How Planning Shaped Europe’s Postwar Industrial Transformation

Across Western Europe, different forms of economic planning helped coordinate investment, mobilise finance, rebuild industrial capacity, and manage structural change during the postwar decades.

How Europe organised industrial transformation in the postwar years

Faced with China’s state-supported manufacturing overcapacity in key sectors, increasingly protectionist policies in the United States, rapid technological change, the energy transition and a much less benign geopolitical environment, Europe is recalibrating its industrial policy. State intervention and industrial policy did not disappear from Western economic policymaking, but much of the institutional capacity that had once supported it did. To understand what has been lost, it is useful to look at how postwar Western Europe organised industrial development. Governments then generally possessed far more machinery for planning and coordinating economic activity than they do today, even if those institutions were not always equally effective.

In postwar Europe, industrial policy often relied on more direct and sectorally organised forms of intervention, including economic planning, public ownership in strategic industries, credit policies, public procurement and close coordination between public authorities and large firms to organise production.¹ There was no single European model. The mix of instruments and the institutions through which they operated differed considerably across countries. In some, planning bodies, public banks and state enterprises occupied a central position. In others, coordination was more decentralised.

Across these different set-ups, governments were generally better equipped institutionally (if not more competent) at economic planning, acquiring information about economic problems and coordinating responses to constraints that individual firms could not easily resolve by themselves. Decades of neoliberal reform dismantled much of governments’ capacity to plan, coordinate and sustain long-term structural change.²

Dani Rodrik describes the process of discovering the constraints facing firms and identifying appropriate public responses as a central task of industrial policy:

“[T]he task of industrial policy is as much about eliciting information from the private sector on significant externalities and their remedies as it is about implementing appropriate policies”

Because knowledge about technologies, costs, supply chains and investment conditions is dispersed, governments need to develop and sustain close relationships with industry. They also need enough autonomy to test the information they receive, to attach conditions to public support and withdraw assistance from projects that no longer work. The effectiveness of industrial policy will depend partly on institutions that can combine sectoral knowledge with sufficient authority to bring together financing, infrastructure, research, skills, regulation and public procurement.³

The challenge is to find what kind of institutions can perform these functions under current economic and political conditions. Historically, they have been performed by a variety of institutions from planning bodies, public banks, and state enterprises, to regional agencies, applied research organisations and labour market institutions. These arrangements combined sectoral forms of intervention with institutions that coordinated policy and mobilised firms and other economic actors to organise production.

This article is largely based on information from Barry Eichengreen’s book The European Economy Since 1945 and the volume on Industrial Policy in Europe after 1945 edited by Christian Grabas and Alexander Nützenadel.

This is the first of two articles on the institutions and policies that shaped Europe’s postwar economic trajectory and industrial policy. The first article traces how European countries organised economic transformation from 1945 to the early 1970s. The second will trace how these arrangements changed after the crises of the 1970s, how Europe responded to competition from the United States and Japan, and what those experiences suggest for industrial policy today:

• How planning shaped Europe’s postwar industrial transformation

• European industry between crisis and global competition

Postwar reconstruction was a problem of coordination

Western Europe’s early postwar growth was an extraordinary period of high investment and rapid technological catch-up. Between 1950 and 1960, output per worker rose by an annual average of 6.4% in West Germany, 5.9% in Italy and 4.3% in France, compared with 1.9% in the United States. Sweden, which started from a higher level, grew more slowly at 3%.⁴

Reconstruction and technological development required high investment over many years. Firms had to believe that complementary inputs such as energy, transport, materials, finance and skilled labour would be available as they expanded capacity. Planning bodies, state companies, coordination between governments and firms, employer organisations and organised labour all shaped how effectively countries could mobilise resources, develop new technologies and manage the gains and costs of structural change.

Western European economies emerged from the war with very different income levels, but most followed a sustained upward path over the following decades. Growth was especially rapid in continental Europe, allowing several countries to narrow part of the gap with the United States.

France

Created in 1946 under Jean Monnet, the Commissariat Général du Plan had a small permanent staff but convened officials, employers, trade unions and technical specialists in sectoral modernisation commissions. The first plan, launched in 1947 and extended to 1952, concentrated on coal, steel, electricity, cement, agricultural machinery and transport.

The modernisation commissions covered both key resources (coal, electricity, fuel and labour) and individual industries such as construction, automobiles and textiles. They brought employers, trade unions, officials and technical experts into the planning process. Through the Commissariat, this gave the state a stronger capacity to direct and coordinate production and to allocate scarce resources more effectively. The Modernisation and Equipment Fund, created in 1948 and financed partly through the Marshall Plan, connected these priorities to long-term investment, while the Treasury used public financial institutions and its wider authority over credit policy to influence which projects received finance and on what terms.

The direct and indirect allocation of credit during this period was probably the most important practical expression of French industrial policy. Eric Monnet’s historical work on the postwar credit system shows how the nationalisation of the Banque de France and the major deposit banks in 1945, together with the creation of the National Credit Council, gave public authorities mechanisms through which the allocation of credit could itself become an instrument of economic policy.⁵

France’s rapid postwar growth turned it into a major industrial power, and many of the choices made during those years still shape its strengths in aerospace, energy, transport and telecommunications. Several national champions created or nurtured through the grands projet — large state-led programmes that combined public finance, research, procurement and national firms to build French capabilities in strategic sectors — later developed into large European and global companies, including Airbus, Arianespace, Alstom, EDF, France Télécom, Elf-Aquitaine and Snecma. There were also costly failures in computers and machine tools, and we cannot know how these industries would have developed under different policies. But state support helped France build lasting competitive advantages in several industries.⁶

The size of the public sector increased substantially in the postwar years and public spending grew fast between 1945 and 1980, reflecting the development of welfare systems, public services and other government responsibilities.

Italy

Postwar Italy inherited a very large public sector in manufacturing, infrastructure and utilities, while much of the credit system was also under direct or indirect public control. The Institute for Industrial Reconstruction (IRI) had been created during the banking crisis of the 1930s and survived the fall of fascism. After 1945 it controlled firms in banking, steel, engineering, transport and communications and played a central role in the Italian postwar economic boom. Its purpose was to develop the industrial infrastructure of the country. The share of public enterprises in total industrial investment increased from almost 16% in 1951 to 27% in 1962. ENI, formed in 1953 around the state oil company AGIP, built another large group across natural gas, oil, refining, and chemicals.⁷ FINSIDER rebuilt the steel industry around the Cornigliano works with Marshall Plan loans and American technology while ENI developed the Po Valley gas fields and supplied industry with lower-cost energy.

The early performance of FINSIDER and ENI depended on technically competent management, considerable operational autonomy and an industrial reconstruction programme (see, for example, the Sinigaglia Plan). These conditions weakened as political appointments and the acquisition of failing firms expanded. In the Mezzogiorno, large sums were committed to heavily capitalised industrial projects which created employment and productive capacity but remained poorly connected to the wider local economy. Local supply relationships remained weak, some plants were seriously underused, and the resulting establishments acquired the familiar description of “cathedrals in the desert.”

Postwar Italy illustrates both the potential and the institutional risks of public ownership and state-directed development. Public enterprises such as IRI and ENI played a central role in building infrastructure and developing strategic industries in manufacturing, telecommunications, and energy. They were especially effective when they had a clear mission and were managed by a technically competent leadership with a degree of insulation political interference. From the late 1960s and especially the 1970s, political interference, patronage and broader social objectives increasingly constrained managerial discretion and weakened their performance.

Economic growth involved a profound movement of labour between sectors. Agricultural employment contracted, particularly in Italy and Spain, while services and industry employment expanded almost everywhere.

West Germany

West Germany relied less on central planning than France and Italy. Coordination was instead distributed among the federal government, the Länder, banks, public utilities, employer organisations and labour market institutions. The social market economy placed private ownership and competition at the centre of West Germany’s postwar economic identity, while giving the state responsibility for maintaining a competitive and socially balanced economy. Much of its postwar economic identity was built on an ordoliberal tradition that was suspicious of comprehensive economic planning, partly because of the experience of the Nazi-controlled economy and the planned economy emerging in East Germany.

The social market economy nevertheless remained a mixed system, with significant public ownership and negotiated coordination in several industries. West Germany already possessed a broad industrial structure encompassing coal, steel, transport equipment, electrical machinery and capital goods, although wartime destruction and bottlenecks in basic industries still required coordination and public intervention. Even Ludwig Erhard accepted intervention where it supported smaller firms, facilitated structural adjustment or addressed problems in sectors such as heavy industry and coal.

Apprenticeship training supplied sector-specific skills, while the bank-based financial system helped mobilise long-term finance for investment by established firms. Co-determination gave organised labour representation in company governance. Employer and industry associations pooled information across firms and coordinated negotiations. This configuration formed part of the institutional environment in which German firms specialised in capital goods, engineering and incremental technological improvement.

Federal and regional interventions were often ad hoc responses to shortages or local distress. The 1952 Investment Aid Law required industry to mobilise one billion Deutschmarks for mining, iron, energy, water and railways, where underinvestment threatened the wider expansion. Federal resources were also directed towards structurally weak areas facing inadequate infrastructure, the consequences of wartime displacement and limited industrial employment. Between 1951 and 1974, the federal government transferred almost three billion Deutschmarks to the Länder, with Bavaria being the largest recipient. These transfers gave regional governments the financial means to develop industrial capacities and were intended as assistance that would allow them to strengthen their own productive base.

From the mid-1960s, these initially dispersed interventions became somewhat more systematic. The federal government adopted sectoral and regional plans intended to guide structural assistance and prevent the uncoordinated proliferation of support programmes. The Federal Regional Planning Act of 1965, the introduction of regular subsidy reports in 1967 and the creation in 1969 of the Joint Task for the Improvement of Regional Economic Structures sought to improve information, integrate technical expertise and coordinate action between the federal government and the Länder. These measures increased the capacity of public authorities to identify regional needs and to coordinate the investments required to meet them. German industrial policy nevertheless remained dispersed across different levels of government and continued to depend largely upon case-by-case intervention rather than on a comprehensive national strategy.

Across much of Western Europe, gross fixed capital formation absorbed a large share of national income during the 1960s and early 1970s, supporting the expansion of industrial capacity, housing and infrastructure. Investment generally weakened after the first oil shock.

Sweden

In Sweden, the state owned relatively little manufacturing industry before the 1970s. Public ownership was concentrated mainly in electricity, railways and telecommunications. Sweden nevertheless developed institutions that gathered information, revealed potential inconsistencies and informed public and private investment decisions. Their function was more informational. Periodic long-term economic surveys compiled the expansion plans of firms and public bodies and examined whether their demands on labour, capital and other resources were mutually consistent.

From the late 1950s to the early 1970s, Swedish economic policy was influenced by the Rehn-Meidner model developed by LO economists Gösta Rehn and Rudolf Meidner, which combined solidaristic wage policy with active labour market policies, and restrictive macroeconomic policy in an effort to reconcile full employment and greater equality with price stability and economic growth. An important institutional foundation of the Swedish model was the Saltsjöbaden Agreement of 1938 between LO, the Swedish Trade Union Confederation, and SAF, the central employers’ organisation. The agreement placed wage settlements within central negotiations and created a wider apparatus for resolving industrial disputes without direct government control.

The solidaristic policy sought equal pay for equal work regardless of the productivity of the firm or sector. Firms with below-average productivity growth experienced declining profit margins, while more productive firms could earn higher profits without paying correspondingly higher wages. This placed pressure on less productive firms to modernise or exit while increasing the resources available for investment in more productive ones. Spending on labour market-related policies increased from 1.1% of the state budget in 1955 to around 3.7% in 1960.

The tax system created strong incentives for reinvestment. From 1955, firms could place 40% of reported profits into special investment funds, reducing their taxable income. The government could release these funds to finance investment during downturns and could influence the purposes for which they were used, including regional development. The system was initially designed as a countercyclical instrument, but it also had an industrial policy function. It formed part of a wider bargain in which organised labour accepted high profits in productive firms so long as they were reinvested rather than distributed to shareholders (although the resulting concentration of profits in highly productive firms later became politically contentious and led to the proposal for employee funds in the 1970s).

The postwar commitment to low interest rates generated very strong demand for credit. Because the Riksbank could not rely primarily on interest rates to restrain demand, it used cash reserve requirements, lending ceilings and other administrative controls over bank lending. From 1951, new corporate bond issues required Riksbank approval, and from 1952 liquidity quotas were used to direct commercial bank funds towards government securities and housing mortgage bonds. The AP pension fund system, launched in 1960, became a major purchaser of public, housing, and industrial bonds and helped finance the rapid expansion of housing construction.⁸

Public companies also helped shape particular technologies. Public utilities acted as both customers and partners. Televerket maintained a privileged relationship with Ericsson, while Vattenfall, the state-owned energy company, worked closely with ASEA (which merged into ABB). These relationships gave private firms access to public demand, technical expertise and infrastructure on which new capabilities could be developed.

Across the postwar decades, public investment formed an important part of the wider effort to rebuild and modernise European economies, financing transport, energy and other infrastructure on which industry depended.

United Kingdom

The Attlee government attempted to adapt the extensive wartime apparatus of economic controls to peacetime reconstruction, retaining import and price controls, building licences and controls over the volume and direction of capital investment. From 1947, the Central Economic Planning Staff and the Investment Programmes Committee reviewed departmental investment plans and matched them against the labour, materials and foreign exchange likely to be available. The Economic Planning Board brought senior officials together with representatives nominated by employers’ organisations and the Trades Union Congress.

Britain nationalised coal, railways, electricity, gas and other industries after the war. By 1951, public corporations accounted for almost one fifth of gross fixed capital formation. Public ownership gave the state substantial influence over investment in energy, transport and basic industry, although it did not by itself create a durable system for coordinating investment across industries and connecting it to wider national priorities. As shortages eased during the 1950s, many direct controls were removed and the planning apparatus lost influence. Public ownership remained extensive, but subsequent governments increasingly relied on fiscal and monetary policy to manage demand.

From the early 1960s, successive governments attempted to construct institutions that could improve information pooling and better coordinate economic decisions and production. The National Economic Development Office, created in 1962, and its industry-level Economic Development Committees brought together officials, employers, trade unionists and outside experts to discuss the future of particular industries. The Department of Economic Affairs subsequently prepared the National Plan, which sought to raise national output by 25% between 1964 and 1970. The Industrial Reorganisation Corporation, established in 1966 with an overall financing ceiling of £150 million, could make loans, take equity stakes and support mergers or investments intended to modernise British industry.⁹

Britain therefore did not lack consultative bodies, industrial expertise or programmes for restructuring, but their effectiveness was more limited. The Trades Union Congress had limited control over its affiliated unions, while the principal employers’ organisations could not guarantee the participation of their member companies. The government also lacked the instruments to direct credit towards agreed priorities. When external deficits forced fiscal consolidation, the National Plan’s already ambitious projections became untenable. Britain had created many of the formal institutions for state planning and coordination, but without the authority, financial instruments or power needed to carry out agreed priorities.

The American challenge and European cooperation

National planning and industrial policy operated within increasingly open European economies. Trade liberalisation through the OEEC, the European Payments Union and later the European Economic Community (EEC) reduced barriers and expanded the markets available to European firms. Among the six EEC members, the share of exports sold within the Community rose from around 37% in 1960 to more than 50% in 1970. Greater exposure to European competition also increased pressure on protected firms to modernise. National planning and industrial policy developed alongside market integration. By the mid-1960s, however, the growing scale of American firms and technological competition revealed constraints that could no longer easily be addressed within national markets.

After 1957, every founding EEC member increased the share of exports directed towards other Community members. National reconstruction and industrial policy thus developed alongside expanding intra-European trade.

A 1965 memorandum by the Union of Industrial and Employers’ Confederations of Europe counted 306 US companies among the world’s 500 largest against 33 West German and 25 French firms. General Motors recorded turnover of $14.64 billion. Volkswagen reached $1.6 billion, Fiat $1.26 billion and Renault $750 million. US companies enjoyed particular advantages in aerospace, computers and electronics. American firms benefited from a large domestic market, extensive military and space procurement, a competitive civil aviation market and a financial system that supplied capital to new and expanding technology firms.

The Treaty of Rome contained no explicit mandate for a common industrial or technology policy, and most programmes remained under national control. During the first half of 1965, France proposed a common European company statute to facilitate cross-border mergers and the coordination of national policies for scientific and technical research. Work on these proposals was interrupted by de Gaulle’s Empty Chair crisis, which began when France withdrew from Council negotiations in July 1965 amid disputes over financing for the Common Agricultural Policy, greater power for Community institutions and the extension of qualified majority voting.

Concern about the American challenge gained wider public prominence in 1967 with Jean-Jacques Servan-Schreiber’s The American Challenge, in which he argued that countering the United States required developing comparable capabilities at the European level, deeper supranational integration and common industrial policies. The Commission’s industrial policy memorandum of 4 July 1967 organised the emerging agenda around completion of the common market, removal of legal and fiscal obstacles to cross-border corporate integration, a common science and technology policy, and sectoral policies. The 1970 Colonna Report retained these priorities and gave greater attention to public procurement in aircraft, space and computers in particular.

Member states agreed more readily on the existence of the problem than on the institutions required to address it. In the debate over the Colonna Report, France supported the report’s general approach but favoured intergovernmental cooperation. West Germany placed greater emphasis on competition policy, while Italy prioritised regional policy. The proposed European company statute became entangled in disputes over the role of German co-determination and whether British and subsidiaries of American firms could qualify as European. Common programmes were also constrained by the principle of juste retour, under which each country sought employment and investment corresponding to its financial contribution. Building common policies therefore proved much more difficult than removing obstacles to trade.

European industrial development proceeded through overlapping forms. Member states made more progress when cooperation was organised around a concrete project. The Franco-German agreement to develop the A300 was signed in 1969, and Airbus Industrie was formally established in 1970 by SNIAS, later renamed Aérospatiale, and Deutsche Airbus. The consortium pooled firms, public finance and technological capabilities in a sector where the development costs and required production scale exceeded what most national markets could support independently. Later cases, including the emergence of ASML with both Dutch and EU support, would demonstrate other ways of building technological capabilities.

European governments continued to pursue several large cross-border projects, including many that did not pan out (e.g. Unidata), while the EEC advanced proposals to deepen market integration, facilitate cross-border consolidation, coordinate research and develop sectoral policies. At the national level too, ASML emerged from a lithography project that Philips was struggling to sustain. Dutch support helped move the project into a new company with ASM International, and it has also benefited from European collaborative research frameworks backed by the European Commission.

Industrial policy today requires institutions that can learn and coordinate better

A lot of the economic debate has focused more on whether industrial policy should be used than on how it should be implemented. Governments should recover the institutional capacity for more deliberate economic planning under present conditions. This is particularly important for industries where investment and coordination decisions are interdependent, involve several public and private actors, and extend over long periods of time, including in automobiles and batteries, semiconductors and AI, and defence and critical materials. The same applies to the green transition, which cuts across sectors and policy areas.

What is lacking is an overarching strategy connecting these sectors to the different policy instruments and levels of government responsible for their execution. This weakness extends from policy coordination through implementation and financing. Governments need institutions able to build sector-specific knowledge, coordinate across government bodies and with the private sector, and adjust policy through experimentation and feedback. Postwar indicative planning offers useful examples of institutions that used to do exactly this. Much of that institutional capacity has since eroded.

European industrial policy remains divided among separate funding programmes, regulations and national initiatives, with too little connection between strategic priorities and their implementation.¹⁰ A more deliberate approach would identify sectors and technologies of strategic interest and develop strategies that bring together state aid, trade policy, financing and regulation at different levels. Diane Coyle describes the broader institutional task as forward-looking economic planning, in which market analysis and technology foresight inform strategic policy design.¹¹

Such an effort will depend on institutions capable of acting together on a European scale. Agreed priorities must be accompanied by plans that state the objective, establish the authority responsible for carrying it through and ensure that the necessary finance is available. Public authorities would have to bring the relevant instruments into some coherent relation, assign responsibility for their use and subject the resulting measures to continuing scrutiny. Such an arrangement would work best if it were centred on an institution with a clear mandate, a permanent and technically competent staff, and sufficient authority to acquire detailed knowledge of particular industries and to bring together the European and national bodies on which implementation would depend. It would also need real authority. Coordination without control over finance, procurement or the conditions under which public support is provided would depend on the willing cooperation of institutions and firms whose purposes and interests would not necessarily coincide.

The integrated European market creates a functional case for centralising some of these functions at EU level. Long-term industrial strategies require substantial financial resources and coordination across policy instruments whose effects extend beyond national borders. Other functions, by their nature, will remain more appropriately exercised by national or regional authorities. European coordination will be all the more important to integrate different national strategies, align investment across borders and finance European public goods through common EU resources, delivered either directly by European institutions or through national authorities. Governments will also have to make deliberate use of public expenditure and procurement to influence the direction of investment, impose conditions on the support they provide, take equity positions where ownership gives the public authorities a useful measure of control, and maintain or create public enterprises where private investment cannot be relied upon to serve strategic purposes.

Western European governments used to have a bigger machinery for planning and coordinating economic activity than governments do today. Planning bodies, public enterprises, development banks, credit controls and public procurement allowed governments to connect industrial priorities to finance, investment and implementation. These policies cannot simply be recreated today. Many were built for economies with regulated credit, tighter controls over capital movements, greater public ownership of industry, assets, and enterprises, and for the particular demands of the postwar economy.

It nevertheless shows that industrial transformation depended on considerably more than markets, subsidies or choosing champions. It required large and sustained investment and, in many cases, deliberate coordination by the state, together with the provision of the infrastructure and skills on which industrial development depended.

European market integration, in turn, expanded the opportunities available to firms, encouraged specialisation and increased competitive pressures by forcing domestic firms to contend with a continent-wide single market. By the mid-1960s and 1970s, American and Japanese competition started to expose problems that national markets could not easily address. European governments agreed on the challenge but struggled to create common policies. How this changed after the crises of the 1970s is the subject of the second article.

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Disclaimer: The opinions and analyses expressed here are solely my own and do not represent the views or positions of my employer or any institution I am affiliated with. All content is written in a personal capacity and is unrelated to my ongoing professional work.

1. Donato Di Carlo, Kathleen R. McNamara, and Manuela Moschella, “The New Politics of EU Industrial Policy: From the Regulatory State to a Transformational State,” Governance, (2026). https://onlinelibrary.wiley.com/doi/full/10.1111/gove.70133

2. Just as an example, after abolishing capital controls in 1979, the Thatcher government dismantled the administrative machinery that operated them, and most Exchange Control case files were subsequently destroyed.

3. Dani Rodrik, “Industrial Policy for the Twenty-First Century,” KSG Faculty Research Working Paper Series, no. RWP04-047 (Harvard University, November 2004), https://www.hks.harvard.edu/publications/industrial-policy-twenty-first-century

4. Barry Eichengreen, The European Economy since 1945: Coordinated Capitalism and Beyond (Princeton University Press, 2007)

5. Eric Monnet, “Controlling Credit: Central Banking and the Planned Economy in Postwar France, 1948–1973.“ (Cambridge University Press, 2018)

6. Elie Cohen, “Industrial Policies in France: The Old and the New,” Journal of Industry, Competition and Trade (2007). https://link.springer.com/article/10.1007/s10842-007-0024-8

7. Christian Grabas, "Industrial policy in Italy between boom and crisis, 1950-1975," in Grabas and Nützenadel, eds., Industrial Policy in Europe after 1945, pp. 146-153.

8. Sveriges Riksbank. “Money and Power: The History of Sveriges Riksbank.” (Sveriges Riksbank in cooperation with Atlantis, 2009), https://www.riksbank.se/globalassets/media/riksbanken-350-ar/tidslinjen/regleringstiden/323-396-era-of-regulation_eng.pdf

9. Martin Chick, “The state and industrial policy in Britain, 1950–1974,” in Industrial Policy in Europe after 1945.

10. Philipp Jäger and Nils Redeker, “Delivering on Draghi: How to Finally Get Real about the EU’s Clean Industrial Strategy,” Policy Brief (2025). https://www.delorscentre.eu/en/publications/detail/publication/delivering-on-draghi

11. Diane Coyle, “The Relationship Between Competition Policy and Industrial Policy in an Era of Structural Change,” Intereconomics (2025). https://www.intereconomics.eu/contents/year/2025/number/4/article/the-relationship-between-competition-policy-and-industrial-policy-in-an-era-of-structural-change.html