2014 Chapters (Layout Features)

Introduction: The Rejuvenation of Industrial Policy

Stiglitz, Joseph E.; Lin, Justin Yifu; Monga, Célestin

Knowledge validation has never been a painless process. It often takes a major, disastrous historical event for even the most self- evident ideas to gain wide recognition. It is therefore not surprising that the Great Recession of 2008– 09 – whose global economic and social cost is still yet to be quantified – has led to a rethinking of many aspects of what might be thought of as the conventional wisdom in economics. This book is about one important area in which there has been a major rethinking – industrial policy, by which we mean government policies directed at affecting the economic structure of the economy. The standard argument was that markets were efficient, so there was no need for government to intervene either in the sectoral allocation of resources or in the choices of technique. And even if markets were not efficient, governments were not likely to improve matters. But the crisis showed that markets were not necessarily efficient, and indeed, there was a broad consensus that without strong government intervention – which included providing life- lines to certain firms and certain industries – the market economies in the USA and Europe may have collapsed. But what exactly is industrial policy? Why has it raised so much controversy and confusion? What is the compelling new rationale for it, which seems to bring mainstream economists to acknowledge its crucial importance and revisit some of the fundamental assumptions of economic theory and economic development? How can it be designed to avoid the pitfalls of some of the seeming past failures and to emulate some of the past successes? What are the contours of the emerging consensus and remaining issues and open questions? The collection of papers presented in this volume and initially discussed at a roundtable try to provide answers to these burning questions. This book is a contribution in the large body of ongoing analytical work that focuses on the rejuvenation of industrial policy in the post- crisis global economy, discusses the evolving conceptions of industrial policy, takes stock of intellectual progress, documents the challenges of implementation, and outlines the remaining intellectual and policy agenda.