More On ‘Industrial Policy’

by Don Boudreaux on September 24, 2008

in Myths and Fallacies, Regulation, The Economy

Heres’ a letter that I sent yesterday to the Washington Times:

On top of Uncle Sam’s unprecedentedly large bailout plan comes calls from top business executives for “comprehensive industrial policy” (“Ford, Dow execs to discuss national summit in ’09,” September 22).

Let’s keep our heads. Despite the turmoil, Americans today remain incredibly wealthy.  This fact is evidence that capitalism works very well even though it is never textbook perfect.  Calling for a fundamental restructuring of an economy that produces such widespread prosperity is, at best, an irresponsible overreaction.

More likely, though, this call for industrial policy is a ploy by business executives to escape competition. By trying to plan the economic future, any such policy necessarily tramples innovation and consumer sovereignty.  Anything at odds with the policy – such as an unforeseen new product, a creative new technique of production, or simply a change in consumers’ tastes - must be squelched, for otherwise the policy falls apart.  Many existing firms (especially large ones such as GM and Dow Chemical, who have the resources to influence government) will benefit from industrial policy – but only because such policy inverts the economy from one in which producers exist to satisfy consumers to one in which consumers (and taxpayers) exist to satisfy producers.

Such a policy will make most of us much, much poorer.

Sincerely,
Donald J. Boudreaux

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{ 4 comments }

Flash Gordon September 24, 2008 at 11:51 am

One must wonder why this sort of thinking does not resonate more with the left since those who reside there constantly complain about big business. They usually are for anything that will restrain business. Why don't they know there is nothing that will better make business honest, good citizens, responsive to consumers (i.e., the people) than free market competition? Tell us, Muirego.

jp September 24, 2008 at 11:58 am

what if this really is a 30 plus Trillion dollar problem, as these CDS's play out. Sounds like financial doomsday

Bret September 24, 2008 at 2:01 pm

"Calling for a fundamental restructuring of an economy that produces such widespread prosperity is, at best, an irresponsible overreaction."

True, true.

I'm sure, therefore, that I'll never see anything on this blog, either in the posts or comments, calling for a fundamental restructuring of the economy in a more libertarian mold.

sethstorm September 25, 2008 at 1:12 am


Anything at odds with the policy – such as an unforeseen new product, a creative new technique of production, or simply a change in consumers' tastes – must be squelched, for otherwise the policy falls apart.


but only because such policy inverts the economy from one in which producers exist to satisfy consumers to one in which consumers (and taxpayers) exist to satisfy producers.

How would those ideas answer in response to marginalized consumers of developed countries? That is, those of the developed world are now a special case of the developing one, with an impact on quality. Their choices were large enough to matter; now are a dismissible minority compared to the lower quality choice.

One example of this happening is in the manufacture of computers. While there may be new or enhanced features, corners are cut in quality. When one particular one decided to cut certain corners in their flagship product(say the replacement of a display with an older technology over acquiring the remaining company and keeping it available), complaints were largely ignored. They simply had to deal with what the producer did, as they were no longer separate from those whom were indifferent to quality. They could not simply go somewhere else.

I'm not talking about Dell, but towards Lenovo in this example. The concept remains the same should it be computers, cars, or anything that goes this route.

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