To inform, confuse, and enlighten; in economic matters as well as philosophical ones. Jørund Aarsnes and Stephan Jensen write on economics and the human condition.
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Category — Strategy

The Return of Industrial Policy and the Incorporation of Time into Economics

The port of Shanghai from WikiCommons

Dani Rodrik recently had a commentary where he argued that industrial policy is returning to the main stage.  Within the Tallinn School (i.e. the economic research associated with the Technology Governance program in Tallinn) active government policies are seen as essential in order to create the ‘virtuous circles’ of high value-added economic activities. Rodrik (not associated with Tallinn), argues that industrial policy is  (i) “a state of mind rather than a list of specific policies” (ii) “relies on both carrots and sticks” and (iii) “industrial policy’s practitioners need to bear in mind that it aims to serve society at large” As Erik Reinert has shown, history abounds with  examples of how almost every successful economy has at some point employed some kind of industrial policy. Skeptics usually reply, yes, but what about all the failures?   By no means is industrial policy always effective and how well it works in a specific case depends on an inordinate amount of variables. Importantly, it is “a state of mind” and one must experiment to see what works. I would rather ask: what is the alternative, if industrial policy is the only way we know to have worked? Recently, the World Bank has come off as a bit more positive towards industrial policy, but their understanding is quite narrow:

“If industrial policy is nothing more than government agencies organizing conferences with private sector players, I’m all for it. If we include in the definition of industrial policy the supply of classic public goods like infrastructure and education in coordination with the needs of the private sector, I am still fully in support. However, I tend to part ways when the state gets involved to the point of picking winners, which must inevitably be the case when more heavy-handed interventions are put on the table. ” from the World Bank Private Sector Development Blog.

Industrial policy is more than supplying basic infrastructure, but still it is not about picking winners. One aims to develop specific sectors of the economy, calculating that the spillover effects will benefit the economy as a whole. The Asian economies, of India and China,  but also Brazil are recent examples of how industrial policy has been implemented successfully. But Chris Blattman points to an interesting example of how it has been carried out for shoe manufacturing in Ethiopia.

From my experience, how one looks at industrial policy depends a lot on one’s view of economics: In the first post here at Evolution-Revolution, we argued that “understanding the dynamics that propel the economy into the unknown should be at the core of economics, rather than optimizing a static economy that only exists in the abstract.” As such if one believes the most efficient allocation of today’s resources is essential one quite naturally comes to the conclusion that any form of intervention is inefficient. By incorporating the dimension of time however, one can more easily conclude that its worth sacrificing a little efficiency today for what might be a much more prosperous tomorrow.

May 27, 2010   1 Comment

Man’s Search for Meaning and a Case for Optimism

Holocaust surviver and psychologists Viktor Frankl delivers an amazing speech on searching for meaning and thinking the best of people. And as Goethe agrees with him, it must be true.

If you haven’t read his memorial from Auschwitz, Man’s Search for Meaning, you should

May 19, 2010   1 Comment

Does Steve Ballmer want Microsoft to be more like Ford was when his dad worked there?

Above: Microsoft’s Entertainment and Devices Division after one of Steve Ballmer’s “angry” days.

The Wall Street Journal reports that Microsoft management is cracking down on the use of iPhones amongst company employees. In a recent meeting executives Andy Lees (who is in charge of mobile-phone software development) and Robbie Bach (President of Entertainment and Devices Division, responsible for a.o. the Xbox) were chastised by CEO Steve Ballmer when arguing that [Read more →]

March 17, 2010   5 Comments