The return of industrial policy? It never really went away

Recent developments in the US under the Biden Administration, as well the recognition of economic gaps in the wake of Covid-19 across the developed world, have slowly returned the previously exiled (and reviled!) term of “industrial policy” back into the broader public discourse. Governments and parties on both the left and right are increasingly implicitly or explicitly calling for a more active role of “The State” in economic development to address economic challenges. This was most clearly seen in efforts to increase Covid-19 vaccine production capacity in many developed countries.

But the actions of the Biden Administration have perhaps been the most demonstrable example that a change is at hand. Recent legislation has promised to restore the US’ industrial capacity in semiconductors. Legislation related to electric vehicles demonstrates that a laissez-faire approach to the auto sector is no longer acceptable when confronting the twin issues of climate change and China’s industrial might in this industry.

But despite this growing attention, it must be said that industrial policy never went away. What’s the proof?

  • Authors, most notably Dani Rodrik and Ha-Joon Chang, have written extensively about industrial policy. There are many other scholars and authors that have too, but perhaps not to the same notoriety as Rodrik and Chang.
  • Neoclassical/neoliberal organizations like the Organisation for Economic Co-operation and Development (OECD) have written about industrial policy off and on for years. Normally, their publications correlated with recessions (think 2008 Global Financial Crisis and the initial phases of the Covid recession in 2020).
  • Perhaps most critical, the success of the Chinese economy, especially after its succession to the World Trade Organization, demonstrated that the developmental state model/industrial policy approach was worthy of study. Any investigation of the Chinese growth model indirectly is a study of industrial policy.

Last, but not least, one can argue that industrial policy never really went away, but only had a toxic brand. As will be explored in a future post, if industrial policy is defined as horizontal or vertical policy interventions by governments to affect the industrial composition and outcomes of an economy, all governments engage in industrial policy! Even the most non-interventionist, laissez-faire government claiming to use a hands-off approach to economic growth is probably using a few industrial policy instruments like tax or regulatory reform. While some may find this argument a cop-out, I think it reasonable. The question is not “industrial policy: yes/no?”. A better question is “what kind of industrial policy does this jurisdiction want?”

That is what this blog will hope to explore!

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