Wednesday, November 3, 2010

Industrial policy

Image Source: Wikimedia Commons. Photo by Joshua Rappeneker
Tucked behind the mountains of election coverage in today's Washington Post was a very interesting story about a publicly-funded effort to promote the semiconductor industry in upstate New York. This is an example of industrial policy. The debate on the virtues of industrial policy has grown more lively recently, even among those who typically favor market-determined outcomes. A recent article by the Economist examines the arguments in depth.

My own internal debates on this topic were stirred through the work several colleagues and I did for a recent study into economic integration in the ASEAN region. For example, in Vietnam, we visited the publicly-funded industrial park where Intel built its massive new testing and assembly facility, which recently opened. There were clearly hiccups in the park's operations and some questionable investments in facilities for which there did not seem to be high tenant demand. On other hand, those tenants had voted with their feet by being there. Was it the most efficient expenditure of public funds? Might there have been other ways to attract equal amounts of desirable investment without generous incentives, such as broad-reaching reforms to the business environment? The jury is still out on these questions in my own mind. How about yours?

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