Economic Nationalism Dies Hard: How Political Forces Are Resurrecting "Industrial Policy"

By Leipziger, Danny | Harvard International Review, Summer 2010 | Go to article overview

Economic Nationalism Dies Hard: How Political Forces Are Resurrecting "Industrial Policy"


Leipziger, Danny, Harvard International Review


The term industrial policy has gone through many phases. First identified with trade protection in Latin America and later seen as the instrument propelling East Asian economies to success, it has either been reviled or espoused depending on time, place, and country circumstance. What seems new, however, is the increasing acceptance of industrial policies as a central element of the rich countries' policy arsenal and the prospect that this will become the norm. Government actions during the recent global economic crisis may well make public intervention a permanent feature of future policy. What has prompted this change in thinking?

The crisis brought home to many governments the fact that their citizenry is unimpressed by discussions of market volatility. Citizens want governments to take responsibility for maintaining jobs and preventing prolonged economic distress. To do this will increasingly move governments to protect their industries and set out new strategic directions. This charge, long-recognized in East Asia, may be new to some market economies and complicated to implement in a system ordered around global rules that stress open trade and capital markets. Nevertheless, governments that are seen as unresponsive to these public demands will pay a steep political price.

As a result, governments on both sides of the Atlantic are now increasingly skeptical that pure market outcomes are in the national interest. Expected to protect their industries and jobs at home, governments will as a result increasingly use regulation, procurement rules, national banks and other means in defense of the national interest. The more one nation does this, the likelier the others will as well. The next step will inevitably be to identify market opportunities and foster them with public support. This becomes more likely because the recent global crisis has destroyed economic wealth and made long-term growth more precarious. Understandably, governments will be expected to do something about it.

The challenge facing governments is made more difficult by the reluctance of high-saving nations to reduce their trade surpluses and, in the case of some, a stubbornness to revalue clearly undervalued currencies. Slower global growth fuels a lack of confidence in the open trading system that helped drive world growth over past decades. In a worrisome trend, strong commitment to the open system is fading, and this trend can be clearly linked to greater interest by many nations in pursuing national economic objectives using industrial policy. …

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Economic Nationalism Dies Hard: How Political Forces Are Resurrecting "Industrial Policy"
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