Christos has suggested this week’s topic: Do we need an “Industrial policy” in the 21st century and if so, what are the instrument that should be employed?
Back in 2004, Dani Rodrik starts his excellent piece on the need for industrial policy in the 21st century with a ‘plague on both your houses’ sentiment: “Once upon a time, economists believed the developing world was full of market failures, and the only way in which poor countries could escape from their poverty traps was through forceful government interventions. Then there came a time when economists started to believe government failure was by far the bigger evil, and that the best thing that government could do was to give up any pretense of steering the economy. Reality has not been kind to either set of expectations.” He argues instead for an ‘intelligent intermediate stand between the two extremes” . This call for moderation almost sounds quaint in a Trump/Corbyn era. Indeed, just this week Boris Johnson cited changing state aid rules as a major benefit on leaving the EU since it would allow the UK to prop up certain sectors, which is currently prohibited by EU rules.
Bloom, van Reenen and Williams (2019) walk us through a range of possible approaches in the policy toolkit from Direct R&D grants and Patent boxes to encouraging skilled immigration, various support mechanisms for universities, trade and competition policies, Intellectual property reform and mission-oriented policies. They then assess these different approaches based on the quality of the evidence, the conclusiveness of evidence, an assessment of the net benefits, time frame and effect on inequality.
- For a country of your choice, how effective do you think industrial policy has been? Is more needed? or less?
- What would be the best approaches to pursue?
- Which of the approaches decribed in Bloom et al do you find the most compelling?