Industrial Policy after the Crisis

Industrial Policy after the Crisis

Seizing the Future

Patrizio Bianchi and Sandrine Labory

Industrial Policy after the Crisis provides a fresh and insightful study on the lessons that can be drawn from the global financial crisis for the analysis, definition and implementation of industrial policy. The authors utilize a political economy framework for the analysis of industrial development post-crisis, centred on the organisation of production and stressing its importance for the wealth of nations, meaning not only rising income but also ‘justice and happiness’.

Chapter 4: A Framework for Defining Industrial Policy

Patrizio Bianchi and Sandrine Labory

Subjects: economics and finance, industrial economics


INTRODUCTION This chapter reviews the main approaches to industrial economics and policy which lead to different recommendations on industrial policy. It shows that the theoretical framework that emerges leads to a justification of industrial policy only on the basis of the existence of ‘failures’. Market failures justify public intervention in markets in the neoclassical paradigm; government failures justify the preference for no government intervention; systemic failures are what governments should address in formulating (essentially research and development and innovation) policies within evolutionary theories. These approaches are useful to point to specific problems in the economic system, but in our view they lead to an industrial policy consisting of a series of independent actions without a broad vision. Markets and institutions build up a system where economic institutions co-evolve with social and political institutions. The point is thus to provide the right gears and levers to guide the industrial development process towards more desirable paths, making it more likely that certain directions are taken. Our framework is therefore one of political economy in the sense of Robbins (1981). Our approach is holistic, with the idea that the properties of the industrial system cannot be explained by its component parts alone. As Aristotle put it, the whole is more than the sum of the parts. In this perspective, the analysis of production organisation is essential. Production organisation is determined by the firm’s characteristics, its internal and external environments, social and political institutions, the extent of the market, and product requirements. In turn,...

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