The Economist has been debating industrial policy. Well, sort of. They were debating the proposition, "This house believes that industrial policy always fails." I'm not sure that's how opponents of industrial policy would put it. It would be something more like, "On balance, industrial policy is a bad idea."
But anyway, Dani Rodrik took the pro-industrial policy position, and Josh Lerner of Harvard Business School opposed it.
I thought this point by Rodrik was interesting:
... Governments engage in industrial policy all the time even when they do not call it such. A pernicious side effect of economists' knee-jerk opposition to industrial policy is that governments do not get the benefit of what economists have to contribute to the design of such policies.
Today America is engaged in what is perhaps the largest industrial policy effort in history, spending tens of billions of dollars to stimulate innovative green technologies—without the benefit of our hypothetical debate. Yet because "industrial policy" is such a taboo in polite economic discourse in America, this is done surreptitiously and with little contribution from economists. The programmes end up being designed and run by lawyers and engineers.
It has always struck me that while there is a good deal of rhetoric in the public sphere about how industrial policy is bad, governments do all kinds of things that look a lot like industrial policy. With regard to the "green technologies" that Rodrik refers to, isn't every major government providing high levels of support? It seems to me that the theoretical discussions of whether industrial policy is a good idea don't match up very well with the reality of its use.
Along these same lines, Robert Wade recently wrote that "the mainstream view among western (particularly American and British) economists" is that there is a "need for limited government in all economies, including low-income countries seeking to rise up the world income scale." Two points occur to me. First, maybe the frustration of people like Rodrik and Wade is not that industrial policy is not being used, but rather that is not widely accepted by their economist peers. And second, part of their concern may be about the way industrial policy is carried out, with half-measures and without their participation.
