Europe wants its factories back. From Brussels to national capitals, policymakers are trying to reverse decades of deindustrialisation and restore manufacturing as a central pillar of economic strategy. This push revives an old divide: France and Italy see reindustrialisation as both feasible and necessary, while others, including Germany and the Nordics, have long treated it as an economic mirage.
The EU’s proposed Industrial Accelerator Act tilts firmly toward the former view. It aims to raise manufacturing value added to 20 per cent of GDP by 2035 through “Made in EU” preferences and targeted support for domestic production.
The ambition is understandable. The premise, however, is flawed and driven by nostalgia.
Reaching that target would require Europe to reverse in a decade what took three decades to unfold (see figure). Manufacturing last accounted for 20 per cent of EU GDP in 1990. Attempting to restore that share within ten years risks misreading what has actually changed in Europe’s economy.
Figure: Re-industrialisation on steroids, manufacturing in GDP of EU (1991-2035)
Source: authors using World Bank WDI. Note: Manufacturing in GDP is measured in terms of value added.
In absolute terms, manufacturing has not declined. Since 1990, its inflation-adjusted value added has increased by more than 60 per cent. What has shifted is its relative weight, as services expanded even faster, by roughly 90 per cent. The result is a smaller share for manufacturing, but not a diminished role in value creation.
The same pattern holds for employment. Around 12 million manufacturing jobs have disappeared since 1990 – a significant social adjustment. But over the same period, services created roughly 50 million jobs. The issue is not vanishing work, but its reallocation.
More importantly, beneath these trends lies a deeper shift: the distinction between manufacturing and services is breaking down.
This goes beyond statistics; it is visible at the firm level. Consider Dyson. Once a UK-based manufacturer of vacuum cleaners and household appliances, it no longer produces these goods in Europe. Its core activities now lie in design, engineering and the coordination of global supply chains. It has become a services-led business built on industrial capabilities.
This evolution is not unusual. In France, more than 80 per cent of manufacturing firms now offer services; many generate a substantial share of their revenue from them, and around a quarter no longer produce goods at all. Groups such as Siemens, Airbus and Schneider Electric operate as hybrid firms, combining manufacturing with software, maintenance and other services.
At the same time, many service companies have become more capital-intensive, investing in infrastructure once associated with industry – from data centres by SAP to subsea cables by Meta or Telefónica. The boundary between industry and services has blurred to the point of becoming artificial.
Yet the IAA remains anchored in that distinction. It prioritises “strategic” industries such as steel, cement, aluminium and chemicals. These are sectors that remain important but offer limited scope for employment growth and are not where future innovation is concentrated.
This points to a broader issue. Europe’s gap with the United States – the global economic frontier – is not primarily in industrial R&D, where performance is broadly comparable. It is in services, particularly in high-tech services. In 2023, services accounted for more than 40 per cent of corporate R&D in the US, compared with about 15 per cent in the EU. That is where much of today’s innovation is taking place, and where Europe is falling behind.
Seen in this light, deindustrialisation is not necessarily a sign of decline. Firms that move beyond production tend to be more productive, more research-intensive and more reliant on high-skilled labour. Evidence from countries such as Denmark suggests that companies shifting away from traditional manufacturing often become more technologically advanced even as industrial employment falls.
None of this diminishes the social costs of adjustment. Workers leaving manufacturing face real challenges, and governments have a role in supporting them. But policies aimed at restoring past industrial structures risk directing resources towards sectors with limited future growth, making it harder – not easier – for workers to transition.
A more effective approach would focus on strengthening Europe’s capacity for innovation, particularly in high-tech and services, and facilitating labour mobility towards expanding sectors.
Manufacturing will remain an important part of Europe’s economy, as agriculture did after its own long decline in employment. But it will employ fewer people and account for a smaller share of output. That trajectory is not a failure; it is a feature of economic development.
The challenge is not to recreate the industrial structure of the past, but to compete in the economy already taking shape. Trying to engineer a return to yesterday’s industry risks mistaking nostalgia for strategy.
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