Leaders and Laggards among Small EU States

by David Gow
Editor of Sceptical.scot, Senior Adviser at Social Europe and Senior Adviser at Acumen Public Affairs. He is former European Business Editor of The Guardian and worked for The Scotsman and London Weekend Television.

30th January 2020

This article was first published by the Scottish Centre on European Relations.

Towards the end of its six-month EU presidency, in late December 2019, Finland offered the same free gift to all EU member states it had already given to folk at home: a basic online course in Artificial Intelligence (AI) for all 500m citizens. The aim is to persuade 1% of the population or 5m to take the course by the end of 2021. Sweden and the Netherlands are following in their wake.

This laudable initiative reflects a key ambition of Finland as one of the EU’s 16 smaller states, those with populations below 10 million: to lead or at least propel Europe’s drive for sustainable growth and greater industrial competitiveness, including in global value chains, aka the new European green (industrial) deal. And, within that overall strategy of innovation, digitisation and decarbonisation, to develop indigenous niche sectors.

Finland is a textbook example of how a small member state is able not only to influence but also to shape and spearhead a key policy area such as industrial strategy that is acquiring new momentum within overall EU forward-planning under Commission president Ursula von der Leyen. And it has done so not just once but at least twice in successive transition phases: from a predominantly agrarian (farming/forestry) economy via one built around electronics/mobile technology (Nokia) to one embracing the circular economy, data-driven healthcare technology and AI.

The Finns, renowned and admired for their education system (despite a recent drop in performance as measured by the OECD’s PISA survey), have become key movers behind recent démarches in EU industrial strategy. They were signatories to the December 2018 statement arising from the sixth ministerial meeting of the ‘Friends of Industry’, 18 EU member states, most of them small but including Germany, France, Italy, Spain and Poland.

Among the four objectives for an “assertive” EU industrial policy is to identify, within the ‘Important Projects of Common European Interest’ (IPCEI) framework, strategic European value chains “prioritizing those most directly linked to improving global productivity, fighting climate change, and enhancing technological development including : electric batteries, connected and autonomous vehicles, semiconductors, cyber security, supercomputers, robotics, low carbon steel-making, low carbon industrial processes, net zero energy building renovation and construction, maritime industry and space”.

This predates the core Franco-German manifesto for an industrial policy “fit for the 21st Century” with its emphasis on creating “European champions”, amending state aid/competition rules to permit greater political scrutiny/intervention and foreign investment screening. This, in turn, was prompted by, but goes well beyond, Margarethe Vestager’s ruling against the Alstom-Siemens merger of their rail businesses.

In advance of its presidency, and before the normal spring EU summit in March 2019, the Finnish government marshalled 16 other member states to join it in setting priorities for the next five years, including embrace of the data and green economies and capital markets union, with the ultimate view of a “more autonomous” Union. Interestingly enough, the participants/signatories were a different mix to the previous industrial strategy statement, including this time the central and eastern European ‘A8’ (but not Hungary) and Ireland.

This political process, following extensive lobbying and networking, illustrates how a small member state with ambition, a pro-European approach, innovative capabilities and the early adoption of an avant-garde role, can help set the EU agenda. When it comes to industrial strategy, this agenda is, as elsewhere, heavily influenced and shaped by the policies and interests of the Franco-German tandem. German manufacturing accounts for 20% of GDP while French manufacturing makes up 17% of overall economic output.

But the Finnish example also shows how making coalitions with bigger member states is vital if national priorities are to be endorsed and embraced at EU level. At the end of last year, the consensus was that the Finnish presidency had delivered for that very reason on policies such as the circular economy, climate and the European green deal and these are among core elements of the von der Leyen five-year strategy that aims for a carbon-neutral EU by 2050.

Its Nordic neighbour, Denmark, has similarly helped steer EU policy in this direction with its development into what the OECD calls the “most digitalised economy in Europe” with the chance to “reap the opportunities of emerging technologies” and “a frontrunner in green growth.” It produced 47% of its electricity from wind alone in 2019 in a sector dominated by Vestas and Siemens Gamesa turbine-makers (while Ireland lags seriously behind despite its exposure to winds). Denmark ranks behind Sweden, Finland and Latvia in the share of energy from renewable sources according to the latest (2018) figures from Eurostat while the UK and Ireland lag behind, with the Netherlands bringing up the rear.

From the 1990s onwards, and especially in the early years of this century, the Danish welfare state model of ‘flexicurity’ (labour market flexibility/social security/active employment policy) brought thousands of policy-makers and specialists to the county to seek lessons for their own societies – though now out of favour. Similarly, today policy-makers flock to Finland to examine its successful education record, its experiment with universal basic income (UBI) and, increasingly, its effective programme for reducing homelessness. The Swedish model for wage-earner funds, abandoned in the 1990s, has found new, contemporary adherents as a means of not only organising companies but also reducing inequality/reinventing capitalism.

It’s obvious from the above that, once again, it is the social democratic, highly competitive Nordic countries that are most instrumental and effective in shaping EU industrial strategy. Arguably, the Irish model, which relies heavily on foreign direct investment attracted by tax incentives and eschews social partnership and investment in infrastructure, is a peripheral player when it comes to industrial strategy – despite the overall economic success. Similarly, while the Baltics may have signed up for the concepts outlined in the three ‘manifestos’ mentioned above, they have less influence within industrial strategy than, say, economic and financial policy with their commitment to liberalism and fiscal rectitude.

For a small country like Scotland, with its aspirations to be an independent, fully-fledged EU member state, there are substantial lessons to be learned. The Scottish government has identified four key areas for EU engagement which include energy/climate change and marine environment, including fisheries. Yet, while the country has shown commendable progress in meeting renewables/emissions targets, it has failed to develop the modern industrial base that generates growth and jobs in the sectors prioritised by EU policy-makers. A more activist industrial strategy at home is a sine qua non for helping to influence and shape European industrial policy and contribute to creating a globally competitive, more sovereign and autonomous Europe.

This blog is published in the context of SCER’s 2019-20 research programme on ‘small states in the EU, lessons for and from Scotland’. This is a project with, and supported by, University College London’s European Institute, within their Jean Monnet Centre of Excellence Programme 2019-2022,  co-funded by the Erasmus+ programme of the European Commission.