Politicizing Economic Policy

Politicizing Economic Policy

By Jayati Ghosh

Making It: Industry for Development, August 5, 2010

There are several reasons why we urgently need to think seriously about appropriate industrial policies. There are of course the old (or continuing) reasons: that the development project cannot really proceed without some form of explicit or implicit industrial policy; that static and dynamic economies of scale mean that late industrializers need to plan methods of achieving competitive scales in particular activities if they are to survive; and that market-driven investments in a context of economic inequality will simply not generate the required scales of production without some form of intervention.

But there are also newer, and possibly now more pressing reasons for industrial policy. These emerge from structural tendencies (in particular the more basic forms of market failure that relate to human interaction with the natural environment), as well as conjunctural ones (the fact that countercyclical fiscal policy has perforce increased the role of government spending in both mature and developing economies).