ABSTRACT
The issues that attracted most public attention as the Eurozone financial crisis played out were the fiscal imbalances and public debt problems of the vulnerable peripheral member economies (southern countries and Ireland). However, hidden behind these problems were lagging productive structures which EU regional development policy has failed to address, and in important ways has even deepened. This chapter locates the concept of “productive structure” within a political economy perspective in which production capability, business organization and industrial policy are explanatory variables rather than outcomes. Instead of conceiving of industrial policy as merely correcting market failure, we ought to think of it as a strategic organizer. Its role is precisely to shape productive structure in ways that contribute to business development, industrial innovation, sectoral transitions and socially rational product systems. Where conventional economic theory presumes price-led competition as the ideal outcome, industrial policy within the core economies (Germany, Nordic countries) is about advancing product-led competition. The perspective is illustrated by outlining the strategic role of industrial policy in Germany. It then turns to industrial policy as conducted by the European Commission and suggests that it diverges sharply from that deployed in the successful economies of Europe.
