Letting large European firms grow

The EU has grown less, and has become less productive, than the US in the last twenty years. The differences are small, but a healthy ambition to do better justifies analysing the sources of this difference and how policy can affect them. This paper focuses on the pattern of specialisation of the EU economy and discusses the role of large firms in generating innovation. It documents the large US-EU gap in the ability to scale large firms and grow them into world leaders, and discusses the reasons that can be behind it, as well as what policies may change this. Focussing on industrial policy, it discusses its potential together with several reasons to be sceptical that the potential could be realised. It concludes that promoting more movement and better allocation of capital and labour within the EU are general priorities.