Industrial Policies and Political Democracy
Europe has a long tradition in activist industrial policies aimed at identifying and at stimulating industrial sectors and firms which are deemed to be important by policy makers. The instruments used in these industrial targeting programs are vast. Credit policies, subsidies of all kind, protection from outside competitors, procurement policies, nationalizations of ‘strategic’ industries have been used to create and sustain ‘national champions’.
KeywordsForeign Firm Industrial Policy Domestic Firm Trade Theorist Export Subsidy
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- 1.For some evidence see H. Ergas, Does Technology Policy Matter?, CEPS Papers, Centre for European Policy Studies, Brussels, 1986.Google Scholar
- 2.E. Helpman and P. Krugman, Market Structure and Foreign Trade, MIT Press, 1985.Google Scholar
- 4.The argument was developed and formalized by J.A. Brander and B.J. Spencer, ‘Export Subsidies and International Market Share Rivalry’, Journal of International Economics, 1984. See also chapter 2 in Strategic Trade Policy and the New International Economics, P. Krugman, ed., MIT, 1986.Google Scholar
- 5.P. Krugman, ‘Import Protection as Export Promotion’, in H. Kierzkowski, ed., Monopolistic Competition and International Trade, Oxford University Press, 1984.Google Scholar
- 8.There is some dispute about this success, however. See P. Krugman, ‘Targeted Industrial Policies: Theory and Empirical Evidence’, in: Federal Reserve Bank of Kansas City, Industrial Change and Public Policy, 1983.Google Scholar
- See also H. Patrick and H. Rosovsky, eds, Asia’s New Giant, Brookings Institution, Washington, D.C., 1976. There is, however, very little dispute over the fact that Japanese institutions like MITI have found it much more difficult to follow successful policies of industrial targeting during the 1970s and 1980s than during the previous two decades.Google Scholar
- See K. Yamamura, ‘Caveat Emptor: The Industrial Policy of Japan’ in P. Krugman, ed., Strategic Trade Policy and the New International Economics, MIT Press, 1986.Google Scholar
- 10.These problems of X-inefficiency are also observed in sectors which enjoy import protection. It has been observed, for example, in the US steel industry. Protection has allowed US steelworkers to raise domestic wages faster than in the rest of the US industrial sector. See C. Lawrence and R. Lawrence, ‘Manufacturing Wage Dispersion, An End Game Interpretation’, Brookings Papers on Economic Activity, No. 1, 1985.Google Scholar