Reindustrialising the Walloon Region
The need to reindustrialise our economy has become glaringly obvious ever since the financial crash revealed the scale of globalisation and the removal of production centres to other continents.
Before the crash, many political and economic leaders had got used to the idea that deindustrialisation was the optimal way of allocating resources. There seemed to be no point in continuing to produce industrial goods which could be made more cheaply on the other side of the globe. It was far better to focus on getting our economies to develop high value-added services. Globalisation in this way spawned various forms of subcontracting, e.g. outsourcing, offshore sourcing.
Unfortunately, this line of reasoning (which I, too, had believed) was somewhat simplistic. The old western societies no longer have the exclusivity of high value-added services. What's more, these services can be easily relocated to another country. And a purely services-oriented society inevitably becomes dependent on other growth centres. Worse still, these societies become centres of consumption and not of production any more, causing countries to live off of their accumulated wealth and not their labour. This is the situation in which Belgium finds itself, having consumed its future prosperity by taking on public debt.
Of course, it can be argued that deindustrialisation is common to any mature society. This is a valid point, since the share of industry in GDP has slowly declined over the past half century. But deindustrialisation does not explain everything. The industrial value added of our main economic partner, Germany, remained very stable while that of France has collapsed. An apparently inevitable trend is not the sole explanation.
Where do we look in Belgium's case? We need to go back to the twists and turns of history. There we straight away discover a shadowy grey area which is glossed over with a certain amount of embarrassment. It's Belgium's winter of discontent, the disappointment of the country's failed industrial transformation.
The origin of the problem is deeply buried in the past. At the start of the 20th century Belgium was a flourishing economy driven by leading-edge industries. The names of its business leaders such as Solvay and Cockerill were known across the world. Europe was a powerhouse. Our country was at its centre of gravity. Our colonies abroad fuelled wealth creation through the Port of Antwerp. But these vested interests were on shaky ground.
Things began to fall apart after the Second World War. Like other countries, Belgium benefited from the Marshall Plan and the financial stability of the gold standard introduced at Bretton Woods. However, it became embroiled in disputes between industrial basins and local regions and failed to initiate its industrial revolution. Germany, on the other hand, rapidly reconstructed itself by renovating and restoring its industry. It built up a network of small and medium-sized enterprises (Mittlestand) located in towns which had not been bombed. Belgium, meanwhile, gradually squandered the competitive advantages which should have emerged when it lost its colonies. It opted for an “extractive economy” approach, restricting itself to maintaining a semi-manufactured products industry, unlike Germany which developed its cutting-edge business enterprises.
In the 70s, awful mistakes in managing the economy were committed under the governments of Leo Tindemans and Wilfred Martens. Following the two oil shocks, the economy collapsed and, instead of redeploying our industries, they decided to resort to public debt as though borrowing could replace productive private risk capital. Governments of that era chose to favour industrial sectors of national importance, of which little remains today, through the repeated use of subsidies and regional aid. Public indebtedness snowballed, reaching gigantic proportions at its disastrous peak before Jean-Luc Dehaene took control of the situation.
The 70s were also a decade of transition from a manufacturing to a service economy. Factory engineers gave way to financiers. Many big company names were swallowed up in financial market transactions. They included Cockerill, ACEC, Union Minière and, of course, Société Générale de Belgique, the takeover of which propelled Belgium into the era of modern capitalism. Three stock market storms (1988, 1998 and 2008) then did serious damage to the country.
Today, there is no escaping the de-industrialisation. Five other causes of it can be cited in addition to those already mentioned: the weakness of our small- and medium-sized enterprises whose structure needs reinforcing; the rigidity of industrial enterprises due to complex bargaining processes between the protagonists (regional states, business enterprises, managements and employees); high labour costs or rather the insufficient value added per unit of labour; inadequate R & D spending; and, most importantly, the absence of a business enterprise and innovation culture. To this we can add the unsatisfactory partnership between the education system and industry, and project financing difficulties owing to increases in the cost of capital.
In the Walloon region, joint private and public sector initiatives will be required to overcome these obstacles. This will entail changing employment and tax regulations to favour labour. It has to be recognised that unbridled liberalism leads to windfall effects, while dogmatic collectivism acts as a brake on private initiative. A mixed economy model is needed if industry is to be re-established. I refer here to an ecosystem of the different States, the private sector and the trade unions working together, similar to the German consultation process.
It is also important to stop thinking only in terms of an old-style industrial revival and a shrinking economy. This merely leads to pointless arguments over semantics. The industries which have departed will not come back. It is essential to identify growth areas and facilitate the financing of innovative projects. Tools exist for meeting these challenges. The banks stand ready and there are well established private/public partnerships involving schemes such as the Marshall Plans, Invests Wallons, SRIW and Sowalfin. The fact that they are functioning smoothly means we can turn our attention to what is working less well, like the unemployment rate and the conversion of a number of industrial areas, and not limit ourselves to a self-satisfied "things are starting to move" when speaking about the Walloon economy.
The redeployment of the Walloon industry needs to take an important factor into account: we operate in a fragmented Belgian economy. The Walloon element will become decisive. We therefore have to avoid the uncertainty of expecting industrial development guidelines from the federal authorities. A Walloon industrial revival will be handled by the government of Namur. The Walloon Union of Business Enterprises (UWE) and not the Federation of Belgian Businesses (FEB) will be the preferred opposite number of Walloon business. The same will apply to its trade unions.
The equation is wide-ranging. Reforms must accommodate the requirements of an education system tasked with adjusting labour mobility and tackling the anomaly of structural unemployment and large-scale immigration. Immigration will itself take on new forms. It will be shaped by parallel capital inflows and a skills shortage, as baby boomers retire. Fiscal and financial adjustments, whether deferred or not, will have to be made to labour and its remuneration for the different age categories.
Some consider that the economic status quo is desirable and justified by certain collective traditions. That is senseless. Economic war has been declared across the world. We need to move the dial of competitiveness in the direction of an enlightened mixed economy situated between state collectivism and the purely private sector economy that we are having difficulty stimulating. Let's not kid ourselves. We should be preparing for the handover in 2022 at a time when regionalism will impact in full.
