Fri Sep 20 10:26:24 UTC 2024: ## Governments Revisit Industrial Policy: A Balancing Act Between Hope and Risk

**CHICAGO, BERKELEY, CAMBRIDGE, NEW HAVEN** – The world is witnessing a resurgence of industrial policy, with governments increasingly intervening in specific industries to boost economic growth and national security. While the approach holds promise, experts caution that it carries risks and requires careful consideration.

Raghuram Rajan of the University of Chicago warns that state-led initiatives, though well-intentioned, can stifle private sector dynamism, disrupt market signals, and be susceptible to corruption. He argues that industrial strategy should focus on improving public governance rather than interfering in private markets.

J. Bradford DeLong of the University of California, Berkeley, counters that the changing global landscape necessitates a more active role for governments, especially in the face of climate change, economic inequality, and rising geopolitical tensions.

Dani Rodrik of Harvard University introduces a new “trilemma” – the potential for industrial policy to hinder global poverty reduction and climate change mitigation while trying to bolster the middle class in advanced economies. He suggests that this tension can be mitigated by focusing on non-traded service sectors, which can create jobs without trade conflicts.

Pinelopi Koujianou Goldberg of Yale University highlights the importance of foreign technological cooperation in industrial policy success, as demonstrated by Taiwan and South Korea’s semiconductor industries. She emphasizes that government support alone is insufficient, and that access to foreign technology plays a crucial role in driving innovation and competitiveness.

While the US is investing heavily in reshoring chip manufacturing, Goldberg warns that it’s unclear if this approach is truly the best strategy, considering that allied countries might offer lower production costs.

The debate surrounding industrial policy hinges on balancing the desire for national economic self-reliance with the benefits of open markets and global cooperation. Experts agree that a nuanced approach is crucial, recognizing the potential pitfalls and focusing on public governance while remaining mindful of the broader global implications.

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