Industrial Policy Reconsidered

Brazilian Lessons for Industrial Policy

Industrial Policy Returns from the Grave

Industrial policy failed miserably in the 1970 s and 1980 s.

Vertical industrial policy, horizontal industrial policy, investment in education all have been tried in the last ten years.

But even in the US, industrial policy is making a comeback.

Second, industrial policy needs to rely on both carrots and sticks.

In the 1980 s, advocates of industrial policy praised its extensive use in Japan.

Our research shows that industrial policy was successful in promoting a competitive bioethanol industry in Brazil.

GENEVA Industrial policy (IP) is back or rather, back in fashion.

First, industrial policy is a state of mind rather than a list of specific policies.

If these lessons are implemented, market forces can pick up where industrial policy leaves off.

Perhaps the most contentious area of industrial policy is governments role in research and development.

Such an approach does not contradict multilateral trading system rules, which provide ample scope for industrial policy.

A 10 year industrial policy program called Pro álcool was crucial in the development of the industry.

PALO ALTO One of the worst responses by officials to the financial crisis and deep recession has been to revive industrial policy.

Industrial policy is appealing to politicians who can favor key constituencies while claiming to be helping the economy as a whole. But it usually does far more harm than good.

Industrial policy is appealing to politicians who can favor key constituencies while claiming to be helping the economy as a whole.

In order to enhance Brazilian industry s export competitiveness, industrial policy must support a transition to high value products and services.

And China s 12th Five Year Plan provides a clear national policy direction on energy saving, emissions reduction, and industrial development.

In fact, America s bizarre new policy is likely to remain unique among airports in the industrialized countries, if not the entire world.

We may see some compromise between European (Sarkozy style) capitalism and an authoritarian, protectionist model with a lot of industrial policy.

Industrial policy failed miserably in the 1970 s and 1980 s. Allowing governments to pick industrial winners and losers is just as bad an idea today.

But, putting such successes aside, the point of industrial policy is not to pick winners at all. Rather, successful industrial policies identify sources of positive externalities sectors where learning might generate benefits elsewhere in the economy.

But, as opponents of industrial policy are right to remind us, freebies never lead to a good outcome. The aftermath was the key.

As industrial policy returns to the scene in countries around the world, that is a goal that advocates and opponents alike should be happy to embrace.

As industrial development creates and depends upon workplaces and work processes, the current review and policy cycle of the Commission must focus closely on those issues.

The third arrow is not a traditional industrial policy based approach. On the contrary, it emphasizes reform of the labor market, deregulation, and a reduction in the corporate tax rate.

For instance, at UNIDO, three databases on industrial statistics in the INDSTAT series are maintained.

Whatever the dubious temporary merits of reviving industrial policy in a deep recession, governments need an exit strategy before the programs become permanently entrenched and develop powerful rent seeking constituencies.

Member states governments and the European Commission s last communication, A Stronger European Industry for Growth and Economic Recovery, display an awareness of the need to revive Europe s industrial policy.

Be prepared to let losers go. Even the most obvious choices for IP support, seemingly sure winners, will sometimes disappoint in today s uncertain economic environment.

This is ironic, because the term industrial policy is anathema in American political discourse. It is used almost exclusively to browbeat political opponents with accusations of Stalinist economic designs.

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Indeed, a debate in The Economist last year, led by professors Josh Lerner and Dani Rodrik of Harvard University, ended with 72 of voters expressing faith in the merits of IP.

Existing standards on industrial statistics have addressed industrial activities in terms of the creation of economic value added.

Policymakers must recognize that the Chinese model includes features peculiar to its gradual introduction of market mechanisms which, compared to IP s new converts, represents a move in the opposite ideological direction.

It could promote its industries through high tariffs, explicit subsidies, domestic content requirements on foreign firms, investment incentives, and many other forms of industrial policy.

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Its industrial base lies shattered.

Industrial policy is back.