Thinks 473

Samuel Gregg: “Industrial policy seeks after all to alter the allocation of resources and incentives in particular economic sectors that would otherwise transpire if entrepreneurs and businesses were left to themselves to innovate and compete. It involves the government engaging in targeted economic interventions in order to: 1) produce particular outcomes in terms of capital investments, provision of goods and services, type of jobs, and employment levels; and 2) encourage the advent of economic sectors that, it is argued, would struggle to materialize without state-intervention. The forms taken by industrial policy range from subsidies to preferential tax treatment, loans at below-market interest rates, outright grants of capital, joint public-private enterprises, and special regulatory treatment. Alas, there are good reasons to doubt industrial policy’s effectiveness in producing a more broad-based economy. East Asian miracles like South Korea and Taiwan are often touted as examples of industrial policy achieving this goal. The ground-breaking study of these cases undertaken by the distinguished Indian-American economist Arvind Panagariya, however, indicates that industrial policy played at best a marginal role, and often produced dysfunctional effects. Even the instance of Taiwan’s development of its world-class semiconductor industry turns out—contra the economic nationalist refrain—to have had relatively little to do with industrial policy.”

WSJ: “Government didn’t build America. Thomas Edison, Andrew Carnegie, J.P. Morgan, Bill Gates, Warren Buffett and millions of investors, innovators and small-business people you’ve never heard of did that. No nation can stifle the genius of someone like Jack Ma and have any hope of becoming the world’s dominant economy. In all probability China has hundreds of Jack Mas who will never be discovered as they try to do business under a system that one Chinese investor described as “restrict this, cancel that, regulate this, censor that.” The greatest economic liberator in the postwar world was Deng Xiaoping, not Margaret Thatcher or Ronald Reagan. His reforms starting in 1978 turned a stagnant, starving Chinese economy into an economic powerhouse. He did it by reducing the role of government in the Chinese economy, which permitted the natural entrepreneurial ability and genius of the Chinese people to generate an economic miracle. But as market freedom grew to challenge the power of government, the Communist Party choked off freedom.”

Alchian and Allen: “Fortune does not hand down information and guidance to discover improved techniques of production and distribution of better products. It’s obtained by investing in risky exploration and experimentation with one’s own wealth. Some experiments, perhaps most, fail. The failures disappear with little publicity.” [via CafeHayek]

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Rajesh Jain

An Entrepreneur based in Mumbai, India.