The return of the policy that shall not be named: Principles of Industrial Policy

What a title of a research paper: The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy!

IMF economists Reda Cherif and Fuad Hasanov in this research paper:

Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.

Hmm.. Looks like a good read.

Gulzar had earlier posted that industrial policy is coming back:

The return of industrial policy gathers pace as continental European countries talk of propping up national champions in important industries.

Across the continent, politicians are seeking to influence business using a range of tactics including regulation, nudging managers to do deals and boosting state ownership. At Renault-Nissan, the downfall of Carlos Ghosn has become intertwined with a struggle for control between the French and Japanese governments (see Banyan). Last month Peter Altmaier, Germany’s economy minister, called for champions such as Siemens and Deutsche Bank to be protected. Last week it emerged that the Dutch government has built up a 14% stake in Air France-klm to help its former flag-carrier “perform better”. And Italy is poised to increase to 10% its stake in Telecom Italia, which it began privatising 21 years ago.

Like with most things, there is nothing inherently right or wrong with industrial policy. In fact, like all other policies industrial policy too is necessary and has always played a role. The challenge with industrial policy is getting it right. But that is equally relevant to market capitalist policies like in the US, where regulatory apathy and capture has led to business concentration and uncompetitive markets.
Industrial Policy has a long history. Most countries grew and developed due to some or the other application of industrial policy. Yet it has such a bad name to it. So much so the authors say return of a policy that is not to be named.
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One Response to “The return of the policy that shall not be named: Principles of Industrial Policy”

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