Is Industrial Policy Like Vitamin C or Penicillin?
When it comes to building a well-functioning economy, is industrial policy a vital nutrient that must be taken regularly and in modest amounts to avoid a deficiency? Or is it a treatment that should be used only when absolutely necessary to combat a specific type of infection?
CAMBRIDGE – Vitamin C may not be particularly effective at preventing the common cold or treating cancer (notwithstanding Linus Pauling’s claims to the contrary), but a lack of it can cause scurvy. As a result, daily consumption is essential to a healthy diet. In contrast, penicillin cures bacterial infections, although its overuse can lead to drug-resistant germs. It should thus be taken only when absolutely necessary.
So, is industrial policy more like vitamin C or penicillin? Can a deficiency lead to problems, meaning that regular, modest amounts are crucial to a well-functioning economy? Or should it be used sparingly to combat a particular type of infection?
In this context, infections represent market failures, which many economists tend to see more as the exception than the rule. They would argue that leaving the body to cure itself is better than intervening. As the old joke goes, an untreated cold lasts a week, whereas a treated cold lasts seven days. The late Nobel laureate Gary Becker famously quipped that “the best industrial policy is none at all.”