Michael Spence, a Nobel laureate in economics, is Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University. He is Senior Fellow at the Hoover Institution, Senior Adviser to General Atlantic, and Chairman of the firm’s Global Growth Institute. He serves on the Academic Committee at Luohan Academy, and chairs the Advisory Board of the Asia Global Institute. He was Chairman of the independent Commission on Growth and Development, an international body that from 2006-10 analyzed opportunities for global economic growth, and is the author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Macmillan Publishers, 2012).
MILAN – Industrial policy has always been a controversial dimension of growth and development strategies in emerging economies. Now, the introduction of the CHIPS and Science Act and the (misnamed) Inflation Reduction Act in the United States has reignited a similar debate in advanced economies. Unfortunately, it’s a debate that often generates more heat than light.
The objective of industrial policies is to alter market outcomes in ways that align them better with a country’s broader economic and social objectives. Free-market purists may bristle, but in the real world many relatively uncontroversial – and even widely supported – government interventions shape market outcomes.
For example, public-sector investment in infrastructure, education, and the economy’s science and technology base is considered an essential complement to private investment, mitigating risks, increasing returns, and bolstering overall economic performance. Other widely accepted interventions that alter market outcomes include antitrust or competition policy, measures to overcome information gaps and asymmetries, and regulation to address negative externalities, protect user data, and guarantee the safety of everything from airplanes to food.
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