Industrial Policy Is Back

Geopolitics is driving new interest in industrial policy.

I recently re-watched the film, Ford v Ferrari. The plot highlights a series of tradeoffs: individuality vs. conformity, engineering vs. marketing and risk vs. reward. It’s well-written and well-acted.

Another contrast that serves as a backstory is nationalism vs. globalism. When emissaries from Detroit attempt to purchase Ferrari, they run into state-sponsored obstacles that scuttle the deal. The bad feelings that emerge from the negotiations provide the fuel for the duel on the track.

In the decades that followed Ken Miles’ run at LeMans in 1966, state-directed industrial policy and the promotion of domestic providers fell out of favor. But today, those practices are attracting renewed interest, reshaping the world economy.

Stagnation during the 1970s prompted a re-evaluation of government involvement in economies. Markets came to be seen as better allocators of capital, and they promoted an efficiency that often eluded state-run enterprises. Having national champions across all industries was seen as unnecessary: the 1980s management guru Peter Drucker urged firms to “Do what you do best and outsource the rest.”

Trade pacts and policies were crafted with this mantra in mind. The General Agreement on Tariffs and Trade, adopted after World War II, frowned on countries that owned, subsidized, or favored domestic producers. The World Trade Organization (WTO) took over in 1995 and served as a governing body to adjudicate grievances on this front. Trade liberalization and privatization were often required of nations receiving financial assistance from the International Monetary Fund in the 1980s and 1990s.

Global Number of Government Subsidies to Industry NorthernTrust