“New” industrial policies unlikely to succeed for same reasons that previous industrial policies failed—government lacks proper incentives and information to allocate resources efficiently

Industrial Policy as Zombie Economics

• Recently, many developed economies, including Canada and the US, have implemented major government programs to promote the growth of specific industries and sectors including electronic vehicles (EVs) and the critical inputs to manufacturing EVS such as batteries, semiconductors, and Artificial Intelligence (AI).
• The key premise behind industrial policy is that the government can and should promote the expansion of specific industries and activities that have the greatest potential to increase society’s standard of living.
• Most economists have criticized the underlying premise of industrial policy. In particular, critics of industrial policy argue that bureaucrats ordinarily do not have the knowledge or the incentive to reallocate productive resources so as to accelerate real economic growth.
• While supporters of industrial policy acknowledge the failure of many past initiatives, they argue that the underlying problems can be addressed by modifying the industrial policy process. In particular, they argue for embedding government in the private sector in what amounts to a public-private partnership.
• Public-private partnerships (PPPs) have been used for decades primarily in the construction and operation of infrastructure assets such as roads, ports, and hospitals. The track record of PPPs is, at best, mixed.
• Given the problems that many PPPs have experienced, it seems unlikely that the complex cooperation and coordination between the public and private sectors as called for in new models of industrial policy will lead to more successful initiatives in the future than have been achieved in the past.