NCGG Hosts Workshop on the Politics of Industrial Policy

Nov. 27, 2023

Over thirty policy experts, scholars and practitioners met at SPIA in DC to discuss the current state of politics in industrial policy at a workshop hosted by Princeton University in Washington, DC, on October 25-26, 2023.

In response to a series of global economic and geopolitical shocks, many governments have enacted, or are considering enacting, policies to promote the development and growth of industries deemed strategically important. These actions have raised questions about the role of government in markets and revived debates over industrial policy. Industrial policies can attract foreign investment and encourage the development of new technologies. At the same time, however, these policies can also create tensions with trading partners and decrease economic cooperation. Subsidy wars among countries can be very expensive. And industrial policies can be captured by firms and turned into inefficient rents. In light of these varied outcomes, what explains the recent rise in industrial policies? Why do some governments use industrial policies more often than others? What consequences do industrial policies have for politics and economics - both at home and abroad? How do geopolitical competition and conflict affect the use and choice of industrial policies? Can industrial policy help address climate change?

Adam Posen

Roundtable participant Adam Posen, President of the Peterson Institute for International Economics.

The workshop included four sessions, 12 papers, and a roundtable.  Participants came away from the discussions with the following conclusions:

  • Politics matter for industrial policy. Due to political pressures, industrial policies often diverge from the optimal policies in practice. Past research has, and future research should identify how politics systematically influences industrial policy design.  
  • Industrial policy’s effects vary. The desired outcomes are achieved in some cases but not in others. As one participant noted, “There are no specific policy actions that we can be sure will work every time.” Future research may usefully investigate the conditions under which industrial policies are most likely to “work” – that is, achieve the intended goal. 
  • Industrial policy has been debated for decades by economists and political scientists. Much of that debate remains useful and important. But two new elements make the politics even more complicated. First, the emerging bipolar contest between the US and its allies and China and its friends interacts with the complex supply chains of modern capitalism to make industrial policy part of national security concerns. Second, climate change and the pressure for an energy transition away from traditional carbon sources powering today’s world economy further complicate industrial policy goals.
Politics of Industrial Policy Workshop panel Ravi

Aparna Ravi (University of College London) presents on the competetive advantage of state-led financing.

Participants stressed the value of continuing a dialogue like this workshop. These exchanges enable academics from different disciplines, as well as researchers at think tanks and those close to policy-makers, to exchange views and share information and research about industrial policy.