The Economist -- On Industrial Policy

The Economics Focus section of The Economist issue of October 1, 2011 focuses on new views toward industrial policy. I quote:

The idea of government intervention to influence the composition of a country’s output has long been derided by economists for breeding inefficiency, reducing competition, encouraging lobbying and saddling countries with factories producing products nobody wants. But in the aftermath of the crisis, industrial policy has gathered some vocal champions. 

Justin Lin, the chief economist of the World Bank, believes that policies of this sort are a useful way for governments in developing countries to speed up structural transformation. Dani Rodrik of Harvard’s Kennedy School of Government reckons that Chinese rules requiring a significant chunk of intermediate goods (ie, inputs used to make other goods) to be locally produced helped the growth of supplier industries. He also believes that export incentives aided Chinese companies in gaining a foothold in competitive global markets, and credits active industrial policy with much of China’s recent success.

The article cites these references:

* “Industrial Policy and Competition”, by Philippe Aghion, Mathias Dewatripont, Luosha Du, Ann Harrison and Patrick Legros, Working paper, June 2011

* “The Environment and Directed Technical Change”, by Daron Acemoglu, Philippe Aghion, Leonardo Bursztyn and David Hemous, forthcoming in the American Economic Review

* “The Return of Industrial Policy”, by Dani Rodrik, April 2010

The article concludes that really good economists using good data might produce some industrial policies that will increase innovation and competitiveness in the right situations. One wonders how many countries have those good economists or if they do have them will listen to them. I think the lack of good policy advisers is especially acute in developing nations, and indeed I suspect that in many developing nations there is little ability to choose good economic advisers even if there were will to do so and to use their advice.