Public Policy Towards Industrial Restructuring: Some Issues Raised by the Internal Market Programme

Abstract

The ‘1992’ programme for the completion of the internal market within the European Community is a major exercise in trade liberalization. As non-tariff barriers are removed, the cost of exporting from one member state to another will be reduced, and competitive access between European markets will be improved. As outlined by M. Emerson et al. (1988, p. 138), ‘after a time lag, the increased dynamicism of the competitive process will also promote new investment, prompt the restructuring and multinationalism of companies, lead to relocation, disengagement and “creative destruction”’. Hence, competition should intensify in all markets, leading to lower price-cost margins and lower unit costs as X-inefficiency is reduced and economies of scale are achieved and industries are restructured. In particular, it is envisaged (see, for example, Buigues and Ilzkovitz, 1988) that in industries such as advanced materials, chemicals, pharmaceuticals, computers, telecommunications, aerospace, electronics and precision instruments, structures will eventually emerge with fewer, larger and more competitive firms than at present. These are industries where non-tariff barriers were still significant and where potential gains from restructuring could be reaped because of unexhausted scale economies (see also Pratten, 1988). Indeed a significant part — maybe as much 60 to 70 per cent (see Smith and Venables, 1988) — of the gains from the 1992 programme, which the Cecchini Report (1988) estimated to be between 2½ and 6½ per cent in terms of GNP in total, are expected to come from such industrial restructuring.