Entry, Exit and Structural Adjustment in European Industry

The view that European industry ought to be more competitive than it is seems to be fairly widely held, but it is rather less clear what might be done about it. One fairly venerable tradition of thinking has it that European industry will never achieve its full competitive potential until major restructuring occurs. The European problem, in this diagnosis, is that a large internal market artificially fragmented into a series of semi-independent national markets has perverted industrial structure, creating too many inefficient, small-scale production units that would not, in the absence of protection, have proved to be viable. More generally, Europe’s problem, it is argued, arises from the fact that protected national markets often fail to provide adequate incentives for firms to develop new products, or to concern themselves much with the real needs of consumers. These concerns have, of course, played a prominent feature in the discussions surrounding 1992 (see Cecchini, 1988, and, for a critical view, Geroski, 1989), and, at least for this reason alone, are worthy of serious consideration.