Over the past 20 years, expanding globalization and the development of information and communication technologies have contributed significantly to the idea that innovation is now the key to business’ competitiveness and the growth process of contemporary economies. However, at the same time, constraints created by the internationalization of value chains have gradually transformed controversy over international company relocations into a more alarming debate on the de-industrialization of the French economy (Fontagné and Lorenzi 2005). In addition to the problem of whether such a phenomenon of “industrial disengagement” is “a reality or a statistical chimera” (Cohen and Buigues 2014, p. 17), this debate was exacerbated by the 2008 crisis, the effects of which, first financial and then economic, largely contributed to discredit the idea that markets are still efficient, to the extent that any public intervention in the economic field could only be useless at best, at worst dangerous. Indeed, many economists consider that the crisis has largely demonstrated that markets are not necessarily efficient and the literature makes the argument that without strong government intervention in the industrial sector, market economies could collapse (Stiglitz et al. 2013).

This convergence of views leads not only to justifying the introduction of incentives for innovation, and therefore a genuine innovation policy, but above all to call for a return to industrial policy. It thus confirms ex post a relatively long-held intuition which, about 30 years ago, made some economists say of a previous crisis:

Science and technology policies have taken over or are taking over from more traditional industrial policies. Faced with the impasses of the crisis, solutions are sought through technology and innovation (Bellon and De Bandt 1991, p. 839).

Once again, the question arises as to whether innovation policy (a modern version of science and technology policies) has now become an essential component of industrial policy or whether it fully replaces it since, as the Commission nationale d’évaluation des politiques d’innovation (CNEPI) states in its 2016 report, “the very idea of innovation policy is in fact relatively recent and results from borrowing from both science and technology policy and industrial policy” (CNEPI 2016, p. 12).

In recent years, the concepts of innovation and industrial policy have changed considerably, probably because of the major changes that have affected the world economy, but especially under the influence of new analyses of the determinants of economic growth. In addition to the questions concerning the links between innovation policy and industrial policy, there are now also questions about the new justifications and new methods of public intervention, induced by these theoretical advances, which raise new questions about the procedures for evaluating these policies.

The purpose of this book is to propose some answers to all these questions. More precisely, it is a question of clarifying not only the theoretical foundations of each of these policies, but also the analytical problems posed by their articulation and evolution. However, before addressing these questions, which will be the subject of future chapters, it is useful, as an introduction, to begin by going back to the historical evolution of the meaning of the words “innovation” and “industry”.

It is indeed possible to note with Benoît Godin (2017) that, contrary to its current meaning and until the 18th Century, the term innovation had a pejorative and fatal connotation. In particular, this observation becomes clear if we consult Antoine Furetière’s Dictionnaire universel (1690), which defines the verb “innovate” as the act of “changing something already established to replace it with a new one” and an “innovation” as the “change of a custom, of something long-established”. This idea of change is perceived negatively because it is mainly associated with the political domain which, at that time, was entirely dominated by the unrest caused by religious wars. That is why Furetière notes: “In good politics, all innovations are dangerous. Innovations in religion lead to schisms, civil wars”.

Such a conception is still present in the Encyclopédie of D’Alembert and Diderot where the innovation article, written by Louis de Jaucourt, refers to the idea of “novelty, or important change that is made in the political government of a State, against the use and rules of its constitution. These kinds of innovations are always deformities in the political order” (Jaucourt 1766b, p. 755).

In this almost unanimous condemnation, Sir Francis Bacon is in a way an exception, since he was undoubtedly the first to introduce a shift in the 18th Century to relativize the negative and polemical use of the word “innovation”. Indeed, he devotes one of his Essays or Consels, Civil and Moral (1625) to the question of “Innovations”, in which he states that “all this is true if time stood still; which contrariwise moveth so round that a forward retention of custom is as turbulent a thing as an innovation” (Bacon 1625, p. 433). Bacon also advises that we should, like nature, favor slow and gradual innovations over sudden and radical ones:

Men in their innovations would follow the example of time itself, which indeed innovateth greatly, but quietly, and by degrees scarce to be perceived. For otherwise, whatsoever is new is unlooked for; and ever it mends some, and pairs others; and he that is holpen takes it for a fortune, and thanks the time; and he that is hurt, for a wrong, and imputeth it to the author (ibid.).

It is undoubtedly also because of Bacon’s influence that the idea of progress emerged in the 18th Century, particularly under the action of Turgot and even more so under Condorcet, and that the word innovation began to take on a more positive meaning. Thus, referring to the criticisms addressed to Turgot by his detractors, Condorcet writes:

We have not understood in these reproaches the one of loving innovation, because this reproach can only be made in good faith by men left to the most shameful ignorance. One only has to look around to see that all peoples have an urgent interest in seeing great innovations happen. The taste for new things is, like the spirit of the system, one of those vague accusations that fools and rascals never tire of repeating against men who have spirit or virtues. Why innovate, then? said a general farmer naively in 1775; are we not well? (Condorcet 1786, p. 156, note 1).

More generally, Condorcet often uses the word “innovation” in the various praises he wrote as Secretary of the Academy of Sciences from 1773 and as Secretary of the French Academy from 1782. Thus, with regard to D’Alembert, he indicates that he had attracted the criticism of “those men in whose eyes the truth seems only a dangerous innovation” (Condorcet 1847d, p. 69). Similarly, he notes that Jussieu had shown the usefulness of a thorough knowledge of botany because it was “a reliable guide in the knowledge of remedies, and it could lead to useful innovations in the art of healing” (Condorcet 1779, p. 245). But it is in his praise of Duhamel du Monceau that we find both the old and the new meaning of the word innovation:

The art of farming is like manufacturing: all arts that are exercised only to a level barely more than men need. There is no innovation without advances, without risks (Condorcet 1847b, pp. 616–617).

About the difficulties encountered by Jacques Vaucanson, Condorcet writes in his eulogy: “The obstacles of every kind that stand in the way of any useful innovation derive their main strength from the prejudices of those to whom we want to do good” (Condorcet 1847c, p. 654). It is because of the introduction of this modern understanding of the idea of innovation that Condorcet is occasionally presented as the creator of the theory of innovation (Billoret 1989).

However, the rehabilitation of the term “innovation” is only really achieved by Jeremy Bentham who, in his Traités des sophismes politiques¹ (1816) edited by Etienne Dumont, denounces nostalgia as a sophism and denounces using nostalgia “to fight useful innovations or to defend vicious institutions” (Bentham 1816, p. 2). In particular, it devotes its entire fourth chapter to refuting “The fear of innovation”, showing its absurdity:

If the reason to condemn a measure is its novelty, that same reason should have condemned everything that exists. To say that something is bad because it is new is to say that all things are bad, at least in their beginning; because everything that is old has been new: everything that is establishment has been innovation. By adopting this so-called argument, you are in contradiction with yourself a thousand times a day (ibid., pp. 43–44).

Yet, it should be stressed that it took, for the concept of innovation, more than a century to really establish itself in the thinking and vocabulary of French economists. The term is in fact absent from Charles Coquelin and Gilbert-Urbain Guillaumin’s Dictionnaire de l’économie politique (1852); it is not mentioned either in the second edition of the Nouveau Dictionnaire d’économie politique by Léon Say and Joseph Chailley (1900). It was only about ten years later that this notion was really introduced into economic analysis by Joseph Schumpeter with his Theory of Economic Development, the first German edition of which dates back to 1911. But the economic use of the word innovation only began to spread well after 1934, the date the English translation of Schumpeter’s book was published. As Dominique Guellec (2009) points out, it was not until the 1960s that the first work on innovation began to develop under the leadership of Richard Nelson (1959), Kenneth Arrow (1962) and many others (NBER 1962).

The semantics of the word “industry” is marked by a different evolution even though, initially, it is not completely unrelated to the word “innovation”. Indeed, questioning the history of this word, Henri Sée (1925) pointed out that it retained its traditional meaning of “invention” or “know-how” until the end of the 18th Century and that it would therefore be necessary to wait until the publication in 1819 of Jean-Antoine Chaptal’s book, entitled De lʹindustrie française, to find the word used in its modern sense. However, this point of view was contested shortly afterwards by Henri Hauser (1925) who defended the idea that the new meaning of the term “industry” could already be found in earlier texts, as is the case with Jean-Marie Roland de La Platière in his “Discours préliminaire” of the volume of the Encyclopédie méthodique. Manufactures, arts et métiers (1790). He then reinforced his argument in the last chapter of his book, Les débuts du capitalisme (1927), based on work by Turgot, Lemercier de La Rivière and Baudeau. However, he still failed to convince Henri Sée (1928, p. 326), who considers some of the examples selected to be questionable.

A few years later, Paul Harsin summarized this debate by pointing out that in the 18th Century, the word “industry” could in fact have three different meanings. The first is “the classical meaning of invention, of know-how” (Harsin 1930, p. 235). For him, this is “the common meaning, if not in the spoken language, then at least in written language” (ibid.). In its second sense, “the word is identified with trade, and opposed to agriculture” (ibid., p. 236). Harsin offers several illustrations citing administrative texts, but also writing by Boisguilbert and Vauban. Finally, the third meaning is the “absolutely modern sense of industrial enterprise” (ibid., p. 237). Although these three meanings of the word “industry” coexisted at that time, Harsin concludes:

It seems that it was popular usage that, as early as the 18th Century, qualified the word to designate a special branch of economic production: that of the processing of raw materials (ibid., p. 242).

However, the polysemy of the word “industry”, identified by Paul Harsin and later taken up by Michael James (1977), remains incomplete. It neglects two other meanings, common in the 18th Century, that link its origin to the Latin industria. For example, the Abrégé du dictionnaire de Trévoux defines the word industry in the following terms:

Dexterity, invention; ability to make something, a purpose or a job succeed. It is sometimes considered simply as art, as work. People who survive by their own eloquence, such as scoundrels, flatterers, scroungers, opinion leaders, etc., are called Knights of Industry in a negative sense (Berthelin 1762, p. 568).

The first of these two meanings is that of “work”, but this more precisely designates the activity leading to the realization of something. Indeed, Say and Chailley’s Nouveau dictionnaire d’économie politique (1900, II, p. 66) discards the error of taking the word “industry” as a simple synonym for the word “work”, because these two terms have clearly distinct meanings: “Work refers to the pure and simple exercise of man’s physical forces or intellectual faculties”. However, work alone is not enough for production, capital and natural agents must also be involved; and “this set of combinations can only be correctly referred to by the word industry; the term work would not fit it” (ibid., pp. 66–67). Joseph Schumpeter points out that this is an old-fashioned conception since “the scholastics doctors […] distinguished the businessman’s industria from the workman’s labor” (1954, pp. 554–555). It is in this sense that the word is still used by Jean-Baptiste Say when he speaks of “this intelligent work that is referred to as industry” (Say 1840, I, p. 24); or again, when he indicates that it is necessary “that industrious man possess products that already exist, without which his industry, however skilled it may be assumed, would remain in inaction” (Say 1841, p. 68). This distinction between industria and labor is important for two reasons. On the one hand, it makes it possible to differentiate the activity of the entrepreneur from the work of the simple employee, as Adam Smith indicates in particular:

The profits of stock, it may perhaps be thought are only a different name for the wages of a particular sort of labor, the labor of inspection and direction. They are, however, altogether different, are regulated by quite different principles, and bear no proportion to the quantity, the hardship, or the ingenuity of this supposed labor of inspection and direction. They are regulated altogether by the value of the stock employed, and are greater or smaller in proportion to the extent of this stock (Smith 1976, I, p. 66).

On the other hand, in this sense of the word, “industry” is also associated with the idea of skill, ingenuity and even cunning. Also, it is not surprising that Richard Cantillon includes “thieves” in what he calls “entrepreneurs who do their own work without any funding” (Cantillon 1952, pp. 31–32).

Such a conception then logically leads us to the second meaning of the word “industry”, which is mentioned in the Abrégé du dictionnaire de Trévoux. The latter refers to a forgotten meaning of the term (Fontaine 1992) since it contains, as was already the case for the word “innovation”, a pejorative meaning related to the idea that know-how, dexterity or skill can be associated with dishonest or unfair actions. The idea that industry would be harmful is partially present in the physiocratic thesis of the sterility of industry and commerce. However, although physiocrats do not really condemn these two activities, they nonetheless condemn the dangers they create because they contribute to the development of luxury at the expense of agriculture. While the condemnation is primarily based on economic logic, that of net proceeds, it nevertheless has moral repercussions. Also, more than industry, it is the behavior of the industrialist that is perceived in a negative way.

In this regard, Philippe Fontaine (1992, p. 24) shows that it was undoubtedly the development of industrialism at the beginning of the 19th Century and the celebration of industrial virtues that precipitated the elimination of the pejorative sense of “industry”. To illustrate his point, he quotes Charles Dunoyer who, in his 1825 book, Lʹindustrie et la morale considérées dans leurs rapports avec la liberté, writes:

Let us be careful not to confuse those who work with people who intrigue, and industrious men, with the knights of industry. If they need more than one vice in order to prosper, those who succeed cannot do without the moral qualities that embody a good man (Dunoyer 1825, p. 105).

The links that unite the semantic evolution of the words “innovation” and “industry” appear even more clearly if we refer to the entry for “industry” in the Encyclopédie. Written by Louis de Jaucourt, this article begins by specifying that:

industry, taken in a metaphysical sense, is […] a faculty of the soul, whose object rolls over the mechanical productions and operations, which are the fruit of invention, and not simply of imitation, skill and routine, as in the ordinary works of artisans (Jaucourt 1766a, p. 694).

Jaucourt adds that industry is the daughter of invention, because:

the quiet and extensive imagination, easy penetration and quick design, give industry. Those who are very industrious do not always have a sure taste, nor a high level of genius. I say more, ordinary geniuses, geniuses who are not very good at researching, discovering, grasping abstract ideas, can have a lot of industry (ibid.).

Jaucourt then discusses the areas of political law and trade in which:

this word means two things; either simple hand work, or inventions of the mind in useful machines, in relation to arts and crafts; industry sometimes contains one or the other of these two things, and often brings them both together (ibid.).

By associating labor and industria, work and invention, to make them two sides of the same coin, that of industry, Louis de Jaucourt takes up the cause of economic development and refuses to “object to the utility of industrial inventions” (ibid., p. 695).

Despite its brevity, this detour through the history of ideas and economic thought shows that trying to explain the links between industrial policy and innovation policy seems to prevent innovation and industry from being separated, which means that the movement, dynamics or even the evolution of economic phenomena must be at the heart of our approach. This idea will serve as a guiding principle for this book since we will deal with the current foundations of innovation and industrial policy, placing them in their historical context. Above all, we will highlight the decisive influence of the evolution of the economic concepts and theories that serve as their justification. In this perspective, the main objective is to show that, in recent years, it is in fact competition policy that has gradually established itself as a unified framework for defining and constraining both industrial policy and innovation policy, particularly at the European Union level. Thus, to the traditional notion of industrial policy stricto sensu, whose objective was to strengthen the competitiveness of companies and economic activities for reasons of national independence, technological autonomy, bankruptcy of private initiative, decline of traditional activities, or even territorial balance, has in fact been replaced by an industrial policy aimed mainly at correcting market failures linked to information imperfections, the existence of externalities and public goods, or the presence of increasing returns to scale, both in research and innovation and in industrial matters. Within competition policy, innovation policy and industrial policy are presented as two particular and most often independent sub-domains. The reasons for this relative autonomy and its implications will be presented and analyzed in detail in the first two chapters.

The third and final chapter will be devoted to an analysis of the coherence problems, both theoretical and practical, arising from the definition and implementation of such a concept, which consists of submitting innovation and industrial policy to the criteria of competition policy. The aim will be to understand how to reconcile and articulate a horizontal logic reflecting the need for a sustained effort in favor of innovation and research, and a vertical logic of greater support for industry, both compatible and consistent with the establishment of a competitive environment, favoring the shift from a top-down logic to a bottom-up logic in order to ensure a real change in the way public action is governed. In other words, the new question that emerges is how the recent orientations and options taken by innovation policy are likely to really promote the development of industry, without contradicting the established principles of competition policy. In this perspective, the three areas we propose to develop in this book are: industrial policy and competition (Chapter 1), competition and innovation policy (Chapter 2) and reindustrialization through innovation (Chapter 3).