Industrial policy, competitive strategy, and networks of small and medium-sized firms: Theoretical issues and implications for less favored countries

The aims of this chapter are:

to propose the idea that industrial policies inspired by the mainstream neoclassical ideas of industrial organization may be incompatible with firms’ competitive strategies inspired by the same perspective;

to examine ways through which the incompatibility can be removed within the framework of neoclassical theorizing;

to examine alternative ways through which industrial policy and competitive strategy can be compatible; and

to compare these alternatives by examining their compatibility with a sustainable national strategy for development.

Theories of the state and national strategy are discussed. The chapter concludes by supporting an industrial strategy favoring clusters of small and medium-sized enterprises. This is argued to have implications for an industrial strategy for less favored countries (LFCs).