Here’s a different angle on Greg Ip’s flawed column on China’s “industrial policy of everything.”
Editor:
Greg Ip warns that the American and other economies will be left “in the dust” by China’s “industrial policy of everything” (“Beijing’s ‘Industrial Policy of Everything’ Leaves Rest of the World in the Dust,” May 15).
For two related economic reasons, Mr. Ip is mistaken.
The first reason is scarcity. Beijing cannot expand all of China’s industries simultaneously. To pump more resources today into the production of, say, rare-earth minerals and steel is necessarily to pump resources out of other industries, say, petroleum and aluminum. Therefore, Beijing’s mandarins can increase the productive capacity of some Chinese industries only by decreasing the productive capacity of other Chinese industries.
The second reason is comparative advantage. Even if, by some miracle, Beijing were to increase the productive capacity of all industries in China, some of these industries would nevertheless produce their outputs at higher costs than are incurred by their foreign competitors. These relatively higher-cost Chinese producers would thus be unable to compete successfully in global markets.
In short, basic and inescapable economic realities ensure that we Americans have nothing to fear from Beijing’s “industrial policy of everything” – which is a policy that attempts to achieve that which is economically impossible.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
