Page 167 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
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objectives. Market failures that may justify an active government role
in the economy include monopoly power, negative externalities, and
inadequate consumer information.
Industrial policy represents the greatest difference between the
United States and other economies, except for Great Britain, another
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Anglo-Saxon economy. Industrial policy refers to deliberate efforts
by a government to determine the structure of the economy through
such devices as financial subsidies, trade protection, or government
procurement. Industrial policy may take the form either of sectoral
policies of benefit to particular industrial or economic sectors or poli-
cies that benefit particular firms; in this way such policies differ from
macroeconomic and general policies designed to improve the overall
performance of the economy, policies such as federal support for edu-
cation and R & D. Although Japan has actively promoted sector-
specific policies throughout the economy, the United States has em-
ployed these policies in just a few areas, notably in agriculture and
national defense. Although firm-specific policies are generally
frowned upon in the United States as examples of “pork barrel poli-
tics,” government policies in support of Chrysler and Harley David-
son in years when they were threatened were considered successful
firm-specific policies. However, as I shall note below, the United
States in the 1980s took a major steptoward establishing a national
industrial policy.
The rationale or justification for industrial policy and associated
interventionist activities is that some industrial sectors are more im-
portant than others for the overall economy. The industries selected
are believed to create jobs of higher quality, like those in manufactur-
ing, to produce technological or other spillovers (externalities) for the
overall economy, and to have a high “value-added.” These industries
are frequently associated with national defense or are believed to pro-
duce a highly beneficial effect on the rest of the economy; the com-
puter industry and other high-tech sectors provide examples of such
industries. In general, however, the only justification for an industrial
policy considered legitimate in the United States is to overcome a

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Stephen G. Breyer and Richard B. Stewart, Administrative Law and Regulatory
Policy (Boston: Little, Brown, 1979).
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The literature on industrial policy is quite extensive. A good place to survey the
subject is M. Donald Hancock, John Logue, and Bernt Schiller, eds., Managing Modern
Capitalism: Industrial Renewal and Workplace Democracy in the United States and
Western Europe (New York: Greenwood Press, 1991). An excellent and wide-ranging
discussion of the subject is Keith Cowling and Roger Sugden, eds., Current Issues in
Industrial Economic Strategy (New York: Manchester University Press, 1992).
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