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The Case for Intelligent Industrial Policy

Although national industrial policies have a bad reputation, there is a strong case for government support to sectors that will increasingly rely on artificial intelligence. In this regard, the German government’s plan to promote production of electric-car batteries may accelerate an industrial renaissance in Europe.

MUNICH – Earlier this year, German Economy Minister Peter Altmaier unveiled his “National Industrial Strategy 2030,” which aims to protect German firms against state-subsidized Chinese competitors. The strategy identifies key industrial sectors that will receive special government support, calls for establishing production of electric-car batteries in Europe, and advocates mergers to achieve economies of scale.

The planned measures are controversial. Lars Feld of the German Council of Economic Experts calls the strategy an aberration and has accused Altmaier of central planning. Yet this is not an ideological debate, as Feld suggests, but rather a question of whether such an industrial policy might work. And although not all aspects of Altmaier’s plan are convincing, there is a strong case for government support to sectors – including the automotive industry – that will increasingly rely on artificial intelligence (AI).

True, national industrial policies generally have a bad reputation among economists, mainly because governments have typically used such policies to support “losers,” thereby keeping uncompetitive firms in the market. The argument in favor of such policies, especially in developing countries, was that infant industries needed protection from foreign competition in order to grow and mature. But the World Bank concluded long ago that these policies had failed, turning its back on import-substitution programs in the 1960s and 1970s.

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