≡ Menu

Industrial Policy Would Ensure Failure

Here’s a letter to the Wall Street Journal:


“National conservatives” now clamoring for U.S. industrial policy should read your report “U.S. Manufacturers Seek China Alternatives as Tensions Rise” (May 31st). In it, they’d discover that American businesses do not need to be prodded by politicians in order to take account of threats to their supply chains. Your report makes clear that each business has strong incentives to learn the facts on the ground and to weigh the risks of potential supply disruptions that arise from acquiring inputs from countries such as China against the benefits of acquiring inputs from such places.

Not only do politicians and bureaucrats have worse information and weaker incentives than do businesses to get supply-chain diversification just right, the optimal degree of such diversification varies from industry to industry and, indeed, often from firm to firm. Industrial policy would therefore not only strip supply-source decisions from those parties who have the best knowledge and strongest incentives to get these decisions ‘right,’ it would impose on diverse businesses a one-size-fits-all ‘solution’ that would almost certainly be suboptimal for all.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030