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No, Industrial Subsidies Do Not Benefit the Country As a Whole

This new piece at National Review by my intrepid Mercatus Center colleague, Veronique de Rugy, makes clear just how shoddy and weak are the arguments in favor of industrial policy and protectionism put forth by researchers affiliated with American Compass. Here are a few slices from Vero’s essay (but do read the whole thing):

American Compass recently produced a piece, written by Gabriela Rodriguez, professing the greatness of European industrial policy. Rodriguez uses European governments’ support for Airbus as a case study. Airbus, you see, sold more planes in 2022 than Boeing, invests more in R&D, employs workers throughout Europe, and has lower production costs thanks to the strategic decisions made by a few European governments to turn things around.

Rodriguez’s piece is part of a series of American Compass articles that claims to highlight “lessons on public policy’s vital role in a productive market economy that supports families, workers, communities, and entire nations.” The experience of Airbus allegedly offers a significant contrast with that of Boeing and is offered as evidence that “shareholder primacy does not necessarily yield the most competitive or innovative firms.”


As American Compass frequently does, this piece overclaims and under-delivers. It’s written as a contrast between two ways of doing business: the mindless, unconstrained way of the free market, supposedly epitomized by Boeing, and the carefully arranged marriage between government and business, supposedly epitomized by Airbus. But this contrast is a cartoon, and to draw it, Rodriguez has to elide some important facts.


Rodriguez does a poor job of assessing the actual costs involved in Europe’s boosting of Airbus and whether these are justified. Answering these questions properly is important if one is going to argue that subsidies and other special privileges bestowed on Airbus improved life for Europeans. But her piece makes no attempt to show that these subsidies and special privileges — over $200 billion in today’s dollars bestowed on Airbus over the last 40 years — have been beneficial to anyone other than Airbus and its executives, suppliers, and workers. Is the industrial policy that produced Airbus a net positive for the European economy or taxpayers in the countries that supported it?

Europe’s stagnant economic growth, high unemployment rates, and high debt over the last few decades are not evidence in support of that theory. Also, European countries have seen their manufacturing sectors shrink as a share of total employment since the 1970s just like developed countries on other continents.