Surfix Maarten Buijs

Maarten Buijs is CEO of Surfix.

6 April

The European Commission should have stuck to its guns of forbidding state aid to anything that’s not pre-competitive, argues Maarten Buijs.

In early February, the European Commission launched the European Chips Act, targeting support for the semiconductor industry in Europe to increase its independence from the US and Asia. This, by all appearance, is an important strategic step, especially within the framework of the new course taken by history several weeks ago. Now that the Ukrainians are fighting for their right to self-determination, the chance that the Taiwanese will suffer the same fate and TSMC may become a company run by the Chinese communist party, has significantly increased.

The European Chips Act involves a serious amount of money, many tens of billions of euros, either new or re-deployed. Although it’s vocally supported by all EU members, the Act has a strong French flavor to it. This may reflect the shifts in power in Europe following Brexit. In France, the state plays a leading role, also with respect to industry, business and markets. Rather than focusing only on all the important things that states need to do, the French government is also heavily involved in how to allocate financial capital most efficiently and effectively. Consequently, state and industry and business are heavily intertwined in France.

The first association of a system where civil servants – not market forces – allocate capital in industry and business is the soviet communist era. Of course, the French system does have impressive successes, like Airbus, high-speed trains, its nuclear energy industry and many leading global companies. However, over its history, the French state has persistently devaluated its currency and/or increased its government debt ratio. The former is precluded now by the euro, leading to further increases in the latter as well as bailouts with the European Covid-19 Recovery Plan and a persistently low interest rate to finance the debt.

In the long run, this isn’t sustainable. It’s therefore extremely important that the European Commission sticks to its guns of forbidding state aid to anything that’s not pre-competitive. This has always been one of the cornerstones of EU policy and a very effective one at that.

Even making sure that pre-competitive subsidies don’t lead to waste of taxpayer’s money isn’t easy. The Netherlands, for instance, tended to provide pre-competitive subsidies, especially to large companies. When I worked at the Natlab, as Philips Research was called a long time ago, Philips received significant subsidies from the Dutch government. This was considered to be so self-evident that a covenant with the government of 100 million guilders in yearly subsidies was set up. Probably similar agreements existed between the Dutch government and Shell and Unilever when they were still partly Dutch. With the (recent) history of these three companies in mind, one wonders what the economic impact would have been had that subsidy money been spent on entrepreneurship instead.

To bring some nuance and color to that picture: the fact that the Netherlands is now seen as a powerhouse in the semiconductor industry with NXP, ASML, ASMI, Besi, VDL ETG and the like would have been impossible without Philips, in combination with the entrepreneurship of individuals like Arthur del Prado. At the other end of the spectrum, as far as I’m concerned, lie the billions of euros that (Air France-)KLM regularly receives from the Dutch taxpayer. I haven’t found an economist who sees Dutch society benefiting from these subsidies. Such investments lacking a good economic underpinning are often labeled to be strategic while pointing out that other countries are doing the same.

This then leads to a race to the bottom. And a race to the bottom in the semiconductor industry must be avoided! It’s paramount that the European Commission reconsiders its course of action and redirects the European Chips Act towards creating the right conditions in pre-competitive support, as it has always done up till now, without distorting the competitive market forces.