Failing Markets, Weak States
In this chapter, we will establish our point of departure for the remainder of the book. We will make three fundamental points. In Section 2.1 we argue that a conceptual approach that reduces industrial policy to the function of correcting exceptional and temporary market failures (externalities) is misleading. It does not do justice to the normative content of any industrial policy that seeks to chart the future course for economic and social development. Section 2.2 further substantiates this argument with an excursus into the ethical dimension of economics. On this basis, Section 2.3 elaborates on the policy challenge of having to address a multitude of societal goals, which – in the overall perspective of sustainable development – include the promotion of socially inclusive patterns of growth and the safeguarding of environmental resources. At the outset, it is worth recalling that most of the arguments used to justify industrial policy evolve around various types of market failures, ranging from information shortcomings to spillovers of various types, imperfect capital markets, uncoordinated investment decisions, systemic infrastructure requirements, and so on – all of which are rooted in externalities that drive a wedge between private and social costs and benefits. Hence, so the argument goes, policy interventions are needed to take corrective action.
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