Rethinking industrial policy
In this paper, Juhász et al. review the most recent research on industrial policies and highlight the new empirical approaches to measurement, causal inference, and economic structure. Some of their conclusions:
- “We argue that there is a generic and powerful economic case for industrial policy and that the usual critiques rely on practical rather than principled objections. In light of this, the authors argue that the debate on industrial policy in economics should not focus on the “whether” (“should governments carry out industrial policy?”) but on the “how” (“how should industrial policy be carried out?).”
- It is no longer appropriate to identify industrial policy with inward-looking, protectionist trade policies as contemporary industrial policies typically target outward orientation and export promotion.
- Industrial policy has been ubiquitous and its prevalence predates the recent rise in its use and prominence in public discussions. It appears advanced economies are heavier users of industrial policies than developing countries.
- Recent research on East Asia’s industrial transformation, which uses disaggregated data and pays careful attention to the diversity of policies, shows a more nuanced picture: certain types of industrial policy were actually powerful in driving structural change in countries such as Japan, South Korea, and China.
[W]e suggest that successful industrial policy often uses a broader range of policies that can be more effective than the classic instrument of subsidies (or of trade policy). These include, importantly, customized public services and inputs that are tailored to firms’ needs and target specific obstacles to productivity enhancing investments. Third, we argue that employment de-industrialization will necessarily reshape the practice of industrial policy, as manufacturing continues to employ fewer workers (relative to the rest of the economy). Policy makers will have to pay more attention to productivity in services, and come up with “industrial” policies that are more suited to services.
The New Economics of Industrial Policy
Authors: Réka Juhász, Nathan Lane, Dani Rodrik
From: University of British Columbia, University of Oxford, Harvard University
