The Difficult Return of Industrial Policy
Strategies for national economic resilience, also known as industrial policy, are “all the rage around the world”, according to the former chief economist of the Bank of England, Andy Haldane.
In this sweeping essay, The Difficult Return of Industrial Policy, industrial policy expert Robert Wade explains why we are experiencing this renaissance in initiatives that aim to change the make-up of the economy, promoting strategic industries rather than trusting entirely to market forces.
Several forces are at work, as Wade – a professor of global political economy at the London School of Economics – sets out. First, state-subsidised Chinese exports have eroded the manufacturing base of most western economies. Second, recent shocks, including wars in Ukraine and the Middle East, have exposed the fragility of global supply chains. Third, rising geo-political tensions have prompted some states to use those supply chains as weapons of leverage.
The essay looks at national economic resilience policies in China, the US and the EU, and their cautious return to acceptability in the IMF and World Bank. But it also considers some of the potential pitfalls of industrial policy, including patronage and rent-seeking. The essay outlines how public bodies can get close enough to the private sector that they can understand what it needs, but without being captured.
There is much about the return of industrial policy that is difficult and uncertain, Wade notes. Hence the title of his essay. But given the prevailing zeitgeist of zero-sum relations between states, now amplified by AI, a state which does not do industrial policy is likely to experience lower economic growth and geopolitical marginalisation.
