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The Economist explains: Why “industrial strategy” is back

Lafayette

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Why “industrial strategy” is back

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THERESA MAY, Britain’s new prime minister, has certainly been bold, maybe even foolhardy, in some of her cabinet appointments. But she has been equally bold in elevating “industrial strategy” to the top of her new government’s agenda—a move that could mark a clear break with her predecessor’s governments. The very term has been frowned upon in Conservative Party circles since Margaret Thatcher’s leadership. Yet Mrs May argued for “a proper industrial strategy to get the whole economy firing”, in her pitch for taking over from David Cameron. And once installed in Downing Street she quickly created a whole new department, of “Business, Energy and Industrial Strategy”. Why has Mrs May decided to buck a generation’s worth of political orthodoxy?

Mark Littlewood, head of the Institute of Economic Affairs ... argues that adopting even a limited industrial strategy could tempt the government into going further by propping up loss-making industries such as steel—especially once Britain leaves the EU and is no longer bound by European rules against state aid. So far it seems mild enough. But, aware of a popular mood souring against globalisation and a government keen to occupy the political centre-ground abandoned by Labour, many Tories will be on the lookout for signs of mission creep. Well-intentioned interventions could quickly become counter-productive. Yet as the economy deteriorates, the calls for an industrial strategy will grow louder.

I suspect that Mrs May will prove to be a very effective PM, despite Brexit. (She was against it, like any level-headed Brit should have been. Anyway, good-bye GREAT Britain!)

And there is a catch, in the phrase "especially once Britain leaves the EU and is no longer bound by European rules against state aid.". Which means, in Liberal terms, the poor can go straight to hell, "do not pass Go, do not collect $100). If the EU is in the economic mess it is in - it is because of "state-aid"? Howzat?

When a country is set-upon by a Great Recession, meaning that unemployment skyrockets (10/15/20%), "state-aid" is the sine qua non that saves families and allows them to live a bare existence (that some of us find in the first two layers of Maslow's Hierarchy of Needs.) Despite a raging recession,
the EU did what any Social Democracy should have done; that is, meet the needs of the poorest who find themselves impoverished and without hope of finding a job.

Yes, many countries incurred even further debt to maintain "state-aid" that they must still work off; and no Stimulus Spending since that would only worsen further debt-levels. Meaning a lonnnng wait-time to see the end of the economic tunnel in the EU (unlike the US, that is already back down to 4.9% unemployment) .

What Europe must do is reboot its collective economies by means of Targeted Stimulus Spending that not only puts people back to into jobs, but jobs that are endurable. That is, two-fold targeting:
* State-of-the-art companies that develop a new range of services (likely Internet based), and
* The bricks-'n-mortar jobs within which a significant number of employees have made and will make their living.

Both must be targeted - there is no Magic Solution for the entire market-economy ...
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joG

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Why “industrial strategy” is back

Excerpt:


I suspect that Mrs May will prove to be a very effective PM, despite Brexit. (She was against it, like any level-headed Brit should have been. Anyway, good-bye GREAT Britain!)

And there is a catch, in the phrase "especially once Britain leaves the EU and is no longer bound by European rules against state aid.". Which means, in Liberal terms, the poor can go straight to hell, "do not pass Go, do not collect $100). If the EU is in the economic mess it is in - it is because of "state-aid"? Howzat?

When a country is set-upon by a Great Recession, meaning that unemployment skyrockets (10/15/20%), "state-aid" is the sine qua non that saves families and allows them to live a bare existence (that some of us find in the first two layers of Maslow's Hierarchy of Needs.) Despite a raging recession,
the EU did what any Social Democracy should have done; that is, meet the needs of the poorest who find themselves impoverished and without hope of finding a job.

Yes, many countries incurred even further debt to maintain "state-aid" that they must still work off; and no Stimulus Spending since that would only worsen further debt-levels. Meaning a lonnnng wait-time to see the end of the economic tunnel in the EU (unlike the US, that is already back down to 4.9% unemployment) .

What Europe must do is reboot its collective economies by means of Targeted Stimulus Spending that not only puts people back to into jobs, but jobs that are endurable. That is, two-fold targeting:
* State-of-the-art companies that develop a new range of services (likely Internet based), and
* The bricks-'n-mortar jobs within which a significant number of employees have made and will make their living.

Both must be targeted - there is no Magic Solution for the entire market-economy ...
___________________________________

Interesting article but without a really helpful remedy. Industrial Policy has usually been expensive, of little help and often it has reduced efficiency and the number of jobs. But viewed under a different light, it would seem sensible to establish the environment of lower regulation and taxes that slow manufacture and infrastructure. That would be a good approach to industrial policy and not subsidies and government projects.
 

Lafayette

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Interesting article but without a really helpful remedy. Industrial Policy has usually been expensive, of little help and often it has reduced efficiency and the number of jobs. But viewed under a different light, it would seem sensible to establish the environment of lower regulation and taxes that slow manufacture and infrastructure. That would be a good approach to industrial policy and not subsidies and government projects.

I disagree, but we've been down this road together already once before ...
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I'm Supposn

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Why “industrial strategy” is back

Excerpt:


I suspect that Mrs May will prove to be a very effective PM, despite Brexit. (She was against it, like any level-headed Brit should have been. Anyway, good-bye GREAT Britain!)

And there is a catch, in the phrase "especially once Britain leaves the EU and is no longer bound by European rules against state aid.". Which means, in Liberal terms, the poor can go straight to hell, "do not pass Go, do not collect $100). If the EU is in the economic mess it is in - it is because of "state-aid"? Howzat?

When a country is set-upon by a Great Recession, meaning that unemployment skyrockets (10/15/20%), "state-aid" is the sine qua non that saves families and allows them to live a bare existence (that some of us find in the first two layers of Maslow's Hierarchy of Needs.) Despite a raging recession,
the EU did what any Social Democracy should have done; that is, meet the needs of the poorest who find themselves impoverished and without hope of finding a job.

Yes, many countries incurred even further debt to maintain "state-aid" that they must still work off; and no Stimulus Spending since that would only worsen further debt-levels. Meaning a lonnnng wait-time to see the end of the economic tunnel in the EU (unlike the US, that is already back down to 4.9% unemployment) .

What Europe must do is reboot its collective economies by means of Targeted Stimulus Spending that not only puts people back to into jobs, but jobs that are endurable. That is, two-fold targeting:
* State-of-the-art companies that develop a new range of services (likely Internet based), and
* The bricks-'n-mortar jobs within which a significant number of employees have made and will make their living.

Both must be targeted - there is no Magic Solution for the entire market-economy ...
___________________________________

Lafayette, I’ve been unable to obtain an explicit definition of the term "industrial strategy” other than it is a government strategy for the purpose of supporting one or more of the nation’s industries.

I’m a proponent of the trade proposal described in Wikipedia’s article entitled “Import Certificates”. Although USA’s adoption of that proposal may be expected to be of greater benefit to our manufacturing industries but (if we consider importing and exporting as a single global trading industry) the proposal does not favor or disfavor any particular industry.
It would be of some advantage to any USA producers, including foreign enterprises producing within the USA), that compete or aspire to compete with foreign produced products anywhere in the world; but the greatest advantage would be realized in markets within the USA.

Import Certificate policy is a proposed unilateral remedy for the economic detriments due to a nation’s chronic annual trade deficits of goods. It would extremely reduce (if not entirely eliminate) their nation’s annual trade deficit of goods while promoting increases of their nation’s GDP.

The proposals much more market rather than government driven, and its entire net costs are passed onto USA purchasers of foreign goods. It is an indirect but effective subsidy of its nation’s exported goods
“Import Certificates” is not an isolationist policy, and is expected to increase the aggregate sum of USA imports plus exports; regardless of the proposal’s succeeding or failing to achieve that expectation, the policy would promote USA’s GDP, numbers of jobs and their purchasing powers.

Respectfully, Supposn
 

Lafayette

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Lafayette, I’ve been unable to obtain an explicit definition of the term "industrial strategy” other than it is a government strategy for the purpose of supporting one or more of the nation’s industries.

I’m a proponent of the trade proposal described in Wikipedia’s article entitled “Import Certificates”. Although USA’s adoption of that proposal may be expected to be of greater benefit to our manufacturing industries but (if we consider importing and exporting as a single global trading industry) the proposal does not favor or disfavor any particular industry.
It would be of some advantage to any USA producers, including foreign enterprises producing within the USA), that compete or aspire to compete with foreign produced products anywhere in the world; but the greatest advantage would be realized in markets within the USA.

Import Certificate policy is a proposed unilateral remedy for the economic detriments due to a nation’s chronic annual trade deficits of goods. It would extremely reduce (if not entirely eliminate) their nation’s annual trade deficit of goods while promoting increases of their nation’s GDP.

The proposals much more market rather than government driven, and its entire net costs are passed onto USA purchasers of foreign goods. It is an indirect but effective subsidy of its nation’s exported goods
“Import Certificates” is not an isolationist policy, and is expected to increase the aggregate sum of USA imports plus exports; regardless of the proposal’s succeeding or failing to achieve that expectation, the policy would promote USA’s GDP, numbers of jobs and their purchasing powers.

Respectfully, Supposn

I think we've already been down this road together.

It won't get through GATT, which is an international treaty, because the large exporting countries (China, for one) whose labor-rates are rising will only see their exports being taxed higher upon arrival ...
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James972

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I disagree, but we've been down this road together already once before ...
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Why disagree? when we know soviet and Red Chinese industrial policy led directly to 120 million human souls starving to death? Why hitch your wagon to the stupidest and most deadly idea in all of human history? How did that happen to you?
 

swr22

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Didn't Japan, Taiwan, Korea etc all rapidly develop thanks to an industrial strategy? Arguably, as noted by Ha-Joon Chang, the entirety of the West developed using industrial strategy. I think "Pulling Up the Bridge" (IIRC) is available still as a free e-book.
 

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Didn't Japan, Taiwan, Korea etc all rapidly develop thanks to an industrial strategy?

no, they developed because we won WW2 and recreated their countries in our image as Republican capitalist.
 

Lafayette

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COMMON SENSE

Didn't Japan, Taiwan, Korea etc all rapidly develop thanks to an industrial strategy? Arguably, as noted by Ha-Joon Chang, the entirety of the West developed using industrial strategy. .

There is a GREAT difference between Industrial Strategy and and letting a Market-economy develop according to the whimsy of consumers. In postwar years, consumers want mostly what they had before the war. So and Industrial Strategy was key since a great deal had to be rebuilt from the ground up - and certain industries were therefore more important than others.

In non-war, "normal", situations, there is no need particularly for any particular Industrial Strategy. The US is never ever going to be making pots 'n pans at a price that will match China, Vietnam or the Philippines.

Looking at the above definition, it seems evident that governments "decide" strategies because they are expected to do so given an economic necessity. Which is rarely the case today. We don't need more cars for people to get to work without overloading the public transportation system.

We need cars that don't pollute. So where are they?

There is no such "Industrial Strategy" in place because no country wants to upset the apple-cart of present car manufacturing - almost wholly dependent upon internal-combustion engines. And consumers are taking their own sweet time buying either hybrid or fully-electric cars. Call it "Clean-air Strategy" if you like, but the consequence is the same. (People just do not care sufficiently for such to become National Policy.)

Which means that the high costs of "clean-cars" are putting many off the upgrade. So what a country could do is reduce the tax on such cars in order to make them more affordable (though the tax-lowering may be insufficient given the very much higher prices). Thus, do we need an "Industrial Policy" in this case? I suggest not.

Let the market do what consumers want and in the way they want. Consumers themselves will bear the "cost of delay" in terms of consequential higher death-rates due to atmospheric pollution.

In Europe, unemployment rates are much higher than normal, but Europe is having great difficulty in implementing any Industrial Strategy because such strategy usually depends upon government-subsidies. And government debt in Europe is already at its maximum. Does the US need the urgency of an Industrial Strategy? Nope, because unemployment is down to a "normalcy" of less than 5%.

What has not happened in the US, however, is that the Employment-to-population Ratio is not back to the normalcy of pre-2009, it's at 58% instead of 63%. So, yes, some government-spending would be a good idea to get this ratio back up to where it should be. However, it must be gradual in order not to ignite inflation.

But that is not an Industrial Stategy - it's just plain Common Sense ...
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Lafayette

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Why disagree? when we know soviet and Red Chinese industrial policy led directly to 120 million human souls starving to death? Why hitch your wagon to the stupidest and most deadly idea in all of human history? How did that happen to you?

Still not taking your meds, aren't you ...
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James972

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Still not taking your meds, aren't you ...
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can you imagine 120 million people before you using that insult on the internet and you still thinking its clever?? What does that tell us about your IQ?
 

I'm Supposn

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SWR22, thank you for your posting the excellent analogy “pulling up the bridge”. I wasn't familiar with the use of the word “(draw) bridge” replacing the word “ladder” within the phrase described the commonly recognized and valid problem.
Refer to https://www.amazon.com/gp/aw/review/B01MYCPHA7/R317U7XP0XVU2C
or to https://theworthyhouse.com/category/economics/
(Book title) Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It (Kindle Edition) .
Didn't Japan, Taiwan, Korea etc all rapidly develop thanks to an industrial strategy? Arguably, as noted by Ha-Joon Chang, the entirety of the West developed using industrial strategy. I think "Pulling Up the Bridge" (IIRC) is available still as a free e-book.
no, they developed because we won WW2 and recreated their countries in our image as Republican capitalist.
James972, I usually disagree with your posted economic analysis, but we often discuss the same facts.
You're now endeavoring to change facts and rewrite history?

You do correctly state that we, (the USA) “won WW2.

The “image” we “recreated” was not one of “Republican capitalism”, but rather one of an economically “mixed” economy and a democratic republic government which is directly contrary to your completely inaccurate rewriting of history.
USA's direct establishment of mixed capitalism with many government populist social and economic regulations and institutions were and remain obviously conspicuous in Japan. They were originally enacted by General MacArthur, the U..S. military governor of Japan.

Respectfully, Supposn
 

James972

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USA's direct establishment of mixed capitalism with many government populist social and economic regulations and institutions were and remain obviously conspicuous in Japan. They were originally enacted by General MacArthur, the U..S. military governor of Japan.

Respectfully, Supposn

sure but obviously it was the capitalist part that made them successful and the socialist part that slowly starved 120 million to death. Do you want China and Russia to go back to socialism and starve another 120 million to death?
 

swr22

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can you tell us in your own words what is true? How will you learn if you don't even try?

The developmental state literature shows how those East Asian countries- Taiwan, Korea, Japan etc- eschewed classical, free market economics and used state-directed industrial policy in order to move up the global value chain. Rather than rice being their comparative advantage, they decided to specialise in semiconductors, microchips,cars etc. The Japanese keiretsus, Korean chaebons etc got considerable favors and were rewarded with cheap finance, state-directed training, and were rewarded for winning global market share etc through export competitions. I recommend scholars like Amstell, Wade and Chalmers Johnson (who did an amazing study of the Japanese MITI department and their role in developing Japanese industry).
You are right that their place in historical place and time made a difference: most of these countries were allowed to export to the US while maintaining high tariff barriers because the US wanted to develop them so they would not be attracted by communism and would stay within the U.S. security umbrella. However, to say that they developed rapidly (or indeed ANY country has developed rapidly) because of free markets is simply untrue.
 

James972

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The developmental state literature shows how those East Asian countries- Taiwan, Korea, Japan etc- eschewed classical, free market economics and used state-directed industrial policy in order to move up the global value chain. Rather than rice being their comparative advantage, they decided to specialise in semiconductors, microchips,cars etc. The Japanese keiretsus, Korean chaebons etc got considerable favors and were rewarded with cheap finance, state-directed training, and were rewarded for winning global market share etc through export competitions. I recommend scholars like Amstell, Wade and Chalmers Johnson (who did an amazing study of the Japanese MITI department and their role in developing Japanese industry).
You are right that their place in historical place and time made a difference: most of these countries were allowed to export to the US while maintaining high tariff barriers because the US wanted to develop them so they would not be attracted by communism and would stay within the U.S. security umbrella. However, to say that they developed rapidly (or indeed ANY country has developed rapidly) because of free markets is simply untrue.

Actually the free market did help them Develop very quickly . Please keep in mind When your GDP starts out of zero It is very easy to modernize I simply copying what the rest of the world is doing . If you have infrastructure Lawn order In willing workers You can develop very quickly but creative capitalism In the end is where growth comes from, not stupid blind bureaucrats . Have you ever heard of Soviet Union East Germany In 132 other countries I thought Vera petik planning Made sense .
 
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