TL/DR –
Réka Juhász, an economics professor at the University of British Columbia, studies industrial policy, a strategy in which governments aim to promote specific economic sectors. Since the 1980s, industrial policy has been largely disregarded as ineffective and possibly harmful. However, countries, including the U.S under President Biden, have recently begun utilizing industrial policy more extensively, investing billions into sectors such as microchip manufacturing and clean energy.
Industrial Policy Explained: An Economic Journey with Réka Juhász
Réka Juhász, a professor at the University of British Columbia, focuses on the study of industrial policy. This term refers to governmental efforts to stimulate specific sectors of the economy. Countries often used industrial policy to accelerate economic growth by supporting specific industries through grants or protectionist measures.
However, since the 1980s, industrial policy lost its popularity among policymakers. The mainstream view evolved into believing that industrial policy is inefficient and possibly harmful, asserting that the government should not interfere with market outcomes.
In recent years, though, nations, including the United States, have started to publicly and significantly adopt industrial policy yet again. President Biden’s administration is preparing to invest hundreds of billions of dollars in industrial policy, funding projects like microchip manufacturing and clean energy investments. This presents a historical test of industrial policy in the United States, and the lingering question is whether it will indeed work.
Juhász’s work takes us on an engaging journey, providing insights into the theory behind industrial policy, its controversy, and the possible direction of the Biden administration’s experiment.
Key Takeaways from the Interview
Industrial policy, as Juhász describes it, is the government’s attempt to alter the economy’s composition to serve a long-term objective, such as transitioning from a fossil fuel-based economy to a renewable one.
Critics of the Biden administration’s industrial policy argue that it props up politically important industries rather than addressing market failures, such as underinvestment in green energy. Nonetheless, successful industrial policies typically involve substantial investments in bureaucratic capacity, enabling a technocratic, high-quality bureaucracy to make informed decisions.
Historically, Juhász’s studies on France during Napoleon’s reign show that the parts of France better protected from trade grew more prosperous in the long run. This suggests that market failures are real, and industrial policy can rectify them under certain circumstances.
However, the challenge lies in replicating this success. Making industrial policy work effectively is crucial to addressing prevailing issues.
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