Thursday, May 13, 2010

industrial policy in the 21st century

I just saw this piece by Harvard development economist and former blogger Dani Rodrik on industrial policy in the U.S. It's interesting, though he could have gone much deeper with the history -- especially since most people start their timelines for state intervention in the U.S. economy at around t=1932 and go from there. And even in that story, things break down by around t=1972 and we apparently go back to minimal state intervention. So culling examples from 1950s-era economic history isn't very persuasive.

He also could have been more consistent in his policy proposals. For example, this:
Second, industrial policy needs to rely on both carrots and sticks. Given its risks and the gap between its social and private benefits, innovation requires rents – returns above what competitive markets provide. That is why all countries have a patent system. But open-ended incentives have their own costs: they can raise consumer prices and bottle up resources in unproductive activities. That is why patents expire. The same principle needs to apply to all government efforts to spawn new industries. Government incentives need to be temporary and based on performance.
Doesn't line up with his discussion of subsidies and other more forceful examples of state aid in other countries and in other "development miracles". State-funded industry doesn't sound like a passive game of carrots and sticks; it sounds more like an active role of wealth redistribution. Also, there has been some interesting work done by Naomi Lamoreaux on the lack of necessity of secure private property rights in economic development.

The full article (definitely worth checking out) can be found here

1 comment:

  1. it is definitely inconsistent to first offer monopoly profits to innovative firms as carrot at the expense of consumers and right after that paragraph to say that the whole purpose of industrial policy should be 'to serve society at large'. Interesting...

    "Third, industrial policy’s practitioners need to bear in mind that it aims to serve society at large,not the bureaucrats who administer it or the businesses that receive the incentives. To guard against abuse and capture, industrial policy needs be carried out in a transparent and accountable manner, and its processes must be open to new entrants as well as incumbents."