A good industrial policy is about making and not picking winners5 min read 09 Jan 2023, 10:47 PM IST
The idea is not to replace the invisible hand of free markets but to use the guiding hand of the state to make up for its failures.
My previous article (bit.ly/3GQ8aqn) argued that Industrial Policy has been instrumental in the development of now-advanced economies and arguments against its use by less developed countries like India are unconvincing. Having said that, outcomes from using Industrial Policy tools have ranged from moderate success (Mexico, Brazil, Malaysia and Thailand) to superlative economic performance (Japan, South Korea and Taiwan). This has led many to question its utility by arguing that the government and bureaucrats running Industrial Policy cannot pick winning industries and firms better than free markets and thus not only does it fail, it leads to misallocation of public resources to industrialists (often monopolists) in the form of freebies.