The Failure of Industrial Policy
By Peter Klein • Wednesday April 11, 2012 11:59 AM PDT • 1 Comment
Beacon readers will not be surprised by Wharton Professor Howard Pack’s verdict on of industrial policy: it doesn’t work. (Perhaps surprised only that a Wharton Professor holds this view.) Pack provides a concise summary of the academic literature on Japanese industrial policy:
Knowledge@Wharton: What does the empirical evidence show? Does it show that interventionist industrial policy makes sense?
Pack: I feel the empirical evidence is pretty clearly against it. [Interventionist industrial policy assumes] that the government — government officials — know the pattern of productivity growth in various sectors, which they can’t possibly know because the participants in the sector don’t usually know, and the government can’t predict these things. We know that that’s pretty much impossible. The usual examples of good industrial policy come largely from Japan in the 1960s, 1970s and 1980s, when it was asserted that the rapid growth of the Japanese economy was attributable to government intervention helping some sectors and not others. But the empirical evidence pretty overwhelmingly shows that the sectors that were targeted positively by the Japanese government were often sunset sectors, not sunrise sectors — sectors that were declining, which political forces tried to protect....
At the same time, in the 1980s, there was a fairly widespread demand [in the U.S.] for efforts to counter a Japanese resurgence in the semiconductor industry. It was beaten back by a variety of forces, and since then ... the Japanese firms have basically had to abandon the field to either Korean firms or American firms, in this case Intel and AMD. So the evidence is pretty weak — and there has been a large amount of research on this — on whether industrial policy can be a positive force for most economies.
Unfortunately, there are continued calls for a US industrial policy, even from people like Ned Phelps who should know better.
Tags: Economics, Government subsidies 
Most government interventions in the economy,in the long run, have unintended negative consequences. One of the many examples of this is FDR’s “New Deal” legislation that helped expand and prolong the Great Depression of the 1930s. One of many excellent books on this subject is Murray Rothbard’s The Great Depression. The only people that seem to benefit,with government interfering in economic matters,are the Special Interest businesses and certain Labor Unions that are kept afloat when they should go under,also established businesses that want to keep out potential competitors and the vast army of bureaucrats that run the various government agencies. Of course,this does not mean that government has no role in economic matters(courts,stable money,consumer protection against various products,protecting the environment,and certain infrastructures that help maintain a civilized society). Finally, it is clearly evident from history that a “hands off” approach by government toward the Economy is best for the most people in a civilized society and that over regulated businesses are eventually strangled and bankrupted to the detriment of most of a nations citizens.
libertarian jerry | Apr 12, 2012 | Reply