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No People But the Chinese Have Anything to Fear from Beijing’s Industrial Policies

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My intrepid Mercatus Center colleague Veronique de Rugy explains in tomorrow’s New York Times why Marco Rubio and others are mistaken not only to believe that Beijing’s industrial policies will strengthen China’s economy, but also to suppose that Uncle Sam’s mimicking of such policies will do anything other than damage the American economy [2]. Some slices:

State planning will darken China’s economic prospects. Its resources are limited, so any expansive government investment in one, two or 10 sectors of its economy diverts resources from other sectors, threatening their future growth.

Free-market proponents usually understand that, plagued by ignorance of all-important localized knowledge [3], government officials cannot outperform the market at picking winners. In practice it ends up picking losers or hindering the abilities of the winners to achieve their greatest potential. Central planning is antithetical to innovation, as is already visible in China [4].
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Also, Mr. Rubio’s report errs in concluding that because manufacturing wages are high, policymakers should work to increase employment in manufacturing. Wages in manufacturing are high because labor-saving innovations have increased workers’ productivity and, thus, their wages. But any workers artificially shifted into manufacturing would be redundant — and being redundant, their productivity and their wages would be low.

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China’s economic future is bright, but only as long as it rejects large-scale industrial policy and instead recommits to competitive markets. We shouldn’t copy its recent command-and-control playbook. Rather, we should stick with the time-honored policies that have made the United States the titan to topple in the first place: free trade, competitive markets, reasonable regulations and the rule of law. Maybe China will decide to mimic more of our behaviors instead.

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