The “new” industrial policy

In recent decades industrial policies in the developing world have begun to be rediscovered as something “new”, and re-examined from multiple angles. For many, what comes into view is “lite and lean” industrial policy – a delicate dance around the maypole of the market that frees it to be the propulsive force. ¹ Past industrial policy allegedly careened out of control, resulting in too-high tariffs, distorted exchange rates and environmental decay. “Newness” lies in a swerve closer towards principles of openness, temporariness and non-preferential treatment. The dancers’ steps are varied, but, generally, the tune is softer, involv- ing less industrial policy and a vague emphasis on “institution building” and exporting. The transition from old to new is attributed to the maturation of indus- tries which no longer need government support. Governments themselves have also grown richer, the argument runs, and needn’t restrict their choice of indus- trial policies to those that are cheap (tariffs are cheap since consumers bear the cost). Instead of depending on protection, which also suffers from having no clear end (except from foreign political opposition), new industrial policies are supposedly temporary because they rely mainly on export tax-breaks, which impose a fiscal burden that can’t be sustained.