Searching for a paradigm: the economic ideas behind European industrial policy

Industrial policy has regained prominence in economic policy debates. Despite its longstanding nature as a neoliberal regulatory state the EU has implemented numerous vertical, sector-specific, and mission-oriented policies. How can we account for this interventionist turn? Extant scholarship explains European industrial policy (EIP) as a response to geopolitical pressures and its necessity for facilitating green and digital transitions. Form of intervention is explained with reference to the EU’s institutional configuration: accounts emphasise limits on intervention capacity and decisionmaking-mechanisms that favour regulatory over fiscal intervention in the centre. In this paper I argue that while these accounts have contributed much to our understanding of contemporary European industrial policy, they pay insufficient attention to EIP’s ideational background. Policy change is driven by ideas (Blyth 2002). Past liberalisation and limited horizontal industrial policy were directed by a theory of how competition and free markets would facilitate economic development, with the state best capable of ameliorating market failures. Contemporary EIP cannot intuitively be explained within this framework. Understanding the interventionist turn requires engagement with the substantive content of the economic ideas behind it, how policymakers believe industrial policy contributes to and shapes economic development. Drawing on Hall's (1993) definition of policy paradigms I plan to analyse how problems to which contemporary EIP responds are understood (policymakers’ model of the economy), the proposed causal mechanisms of intervention, and changing norms about state intervention. Based on primary sources (policy documents, reports), interviews, and analysis of policymakers’ communications this paper will triangulate the ideas behind contemporary EIP, comparing them to the preceding paradigm and reconstructing their development. I will employ Bayesian reasoning techniques to test the validity of my conclusions, gauging how different pieces of evidence fit with rival explanatory hypotheses.