Rethinking industrial policy

Abstract

Industrial policy has a bad name - ‘picking winners’ and thus distorting competition, while exposing government to capture by vested interests. But there are reasons for a rethink. First, climate change - without government intervention to jump-start massive private investment in clean technologies, governments, by default, encourage investment in dirtier technologies. Second, a new post-crisis realism - laissez-faire complacency by many governments has led to mis-investment in the non-tradable sector at the expense of growth-rich tradables. Third, China – and some other emerging economies – are big deployers of growth-enhancing sectoral policies. The challenge for Europe is how it can design and govern sectoral policies that are competition-friendly and thus growth-enhancing.