Targeting vs. Generality in Economic Development & Industrial Policy

by on April 8, 2021 · 0 comments

Over at Discourse magazine, my Mercatus Center colleague Matt Mitchell and I have a new essay on, “Industrial Policy is a Very Old, New Idea.” We argue that, despite having a long history of disappointments and failures, that isn’t stopping many policymakers from proposing it industrial policies again. We compare national industrial policy efforts alongside state-based economic development policies, noting their many similarities. In both cases, the crucial issue comes down to targeting versus generality in terms of how policymakers go about encouraging innovation and economic growth. We note how:

The building blocks of the general approach—a mix of broadly applicable tax, spending, regulatory and legal rules—are often rejected because they seem less exciting than targeting specific companies or industries for help. Pundits and policymakers are fond of using machine-like metaphors to suggest they can “fine-tune” innovation or “dial-in” economic development according to a precise formula they believe they have concocted. They also savor the attention that goes along with ribbon-cutting ceremonies and the big headlines often generated by political targeting efforts.

We discuss the spectrum of economic development options (depicted in chart below) in more detail and explain the many pitfalls associated with some of the most highly targeted efforts. “The predicament for policymakers is that, while it is wiser to focus on the generalized approaches, the temptation will remain strong to jump to targeted gambles that may grab headlines but are far more risky and costly,” we argue. Head over to Discourse to read the entire thing.

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