The article discusses the rise of government intervention in markets by means of industrial policy. Several examples are cited, including a French toymaker, the U.S. government's intervention with automobile and bank bailouts and European involvement in knowledge industries. It is noted that while poorer countries often use industrial policy to help protect nascent industries and to foster growth in certain target sectors, this is not always the case in the West. In recent years, however, industrial policy has enjoyed something of a comeback in the West as well.
For politicians, industrial policy is risky. Some examples have proven successful, while others have proven abject failures that cost significant amounts of taxpayer money. The tradeoff is that some industries are more valuable than others, with respect to either foreign direct investment, jobs or other desirable outcomes for the government. It is noted that while in developing nations industrial policy may be used to support young industries and help them grow, in the West industrial policy often results in the government supporting an industry that is now struggling. Several American cases are cited.
China is discussed in the article as well, as a country that has strong government intervention in many industries. In some "pillar" industries, China's policies have been highly successful but in others it has been an expensive failure. The China example...
There have been some failures -- Spain's support of solar power is one cited -- and further risks of industrial policy are cited in this section. The issue of electric cars arises, where there is a sense that government intervention of behalf of a handful of firms developing electric cars is stifling innovation in that industry by distorting the venture capital market.
The article concludes by noting that there are often other reasons beyond economics for industrial policy. In many cases the industry in question is considered to be of strategic importance, and that is the reason for support from government. Boeing was cited earlier in the report as an example of this -- propped up by substantial government contracts for its defense business in order to maintain a strong national aircraft developer in the United States.
Works Cited:
Investopedia. (2011). Economics basics: monopolies, oligopolies, and perfect competition. Investopedia. Retrieved January 29, 2012 from http://www.investopedia.com/university/economics/economics6.asp#axzz1kmQexa4w
The Economist. (2010). Picking winners, saving losers. The Economist. Retrieved January 29, 2012 from http://www.economist.com/node/16741043
