Industrial policy

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Industrial policy is government policy to encourage the development and growth of all or part of the economy in pursuit of some public goal.[1][2][3][4] Historically, it has often focused on the manufacturing sector, militarily important sectors, or on fostering an advantage in new technologies. The government takes measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation".[5] A country's infrastructure (including transportation, telecommunications and energy industry) is a major enabler of industrial policy.[6]

Industrial policies are

import-substitution-industrialization (ISI), where trade barriers are temporarily imposed on some key sectors, such as manufacturing.[7] By selectively protecting certain industries, these industries are given time to learn (learning by doing) and upgrade. Once competitive enough, these restrictions are lifted to expose the selected industries to the international market.[8] More contemporary industrial policies include measures such as support for linkages between firms and support for upstream technologies.[9]

Economists have debated the role of industrial policy in fostering industrialization and economic development.[1]

History

The traditional arguments for industrial policies go back as far as the 18th century. Prominent early arguments in favor of selective protection of industries were contained in the 1791

Report on the Subject of Manufactures[10] of US economist and politician Alexander Hamilton, as well as the work of German economist Friedrich List.[11] List's views on free trade were in explicit contradiction to those of Adam Smith,[12] who, in The Wealth of Nations, said that "the most advantageous method in which a landed nation can raise up artificers, manufacturers, and merchants of its own is to grant the most perfect freedom of trade to the artificers, manufacturers, and merchants of all other nations."[13]

According to NYU historians Prince & Taylor, "The relationship between government and industry in the United States has never been a simple one, and the labels used in categorizing these relationships at different times are often misleading if not false. In the early nineteenth century, for example, it is quite clear that the laissez faire label is an inappropriate one."[14][neutrality is disputed] In the US, an industrial policy was explicitly presented for the first time by the Jimmy Carter administration in August 1980, but it was subsequently dismantled with the election of Ronald Reagan the following year.[15]

Historically, there is a growing consensus that most developed countries, including United Kingdom, United States, Germany, and France, have intervened actively in their domestic economy through industrial policies.

TRIPS. Instead, the recent focus for industrial policy has shifted towards the promotion of local business clusters and the integration into global value chains.[21]

During the

George H. W. Bush administration, Socrates was labeled as industrial policy and de-funded.[22][23]

Following the

Financial Crisis of 2007–08, many countries around the world – including the US, UK, Australia, Japan and most countries of the European Union – have adopted industry policies. However contemporary industry policy generally accepts globalization as a given, and focuses less on the decline of older industries, and more on the growth of emergent industries. It often involves the government working collaboratively with industry to respond to challenges and opportunities.[24] China is a prominent case where the central and subnational governments participate in nearly all economic sectors and processes. Even though market mechanisms have gained importance, state guidance through state-directed investment and indicative planning plays a substantial role in the economy. In order to catch-up and even overtake industrialized countries technologically, China's "state activities even extend to efforts to prevent the dominance of foreign investors and technologies in areas considered to be of key significance such as the strategic industries and the new technologies"[25]
including robotics and new energy vehicles.

Criticism

Some criticize industrial policy based on the concept of

protectionist industrial policies,[27] industrial policies such as import-substitution-industrialization (ISI) have failed in many other regions such as Latin America and Sub-Saharan Africa. Governments, in making decisions with regard to electoral or personal incentives, can be captured by vested interests, leading to industrial policies supporting local rent-seeking political elites while distorting the efficient allocation of resources by market forces.[28]

Debates on process

Despite criticism, there is a consensus in recent development theory that says state interventions may be necessary when

information asymmetries. Many countries are now seeing a revival of industrial policy.[31]

One question is which kinds of industrial policy are most effective in promoting economic development. For example, economists debate whether developing countries should focus on their comparative advantage by promoting mostly resource- and labor-intensive products and services, or invest in higher-productivity industries, which may only become competitive in the longer term.[32]

Debate also surrounds the issue of whether government failures are more pervasive and severe than market failures.[33] Some argue that the lower the government accountability and capabilities, the higher the risk of political capture of industrial policies, which may be economically more harmful than existing market failures.[34]

Of particular relevance for developing countries are the conditions under which industrial policies may also contribute to poverty reduction, such as a focus on specific industries or the promotion of linkages between larger companies and smaller local enterprises.[35]

See also

References

  1. ^
    ISSN 1941-1383
    .
  2. ^ Graham 1994, p. 3.
  3. ^ Bingham 1998, p. 21.
  4. ^ Rodrik 2004, p. 2. Rodrik uses the term in a more extended fashion, such as to encompass "non-traditional activities in agriculture or services. There is no evidence that the types of market failures that call for industrial policy are located predominantly in industry".
  5. ^ UNCTAD & UNIDO 2011, p. 34.
  6. ^ For the relations between industrial policy and infrastructure, see Koh, Jae Myong (2018) Green Infrastructure Financing: Institutional Investors, PPPs and Bankable Projects, Palgrave Macmillan, pp. 12–51.
  7. ^ Krugman 1987.
  8. ^ a b Gereffi & Wyman 1990.
  9. ^ Wear, Andrew (2017-01-24). "Industry policy emerges from globalisation resurgent and more important than ever". The Mandarin. Retrieved 26 January 2017.
  10. ^ Hamilton 1827.
  11. ^ List 1909.
  12. ^ List 1909, Book III, [1].
  13. ^ Smith 1776, Book IV, Chapter 9 [2].
  14. ^ Prince & Taylor 1982, p. 283.
  15. ^ Graham 1994, p. 27.
  16. ^ Chang 2002.
  17. ^ Wade 2003.
  18. ^ Johnson 1982.
  19. ^ Kohli 2004.
  20. ^ Koh 2018, pp. 28–39.
  21. ^ Humphrey & Schmitz 2000.
  22. ^ Smith, Esther (5 May 1988). "DoD Unveils Competitive Tool: Project Socrates Offers Valuable Analysis". Washington Technology.
  23. ^ Markoff, John (10 May 1990). "Technology Official Quits At Pentagon". The New York Times. Retrieved 25 August 2012.
  24. ^ Wear, Andrew (2017-01-24). "Industry policy emerges from globalization resurgent and more important than ever". The Mandarin. Retrieved 26 January 2017.
  25. ^ Heilmann, Sebastian (2017). China's Political System. Rowman & Littlefield. p. 240. Archived from the original on 2017-04-26. Retrieved 2017-04-26.
  26. ^ See for instance, regarding the medias industries: Violaine Hacker, « Citoyenneté culturelle et politique européenne des médias : entre compétitivité et promotion des valeurs », Nations, Cultures et Entreprises en Europe, sous la direction de Gilles Rouet, Collection Local et Global, L’Harmattan, Paris, pp. 163–84
  27. ^ Amsden 1992.
  28. ^ Pack & Saggi 2006.
  29. ^ Rodrik 2009.
  30. ^ Rodrik 2004, p. 1. "Perhaps not surprisingly, this recognition is now particularly evident in those parts of the world where market-oriented reforms were taken the farthest and the disappointment about the outcomes is correspondingly the greatest – notably in Latin America".
  31. ^ "Many countries are seeing a revival of industrial policy". The Economist.
  32. ^ Lin & Chang 2009.
  33. ^ Khan 2003.
  34. ^ Kaufmann & Krause 2009.
  35. ^ Altenburg 2011.

Sources

Library resources about
Industrial policy

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