Industrial Policy




Industrialpolicy underlines the notion that the utilization of regulations,subsidies, taxes, as well as private sector coordination by thegovernment would be helpful in nurturing the technologies andindustries of the future so as to provide an advantage to domesticindustries over their foreign competitors. This is based on the needto secure or give domestic industries a prominent role in the worldeconomy (McEachern, 2012). In essence, industrial policy would havean impact on a subset of industries in a manner that differs from theother group of industries.

Thereare varied advantages to industrial policies. First, it is noted thatindustrial policies may result in the creation of clusters, whichinvolve the location of industries in regions where they are alreadyin high numbers. Clusters come with a number of performanceadvantages. For instance, such clusters enhance communication andencourage healthy competition among members of the clusters(McEachern, 2012). The increased cooperation and information flow,coupled with increased competition between firms that are locatedclose to each other would propel growth, as well as regionalinnovation. On the same note, the clustering may enable businessentities to tap into already established markets for labor and otherinputs.

Nevertheless,industrial policies come with particular disadvantages. First, thereare concerns pertaining to the fact that these policies eventuallybecome government giveaway programs. This may mean that suchfinancial resources would not necessarily be channeled to theindustries that really deserve to be protected but rather to thosethat have strong political connections (McEachern, 2012). On the samenote, there exists skepticism regarding the capacity and willingnessof governments to spot emerging technologies and select industryclusters that would be most suitable. It is often thought that theallocation of scarce resources is best carried out by market forcesthan governments.


McEachern,W. A. (2012). Economics: A contemporary introduction. Mason, OH:South-Western Cengage Learning.