The Shift from Vertical to Horizontal Industrial Policy: A Historical Perspective

Neoliberal Industrial Policy: From Vertical to Horizontal Measures and Structural Reforms

The Rise of Neoliberalism (1970s Onward)

In the wake of a shrinking working class, industrial policy underwent a significant shift from the 1980s onward, beginning in the late 1970s with Margaret Thatcher in the UK and Ronald Reagan in the US. This shift was characterized by a move away from vertical policies towards horizontal measures and structural reforms, such as labor market and services reform.

By 1982, the debt crisis forced Latin American countries to open their economies and embrace neoliberal policies, marking the end of the Third World project. Export-oriented industrialization was promoted, and foreign transnational corporations (TNCs) gained free entry. These policies were later termed "The Washington Consensus" in 1990.

In Europe, the Single Market project, launched in 1986 with the goal of establishing a common market by 1993, played a crucial role. This project aligned with neoliberal norms (Ryner & Cafruny, 2017: 78). Subsequently, in 2005, the European Commission reintroduced the Lisbon Agenda as the "Growth and Jobs Strategy."

Spain's social democrat party (PSOE), with significant support from Germany since the mid-1970s, transitioned to neoliberal industrial policy (Muñoz, 2012). Subnational governments, particularly the Basque Government in Spain, gained prominence in industrial policy due to their taxation authority.

Competition Policy: From Vertical to Horizontal Policies

Vertical policies, which target specific sectors or firms, are now often viewed as unfavorable. State-aid, or financial assistance to particular sectors or companies, falls under competition policy scrutiny due to its potential to harm other businesses. The shift from vertical to horizontal policies in Europe coincided with the establishment of the Single Market in 1993.

Vertical Policies in Europe (1970-1980)

European governments actively intervened in the economy between 1970 and 1980. The European Coal and Steel Community (ECSC) played a key role in guiding and coordinating government aid to these sectors through the Davignon Plan. However, restructuring efforts were poorly executed, and the Spanish government failed to protect its manufacturing industry. The Spanish automaker SEAT was privatized and sold to the German company Volkswagen. After 1986, Spain experienced economic growth driven by an influx of European TNCs, which undermined the independence of Spanish industry.

The Rise of Horizontal Policies (Clusters and Innovation Systems)

In contrast to vertical policies, horizontal policies are broader and aim to benefit a wider range of sectors and companies. Examples include:

• Clusters: Geographic concentrations of interconnected companies, suppliers, and institutions in a particular field.
• Innovation Systems: Networks of actors and institutions that interact to promote innovation within an economy.

Michael Porter's influential work, "The Competitive Advantage of Nations" (1990), highlighted the significance of clusters. Porter identified a "network paradigm" where the spatial dimension of inter-firm networking was crucial. The EU supports regions implementing cluster policies and similar initiatives through its Smart Specialization Platform for Industrial Modernization.