on Green Deal, Industrial Policies, and Geoeconomics/Geopolitics

Harald Wolf

The convergence of crises, including neoliberal capitalism, geopolitical conflicts, and the climate catastrophe, calls for a significant shift in EU policies. Harald Wolf explores the key factors that must be considered in redefining and reorienting the current policies to address the economic, industrial, and geopolitical challenges at hand.

At the last federal party conference (of DIE LINKE) we discussed the "epochal break" in view of the current crisis of neoliberalism, increasing geopolitical upheavals and conflicts, the looming climate catastrophe. This crisis has also called into question the EU’s previous mode of integration. Until the 2000s, this model rested on free-market production for the European single market and the economic and monetary union, liberalisation, and the dismantling of barriers to competition. This economic regime has been called into question since the global financial and economic crisis. The “competition triad" of USA-Europe-China also poses new challenges for the EU. With "Made in China 2025", China has presented an industrial and economic policy strategy for the development of Chinese companies into world market leaders in ten key sectors (predominantly in the high-tech sector). In the USA, meanwhile, massive industrial policy is being pursued with huge investment programmes (most recently with the Inflation Reduction Act). The decarbonisation necessary in light of looming climate catastrophe is at the same time a challenge for industrial policy that requires targeted state intervention beyond measures like CO2 emission price increases. The Coronavirus pandemic and finally the war in Ukraine have shown the vulnerability of supply chains and the instrumental use of transnational networks (such as pipelines and SWIFT) for economic warfare.

All these factors – the susceptibility of financialised capitalism to crisis, the geopolitical/geoeconomic challenges posed by three-way competition, the need for decarbonisation and the vulnerability of globalised supply chains – have continually led to the redefinition and reorientation of European industrial policy, which is being discussed as an ever-more essential building block for the EU’s "strategic autonomy”.

Until the mid-2000s, focus on industrial policy was frowned upon in the EU as a "market-distorting" intervention in the economy.

It was only after the global financial crisis that there was some rehabilitation of industrial policy. Italy, Spain and Greece had lost a quarter of their industrial production between 2008 and 2013. Given the high degree that investment and employment in the EU are dependent on industry (25% of employees work in manufacturing), this was an economically and socially threatening development. It showed that national economies with stronger industrial sectors had weathered the crisis better. Against this background, the first industrial policy considerations and initiatives developed in the EU were initiated purely as a reaction to crisis.[1] The Juncker Plan of 2014 – for all its criticisable shortcomings – was a first attempt at industrial policy at the European level, which "envisaged investments in the regions particularly affected by the euro crisis".[2]

International developments, however, increased political pressure and the need for stronger EU industrial policy initiatives.

Worth mentioning here is:

  • The US "China shock". After China’s accession to the WTO, growing imports from China to the USA led to the weakening of sectors of domestic industry and growing unemployment (particularly in the "rust belt” region) and rising poverty rates. Donald Trump tried to react to this with protectionist measures as part of his "America first" policy. The Biden administration continued some of Trump’s measures and strengthened industrial policy activities with the goal of "strategic competitiveness". Extensive investment programmes to modernise the ailing American infrastructure and transport systems, to promote energy and digital infrastructures and climate protection were put in place. These include the "Infrastructure Investment and Jobs Act", the "Innovation and Competition Act" and most recently the "Inflation Reduction Act". Massive investments in research and development and domestic production, especially of semiconductors, are intended to secure America’s leading role as a technological competitor with China.
  • At the same time, China has set itself the goal of becoming a high-tech leader with its "China 2025" strategy. China has developed a global infrastructure programme to expand sea routes, roads, railways, communication networks and payment systems with its “Belt and Road Initiative”. It aims to connect China with other regions of the world, including Europe, and to develop an infrastructure beyond the control of the United States. Germany had so far compensated for demand weakness within the Eurozone by exporting to emerging markets, especially China. China’s strategy to develop as a high-tech country, its strategy to technologically decouple from the West is also leading to increased competition between Germany and China on the world market, partly by making access to the Chinese market more difficult and increasingly leading German technology companies to face Chinese takeover attempts. Important segments of capital in Germany and the EU are therefore also demanding a readjustment of economic policy against China. The Federation of German Industries (BDI), for example, stated: "Germany and the EU cannot rest on the supposed certainty that our model of … a liberal and social market economy will bring long-term macroeconomic advantages over the Chinese system.”[3]
  • Looming climate catastrophe and the necessity of an ecological transformation of industry are further drivers of revised interest in an active industrial policy. Competition and price signals alone are not enough to develop even "green capitalism", this too requires intensive state intervention through industrial policy. Decarbonisation means the far-reaching restructuring of entire industrial structures and the reorganisation of trade flows. Instead of importing and exporting fossil fuels (oil, gas, coal) and building up their associated infrastructures, what is necessary is the expansion of new networks to support reorienting trade flows towards new resources and products such as rare earth metals and new energy infrastructures e.g. green hydrogen. The EU’s Green Deal is intended to be a key driver of innovation and growth for industry and the economy and to secure Europe a leading role in the competition for the green technologies of the future.[4] "Geopolitical motives also play a major role in the European Green Deal. The intended expansion of technologies for renewable energy generation — with the aim of electrifying industry, transport and housing as much as possible — is intended to strengthen the energy security of the Union, thus reducing dependence on energy imports from abroad (in particular natural gas from Russia). Above all companies should be made ‘fit’ to compete with global competitors, especially Chinese and US tech companies, in the growth markets of the future."[5]
  • The Coronavirus pandemic exposed the vulnerability of liberalised global supply chains. Disrupted supply chains and production shortfalls in key supplier industries that had been outsourced abroad had a world-wide economic impact. This led to a discussion about "reshoring" outsourced industries (e.g. the parts of the pharmaceutical production process outsourced to India and China). This geo-economic tendency is gaining in significance and, together with the development of new strategic industrial sectors in the context of growing digital and green production (battery production, semiconductors), they both aim to strengthen the competitiveness of "domestic" industry and work to undermine the use of supply chains and infrastructures as weapons ("weaponisation").
  • The Ukraine war has reinforced this tendency to "reshoring" and "allyshoring". Russia’s war against Ukraine has made the importance of infrastructures (from oil and gas pipelines to international payment systems like SWIFT ) in geopolitical disputes glaringly clear. While on the one hand the expansion of non-fossil fuel energy sources (including nuclear power) is to be accelerated (among other things to reduce dependence on Russia), at the same time new fossil fuel infrastructures are being built and new oil and gas deposits are being tapped – investments that only "pay off" if they are used in the long term and thus hinder any climate targets. At the same time, the war has set in motion a new spiral of rearmament and thus an upswing in the arms industry. Some actors are already discussing the necessity of a "war economy" as a function of industrial policy and with it the growth of (not only) an ecologically destructive industry, but one which at the same time blocks important resources for a socio-ecological transformation.
  • The competition between the USA (as a declining world power) and China (as a rising world power) has intensified this tendency towards “de-globalisation". The USA and China are in a geostrategic confrontation. The consequences can be seen in the intensification of military activities and armament, the struggle for dominance and control over the development and production of advanced technologies and rare natural resources, and the use of trade restrictions and economic sanctions. The rivalry between two great powers can lead to the formation of new alliances or the consolidation of old ones, since this political tendency towards "decoupling"/"de-globalisation" is not without contradictions. China occupies a key position in the world economy, and both the USA and the EU are closely intertwined economically with China. The contradiction between the political logic of confrontation politics and economic reality will also lead to rivalries between different factions of capital and political objectives. When we refer to EU "strategic sovereignty" it should not mean rearmament and military "sovereignty", but the development of an independent foreign and economic policy towards China that does not subordinate itself to the US policy of confrontation. The goal should not be confrontation but cooperation on fair terms.

The EU’s Green Deal and the "Fit for 55” Package are central components of the EU’s strategy for industrial policy.

The EU’s Green Deal and the "Fit for 55” mark a departure from a purely "horizontal" industrial policy (which relies solely on free competition as "level playing field" and its accompanying innovation) and a shift towards a "vertical" industrial policy that also relies on state intervention in favour of specific industrial sectors. State regulation and financing/subsidies are thus becoming increasingly important. This is about more than a mere replacement of energy sources, it entails the far-reaching transformation of entire industrial sectors, the development of new product lines (and the disappearance of old ones), new business models and a reorganisation of trade. Uwe Witt rightly points out that for all the inadequacies of the Green Deal, if the reduction targets were actually followed as planned “new and complex conflicts over material resources and land are to be expected – and of course over distributive justice.”

The phase-out of fossil fuels will also entail shifts in the geopolitical balance of forces.

Until now, access to oil, gas and coal has been decisive for economic and political relevance. Future wars will no longer be fought over oil, but over access to other, new resource sources. As Frans Timmermanns and Josep Borrell write: "phasing out fossil fuels will significantly improve the EU’s strategic position" They predict "the transition itself will drive power shifts away from those controlling and exporting fossil fuels, and toward those mastering the green technologies of the future.”[6] The EU’s Green Deal also states that climate protection will become “an integral part of the EU’s thinking and action on external issues, including in the context of the Common Security and Defence Policy.” Jürgen Trittin predicts: "Geostrategy in the post-fossil-fuel age will have winners and losers. The winners will be the countries that today cover the majority of their energy needs through fossil-fuel imports. These include China and Europe. The losers will be the rentier societies that like regular corrupt powers finance their societies’ social contract through the export of fossil fuels. Those societies that do not modernise and diversify their economies in time will face destabilisation. Diversification, however, threatens the ruling class – whether in Russia or Saudi Arabia. If the monopoly on the creation of value diminishes, political monopoly also comes under pressure."[7] The situation, however, seems to me to be more complicated. The EU is a commodity-poor region that will continue to be highly dependent on commodity imports. For example, the EU forecasts an 18-fold increase in demand for lithium and 5-fold increase in demand for cobalt by 2030 for electromobility and storage technologies; by 2050, demand is expected to increase by 60 and 50 times respectively. Worldwide, the World Bank forecasts a 500 percent increase in cobalt and lithium production. The situation does not differ much for rare earths where China leads the way with 40 percent of world production.[8] And Russia, too, does not necessarily have to be one of the geoeconomic losers of the energy transition, given its wealth of natural resources.

This points to the fundamental problem of the Green Deal. It continues to rely on unlimited capitalist growth and growing resource consumption.

An average wind turbine requires about 150 tonnes of steel, the shift to electromobility (with a simultaneous orientation towards growth in the automotive industry) will lead to a drastic increase in the amount of electricity and raw materials mentioned above that are required. The production of semiconductors (necessary for photovoltaics and digitalisation) must take place in a high vacuum and between 400 and 1400 degrees Celsius. "Green technology does not only devour steel, concrete and aluminium (…) – but also rather scarce minerals. These include lithium, nickel, copper, cobalt, manganese, graphite and rare earths such as neodymium. (…) A conventional car needs 35 kilos of these raw materials, while an electric car needs about 210 kilos. Even wind turbines do not run on wind alone. For each megawatt of installed power, more than 10,000 kilograms of minerals are needed, and if the rotors are in the sea, the amount is as much as 15,000 kilograms … the demand for minerals will explode if the whole world wants to operate in this climate-neutral way."[9] As a consequence, the production of renewable energy cannot be increased indefinitely, thus geopolitical or even open military conflicts over resources and key technologies (such as microchips) are inescapable.

Consequently, a "Green New Deal of the Left" must go hand in hand with significantly reducing our resource consumption.

This is exemplified in the transport sector: transformation here is usually understood as a change in the method of powering existing vehicles, in order to allow the business model of the automobile companies to continue largely uninterrupted, leading to increased resource consumption and a growing demand for renewable energy. A real change in transport, on the other hand, must have the goal of drastically reducing car traffic and making climate-friendly environmental transport, especially public transportation, the mainstay of "mobility for all" with fewer and fewer cars. This would entail a conversion of the automotive industry, a profound industrial policy intervention in one of German and Europe’s key industries. The necessary drastic reduction of resource consumption, however, requires not only the shrinking of particularly climate-damaging and resource-intensive sectors, but also the development of a circular economy. This would be accompanied by massive changes in value-creation structures and networks and thus constitutes a further industrial policy (and geopolitical) challenge.

The multiple crises (climate crisis, pandemic, growing geopolitical rivalries and conflicts) have led to remarkable changes in the EU’s fiscal and economic policy.

During the pandemic the strict (neoliberal) stability criteria were relaxed and there began to be discussions about reforming the fiscal pact. With "Next Generation EU” package, the EU has taken out loans on a large scale (750 billion) for the first time. These loans will be invested primarily in greening and digitalisation measures. At the World Economic Summit in Davos, von der Leyen called for a "Green Deal Industrial Plan" – also as a reaction to the US Inflation Reduction Act (IRA). The aim is to put Europe in pole position in the global race for green technologies. Among other things, she called for a temporary adjustment of anti-trust laws to facilitate and enable subsidies for the development of new technologies and the creation or expansion of production facilities for already existing technologies in Europe. At the same time, new trade agreements are to be drawn up to create "strong and crisis-resistant supply chains". The Vice-Presidents of the European Commission proposed European public investment in key industries, thus "European taxpayers would become shareholders". Also under discussion is a so-called "sovereign wealth fund" that would also allow green investments in member states with strained budgets. These are all significant changes in EU policy compared to the neoliberal heyday of enforcing the single market with its "level playing field" and the austerity policies we experienced in response to the euro crisis.

The production of key technologies for the current period of capitalist accumulation requires advanced "economies of scale".

The necessary industries become concentrated in one or a few countries (see the importance of Taiwan for the production of high-performance chips). "If China succeeds in acquiring technological leadership in important future markets, it is quite likely that Europe will no longer have (any) significant companies in these sectors".[10] At the same time, the clusters developing around these key industries have high geopolitical significance – they can be used as a weapon in geopolitical disputes by denying other states access to these technologies or making access more difficult. The discussion on amending competition law to allow mergers in strategic sectors and the formation of "European champions" should also be seen against this background. At the same time, the takeover of companies by China in strategically and technologically relevant sectors is to be prevented.

The "Net Zero Industry Act" aims to transform the "Temporary Crisis Framework for State Aid" established during the Corona crisis into a "Temporary Crisis and Transitional Framework".

This extension of aid possibilities is intended to allow subsidies to companies for "green" investments in strategic sectors. In principle, this expansion of aid possibilities makes sense. However, since the fiscal leeway of the member states for granting subsidies varies significantly, there is also a danger of reinforcing the existing economic imbalances within the EU. For example, Germany and France alone have provided almost 80 per cent of all state subsidies under the temporary European crisis framework, Germany 53 per cent and France 24 per cent.[11]. To counteract this, a European "sovereignty fund" is to be created: fragmentation caused by uncoordinated provision of state aid is thus to be prevented and a "united European response to the current crisis" is to be ensured, according to a resolution of the European Parliament. However, how this sovereignty fund will be financed is still unclear. The use of funds from the Next EU Generation Fund for this purpose is under discussion. Accessing entirely new credit seems to be out of the discussion at present, so it is questionable whether the planned "sovereignty fund" will receive adequate financial resources.

Subsidies for companies must be linked to conditions: the fulfilment of criteria for good work (collective bargaining, wages), location and job guarantees, co-determination of employees, achievement of climate goals. From the left, the discussion on the relaxation of state aid and internal market rules must be linked to the debate on the question of which subsidies are granted to which companies/industries and with what goal in mind. The granting of subsidies should be linked to the acquisition of stakes in companies in strategic sectors. This applies in particular to the formation of "European champions" (see above). Since these are associated with a high degree of concentration/monopolisation, this will also require a high degree of public control (economic democracy).

European industrial policy faces a governance problem.

It is fundamentally the industrial policy of nation states that are also (at least partly) in competition with each other. EU industrial policy tends to be a wide loose net, while the US and China are able to develop a centrally coordinated, strategically oriented industrial policy. This raises the question of the possibility of a stricter coordination of EU policies and further steps toward integration. “Industrial policy has to be a genuine European strategy; a mainly national industrial policy will fail and reproduce inequalities between member states. European industrial policy must be focused on rebuilding and transforming productive structures in the deficit countries – that means it must be asymmetrical. Industrial policy has to build on an analysis of strengths and weaknesses of each  region  and member state (infrastructures, skills, cooperation of enterprises, R&D-institutions etc., existing value chains and lacks in value chains). Starting from that analysis development plans have to be designed. The aim is to transform the productive system and the interaction of companies, educational and skill forming institutions, R&D and public infrastructures. Development plans on a regional, national and European level have to be developed with a multi-stakeholder attitude: Trade unions, companies, local and regional governments, ecological initiatives, universities etc. have to be involved. European funds, investment programs have to correspond to the development plans on European, national and regional level”.[12]

                                                                                                                                                                                                           

References:
[1] Bieling, Hans-Jürgen 2022: Die Europäische Union im Zeitalter der „neuen Geopolitik“, In: Das Argument No. 338/2022
[2] Bieling, Hans-Jürgen 2019: Globalisierungskonflikte. Die strategische Positionierung und Rolle der EU in der neuen Triade-Konkurrenz, In: PROKLA, Issue No. 194, 2019
[3] Bundesverband der Deutschen Industrie e.V: China – Partner and Systemic Competitor
[4] European Commission: COMMUNICATION FROM THE COMMISSION, The European Green Deal
[5] Mahnkopf, Birgit: Der große (Selbst-)Betrug, In: Aus Politik und Zeitgeschichte, No. 3-4/2022
[6] Borrel, Josep, and Timmermans, Frans: The Geopolitics of Climate Change
[7] Trittin, Jürgen: Das Ende des fossilen Zeitalters: Gewinner und Verlierer stehen schon fest- wenn sie sich nicht bewegen 
[8] Wahl, Peter: Klimapolitik als geopolitische Waffe
[9] Hermann, Ulrike: Raus aus der Wachstumsfalle. Wie wir mit der britischen Kriegswirtschaft die Klimakrise bewältigen können, In: Blätter für deutsche und internationale Politik, October 2022
[10] Dullien, Sebastian/ Hackenbroich, Jonathan: European Industrial Policy. A Crucial Element of Strategic Autonomy
[11] Wixforth, Susanne: Bruderkrieg der Beihilfen – Wettbewerbsfähigkeit ein Nullsummenspiel
[12] Wolf, Harald: Elements of a new industrial policy for Europe, Conference “Finding A New Path – Another Development for Europe”, Brussels, 19.-20. June 2017, PowerPoint Presentation