Industrial Policy Did Not Bring Prosperity to Asia
Industrial policy is earnestly touted by democrats and conservatives as a tool to rejuvenate the US economy. Some argue that innovation will flounder unless the US applies industrial policy to major sectors. The success of East Asian countries is often cited to bolster the case for industrial policy, however, advocates have been selling a simplistic story.
While it is sometimes noted that there is a correlation between high growth rates and industrial policy investment, this is not the case. During the 1980s, Japan was the poster child for industrial policy, and many feared that failing to embrace industrial policy would relegate the US to second-class status. But these doomsday predictions proved themselves wrong. Instead of eclipsing America, Japan entered a long economic slump.
Rather than propelling economic growth in East Asia, industrial policy was costly and resulted in several failures. In Japan, for example, industries that were abetted by industrial policy failed to become globally competitive. Coal mining received tremendous support from the 1950s to the 1960s, yet it declined from the 1950s to the 1970s. Output fell from fifty-four million metric tons in 1954 to nineteen million metric tons in 1978.
Landmark studies of industrial policy in Japan show that distributing resources was largely a political activity that benefited connected firms and fostered an atmosphere of corruption. Moreover, new research continues to cast doubt on the efficacy of industrial policy in Japan. According to a study by the National Foundation for American Policy, industrial p
Article from Mises Wire