3: Industrial Policy

Scope of Intervention

-Falling tariffs vs. government subsidies -Hegemony Stability Thesis -Economic Conjunction Theory -Economic Adjustment Strategies

Instruments of intervention

-Government enterprise zones -Direct financial or technical assistance -Tax allowances -Tariff protection -Regulation of competition and foreign investment -Government markets -Special protection against imports

Targets of intervention

-Sectoral level: protect or promote? -Geographical location -Firm size: large or small?

Consequences of Industrial Policy

>>Industrial decline issues: focus on unemployment rate, laissez-faire, protection consisting of preserving the status quo and limiting industrial adjustment, policy to facilitate adjustment process, policy that mitigates effects over time, focus on inflation rate, Philips Curve Trade-off, worst case scenario >>Regional development: cluster effects, labour market rigidities >>Measuring effectiveness >>Technology >>Sunrise or sunset >>Business size

Industrial Policy

A set of selective measures adopted by the state used to discriminate in favour of a certain sector in order to increase competition and promote activities that will lead to future growth and better efficiency with the overall goal of implementing strategic thinking (acting more like companies) into public policy to maintain global competitiveness (Germany's engineering shortage)

Social market economy

An economic system in which industry and commerce are run by private enterprise within limits set by the government to ensure equality of opportunity and social and environmental responsibility

Sources of intervention

Federal, regional/state or supranational governing bodies

Hegemony Stability Theory

Indicates that the international system is more likely to remain stable when a single nation-state is the dominant world power, who persuades everybody to follow what they do (UK led economic liberalisation)

Economic Triangle

Made up of monetary policy (interest rates and money supply), fiscal policy (taxation and government expenditure) and industrial policy

Market Failure

Occurs when the private sector is unable to do the right things, calling for government intervention (western Europe pre-WWII)