Picking Losers...? The political economy of industrial policy

Classic critique of selective government interventions

Industrial policy may be defined as government interference in the market process of economic evolution. Its main instrument is the injection of taxpayers' money into selected firms or industries.

Neither standard economic theory nor everyday experience offers any ground for the belief that politicians and bureaucrats are more alert in 'picking winners' of the future than private entrepreneurs motivated by opportunities for personal profit and possessed of specialised knowledge of business methods and markets.

Whether financed by taxation, government borrowing or inflation, industrial policy has harmful direct and indirect effects on unsubsidised companies whose capacity to provide well-paid and secure jobs is thereby diminished. The appropriate role for government in its relations with industry is to avoid selective interventions which hamper adaptation to economic change. More positively, it should create a general environment in which business entrepreneurship can flourish on its own.

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