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Industrial Policy: A Dying Breed or A Re-emerging Phoenix

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Abstract

Real world industrial policy is often poorly designed and always heavily opposed. Good intentions are overshadowed by bad outcomes. However, no commonly accepted definition exists; concepts differ across nations, regions, stage of development and over time. After switching from the sectoral to the horizontal approach—and facing never ending problems with targeting, large projects and specific technologies—industrial policy seemed to phase out at the end of the last century. Recently, interest has re-emerged, due to globalisation, outsourcing, low growth and high unemployment (specifically in Europe). We present evidence on past strategies and the performances of various concepts. We describe the new “matrix approach to industrial policy” developed by the European Commission. Finally, we venture to define elements of a “Systemic Industrial Policy”. This new type of industrial policy differs decisively from policies of the past, and has been receiving an impetus from the EU “Lisbon Strategy”, as well as from the rise of China and the new EU member countries. It is the complementary policy to globalisation, increasing its benefits and empowering and retraining potential losers. Systemic Industrial Policy supports basic education, training and entrepreneurship in developing countries, promotes FDI and exports in catching-up economies and merges with innovation strategies, cluster policy and dynamic competitiveness in high income countries. It goes beyond combating market failures, as it builds on economic laws, comparative and competitive advantages and changing specialisation patterns. It acknowledges limited knowledge of policy makers, mutual learning and co-operation between firms, institutions and government.

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Notes

  1. For references on country specific industrial policy see Aiginger (1995, 1996), Brösse (1996), Cohen (1992), Cohen and Lorenzi (2000), Gurbaxani (2000), Holmes and Seabright (2000), Ketels (2005, 2006), Krugman and Hatsopoulos (1987), Lindbeck (1981), Ministry of Economy, Trade and Industry (2004), Monopolkommission (2004), Palmberg and Martikainen (2005), Starbatty (2004) and Yoshida (2004).

  2. Broad overviews on industrial policy are available in Aiginger and Sieber (2006), Aiginger et al. (1998, 2001), Bailey and Cowling (2005), Gordon (2002), Jacquemin (1975), Maincent and Navarro (2006), Navarro (2003), Neven and Seabright (1995), Rodrik et al. (2004) and Tichy (2004).

  3. The sector “manufacturing” is increasingly being interpreted in a wider sense, including business services, and sometimes intangible and tangible infrastructure relevant to producers. Specifically in the US industrial policy had never been confined to the sector of manufacturing.

  4. However, nominal shares seem appropriate, since they measure factor incomes generated.

  5. This is done for example in the Netherlands. The Ministry of Economic Affairs cited in its “Industry Memorandum” a study by Schenk-Theeuwes (2002) which states that “the ‘ripple effect’ emanating from the manufacturing industry onto financial and business services in the Netherlands was three times as high in the late 1990s as in the 1970s.”

  6. The “failure of co-ordination” argument for industrial policy is that many projects require the viability of simultaneous investment, but the investment decisions are made by independent agents.

  7. “Industrial policy is a discovery process..... where firms and government learn about costs and opportunities and engage in strategic coordination; government has imperfect information, so does the private sector.” (Rodrik 2004)

  8. For a sceptical summary of the rationales for industry policy see Pack and Saggi (2006, p. 267): “Overall there appears to be little empirical support for an activist government policy even though market failures exist, that can in principle justify the use of industrial policy.”

  9. Research strategies to provide an empirical evaluation of industrial policy are reported in Noland and Pack (2003).

  10. “Administrative regulation” is measured by such indicators as licence and permits systems, administrative burdens for corporations, public ownership of firms or sector specific administrative burdens. “Economic regulation” refers to the scope and size of the public enterprise sector, the degree of direct control over business enterprises, and the existence of legal barriers or antitrust exemptions (OECD 2005).

  11. See below; the term “matrix type approach” was proposed by Aiginger and Sieber (2005).

  12. Available at http://www.rieti.go.jp/en/events/bbl/04070101.pdf

  13. For more documents on industrial policy of the EU see European Commission (1970, 1990, 2001, 2003A, 2003B) and Grilo and Koopman (2006).

  14. The communiqué “Industrial policy in an enlarged Europe” (European Commission 2002B) is the basis of a new policy design. The communiqué “Fostering structural change: an industrial policy for an enlarged Europe”, European Commission(2004A, B, C) calls for action in three areas: a better regulatory environment for business, better mobilisation of all EU policy, further work on individual sectors to match specific need. European Commission (2005A, B) proposes a new sector taxonomy (which we call the matrix taxonomy).

  15. Genetically modified organism.

  16. For an overview of the French approach, see Alcouffe (2005) or Cohen (2005). Outstanding examples of the “French approach” are Airbus, Concorde, Minitel, HDTV, and TGV. Often, supporting the space industry and energy is also project-oriented, or follows a specific strategy with a strong top–down component.

  17. For a recent assessment of the matrix type industrial policy by the European Commission see European Commission (2007).

  18. Trying to be the most “competitive knowledge-based economy” with regard to cohesion, and social and ecological responsibilities, as stated as a Lisbon target of the EU, is a specific version of this concept of competitiveness.

  19. VGMES = Global Monitoring for Environment and Security.

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Acknowledgement

The author acknowledges the research assistance of Dagmar Guttmann. I am grateful to Susanne Sieber (my co-author in previous studies in this research field), and also for critical comments from Martin Falk, Klaus Friesenbichler, Werner Hölzl, Christian Ketels, Michael Peneder and Gunther Tichy.

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    Karl Aiginger

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Table 7 Definitions of industrial policy
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Aiginger, K. Industrial Policy: A Dying Breed or A Re-emerging Phoenix. J Ind Compet Trade 7, 297–323 (2007). https://doi.org/10.1007/s10842-007-0025-7

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