Chapter 2: Better markets, better government, better society
In the previous chapter we illustrated the main reasons that might justify industrial policy (IP) interventions: that market failures might lead to outcomes that are inconsistent with a country’s societal goals, its national strategy of industrial development, or its desire to promote its preferred model of society. In this section we point out that, although these criteria are important, they cannot guarantee that in every such situation IP interventions will be successful because there is a risk of “government failure.” In fact, there is a sizeable literature that has suggested that the anticipation of government failure may reduce industrial policy’s domain. The traditional government failure literature argument in this field points out that it is possible that the consequences of policy failures may be worse than the benefit the interventions are supposed to offer, and this is why it may be preferable to avoid any kind of government intrusion in production dynamics! In the next pages we will discuss these arguments and offer our ideas and perspectives.
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