Why industrial policies don’t work

Not in a democracy they don’t.

David Smith in The Times:

If it works, an industrial strategy will have been worth the wait

It won’t work. The reason?

Reeves rules out chlorinated chicken in US trade deal

Chlorine-washed chicken is not, in fact, an important issue. Every bag of washed salad in the European Union - and UK - has been washed in chlorinated water. There’s chlorine in our tap water. It’s just not a grand issue either way. Yes, we know there’s a lot of back-casting of reasons about why it’s very important indeed but we don’t believe any of them in the slightest. It’s important for one reason only, which is that it’s politically salient.

We the public have that bit between our teeth. And in a democracy that’s what matters, therefore chlorinated chicken matters.

In a planned economy, or one with an industrial strategy, such an issue would be readily sacrificed to the far greater interests of what is the tariff rate entering the US for UK built cars. Or UK steel. Or….you get the picture.

But we cannot have that industrial strategy because of the democratic ullulating about chlorinated chicken.

Those other examples waved about of where industrial strategy worked - say Ha-Joon Chang’s praise of South Korea’s experience. He does point out that the military dictator of the time simply told business what to do - not something compatible with any form of democracy. We might also mutter something about China’s more recent experience as not being wholly in accord with the directly expressed will of the people. Maybe.

Which leads us to this conundromic position. It’s not possible to have a strong industrial strategy, a planned economy from the centre, in anything like a free democracy. Because in a democracy what matters is what the population believes, whatever that is. Chlorine-washed chicken is our example here. A matter of no great import (aha, aha) other than that we the peeps in our masses think it is. Planning, strategy, doesn’t work in such circumstances because it will be driven by those things we the peeps believe in our masses. Rather than by that hopefully rational weighing of all the available opportunities and a measuring of the trade offs.

That is, democracy means we tell them. Planning means they tell us. The two aren’t compatible.

And, yes, we tell them is the correct answer.

Tim Worstall