Member states could pool their resources to create new companies capable of competing in emerging sectors, writes Daniele Archibug

Archibugi, Daniele

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LSE Research Online

Post-pandemic	reconstruction:	Airbus	can	serve	asan	investment	model	for	EuropeIf	the	European	Union	is	truly	aiming	at	reconstruction,	it	would	be	better	to	quarrel	less	over	the	various	forms	ofdebt	(be	they	the	European	Stability	Mechanism	or	the	Eurobonds)	needed	to	increase	liquidity,	and	instead	thinkabout	investment	plans.More	than	half	a	century	ago,	Airbus	started	its	business.	The	initiative	came	from	the	French	and	Germangovernments,	who	subsequently	managed	to	involve	Britain	and	Spain	as	well.	The	purpose	of	the	new	venturewas	more	than	difficult:	to	manufacture	and	sell	non-military	planes	while	challenging	the	supremacy	of	the	UnitedStates	seemed	impossible.The	United	States	had	won	the	Second	World	War	thanks	to	its	dominance	in	the	skies	and	in	the	post-war	period	ithad	used	its	technology	to	conquer	the	nascent	civilian	aircraft	industry.	Boeing,	Lockheed	and	McDonnell	Douglasfought	among	themselves	for	the	world	market.	All	three	American	companies,	all	three	strongly	supported	by	theirgovernment,	all	three	getting	very	rich	orders	from	the	Pentagon.Was	there	room	for	a	fresh	European	company?	Was	it	possible	to	create	a	new	business	that	was	neither	Frenchnor	German,	but	born	from	a	consortium	of	various	European	countries?	And,	above	all,	was	it	conceivable	topursue	the	production	of	planes	without	support	from	the	military?As	risky	as	the	gamble	was,	in	2019	Airbus	became	the	world’s	leading	aviation	company.	It	was	not	easy:	tocontinue	with	its	leadership,	the	United	States	went	through	a	process	of	industrial	concentration,	so	much	so	thatboth	Lockheed	and	McDonnell	Douglas	merged	with	Boeing,	which	since	1997	has	been	the	only	Americancorporation	left	on	the	market.	The	experience	of	Russia	was	even	worse,	as	the	civil	aviation	industry	did	notsurvive	the	end	of	the	Cold	War.	That	there	is	at	least	one	European	air	carrier	competitor	is	not	only	good	forEurope	but	for	the	whole	world,	including	the	United	States:	can	you	imagine	what	the	prices	and	quality	of	theplanes	would	be	if	there	was	only	one	monopolist?	And	we	can	assume	that	the	features	and	convenience	of	theproducts	would	be	better	if	instead	of	a	duopoly	there	was	at	least	an	oligopoly.Airbus’	success	was	studded	with	difficulties.	European	and	American	governments	have	had	fierce	disputes	overthe	public	aid	that	each	of	the	two	companies	received.	The	United	States	has	reproached	Europeans	for	giving	toomany	tax	exemptions	and	giving	incentives	for	research	and	development.	Europeans	have	pointed	out	the	degreeto	which	military	orders	that	Boeing	received	were	hiding	subsidies.	Washington	and	Brussels	have	conducteddiplomatic	negotiations	and	challenged	each	other	at	the	World	Trade	Organization.	And	it	could	not	be	otherwisein	such	a	commercial	dispute.	But	today,	in	addition	to	an	American	giant,	there	is	also	a	European	one.LSE Business Review: Post-pandemic reconstruction: Airbus can serve as an investment model for Europe Page 1 of 2		Date originally posted: 2020-05-16Permalink: https://blogs.lse.ac.uk/businessreview/2020/05/16/post-pandemic-reconstruction-airbus-can-serve-as-an-investment-model-for-europe/Blog homepage: https://blogs.lse.ac.uk/businessreview/The	lesson	of	Airbus	should	be	remembered	now	that	the	strategy	of	European	reconstruction	after	the	Covid-19crisis	is	being	discussed.	One	of	the	problems	of	the	old	continent,	which	justifies	the	very	ugly	appellation	of‘Eurosclerosis’,	is	that	Europe	as	a	whole	has	no	longer	been	able	to	generate	new	continental	businesses	inemerging	sectors.	After	the	crisis	of	2008,	many	companies	were	born	and	grown	that	have	successfully	ridden	thewave	of	new	digital	technologies:	the	top	five	companies	in	the	world	by	capitalisation	are	Microsoft,	Apple,Amazon,	Alphabet	and	Facebook.	All	American,	none	European.	All	in	digital	technologies.If	in	2008	Europe	had	remembered	the	lesson	of	Airbus,	instead	of	insisting	on	a	frenzied	austerity	policy,	it	wouldhave	understood	that	prosperity	was	associated	with	the	ability	to	enter	emerging	sectors	and	–	when	it	wasstruggling	to	chase	the	United	States	–	it	should	have	invested	to	enhance	its	human	and	technological	resources.China,	which	also	started	from	much	further	back	than	Europe,	understood	this	well:	for	each	American	giant,	ittried	to	create	national	companies	that,	at	a	minimum,	competed	with	US	rivals	to	serve	its	internal	market,	with	theaim	of	also	becoming	a	world	leading	company.	Companies	such	as	Alibaba,	Huawei,	Tencent	and	Baidu	are	nowkeen	to	improve	their	positions	in	existing	products	and	to	establish	themselves	in	emerging	ones	such	as	artificialintelligence.	In	Europe,	we	have	not	even	managed	to	get	a	fair	amount	of	taxes	from	the	big	tech	companies.None	of	the	European	countries,	not	even	Germany,	have	the	muscle	to	compete	in	emerging	sectors.	But	if	it	weredone	as	part	of	a	European	project,	new	successful	companies	could	be	created,	as	occurred	with	Airbus	morethan	fifty	years	ago.	There	is	widespread	agreement	that	Europe	must	bridge	the	gap	in	digital	technologies,	that	itcan	become	a	world	leader	in	environmentally-friendly	innovations,	and	that	it	could	use	its	robust	health	system	todevelop	new	skills	in	genetics	and	diagnostics.	But	these	objectives	cannot	be	created	without	companies:	lackingAirbus,	there	would	have	been	no	European	planes.	There	is	now	the	opportunity	to	use	the	resources	of	theEuropean	Investment	Bank	to	start	new	firms	in	these	areas.It	will	rightly	be	stated	that	without	strong	political	support,	large	companies	cannot	be	created	from	scratch	sincethey	will	be	easily	crushed	by	better	supported	competitors.	This	is	true.	But	this	should	be	an	additional	incentiveto	strengthen	the	political	power	of	the	European	Union,	which	is	so	often	evoked	but	has	been	so	underdeveloped.♣♣♣Notes:This	blog	post	appeared	first	on	LSE	Europp.The	post	expresses	the	views	of	its	author(s),	not	the	position	of	LSE	Business	Review	or	the	London	Schoolof	Economics.Featured	image	by	j_bg,	under	a	CC-BY-SA-2.0	licenceWhen	you	leave	a	comment,	you’re	agreeing	to	our	Comment	PolicyDaniele	Archibugi	is	an	economist	and	the	director	of	Irpps-Cnr	in	Rome.	He	is	a	professor	ofinnovation	at	Birkbeck,	University	of	London.			LSE Business Review: Post-pandemic reconstruction: Airbus can serve as an investment model for Europe Page 2 of 2		Date originally posted: 2020-05-16Permalink: https://blogs.lse.ac.uk/businessreview/2020/05/16/post-pandemic-reconstruction-airbus-can-serve-as-an-investment-model-for-europe/Blog homepage: https://blogs.lse.ac.uk/businessreview/

Post-pandemic reconstruction: Airbus can serve as an investment model for Europe

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Post-pandemic reconstruction: Airbus can serve as an investment model for Europe

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