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The Return of Industrial Strategy

LONDON – Industrial policy is making a comeback in many advanced economies. Dismissed out of hand in the go-go 1980s as a contributor to the previous decade’s stagnation, it is increasingly viewed as a means to stem working-class voters’ defection to right-wing populist parties. But developing a modern and effective industrial strategy will be no easy feat.

The European Union has been trying to define a consistent framework for addressing the topic since 2014, when it published an analysis of industrial policy’s advantages and disadvantages. The United Kingdom is further along, having released in January a green paper on building an industrial strategy. US President Donald Trump has also focused on industrial policy, though his version would presumably entail substantial state intervention and protectionist measures.

Trump’s regressive vision, despite remaining short on details, already seems defective. But Europe’s approaches to industrial strategy show some promise, not least because they are likely to eschew the broad interventions of the past that emphasized “picking winners.” In the United Kingdom, for example, the government expects to focus instead on “targeted interventions” designed to create positive incentives, correct market failures, and address social, geographical, and sectoral imbalances. Clearly, political leaders have learned some important lessons from history.

But serious problems remain. Europe’s governments seem to think that they can implement ad hoc policies that strengthen their “invisible hand” today, and that those policies will somehow end up fitting neatly into a coherent framework. That seems optimistic, at best.