Industrial policy revisited

Posted on April 28, 2005  /  0 Comments

In the 1980s and 1990s, a debate raged in the US on the question of industrial policy; the proponents arguing that the government should pick sectors and “winners” and the opponents arguing that government bureaucrats were not in a position to do so and that the market should be allowed to take its course.

One of the most effective methods of policy argumentation in the US is “we are falling behind [fill in the blank].” Those days, the country that was forging ahead of the US was Japan, in most cases (e.g., Fifth Generation Computing, High Definition Television) . The argument was that the strong government bureaucracy in Japan (in particular, MITI–the Ministry of International Trade and Industry) was picking winners, while the potential winners in the US who were spending their energy fighting each other in the marketplace were ending up as losers.

The abysmal state of the Japanese economy and the failure of MITI led to a lull in this debate, but looks like it has started up again, this time around the Internet. The opposing view has already been articulated by the Economist, in its latest issue.

These debates are applicable to developing countries too. The key difference is the quality of the bureaucracy and the politicians in charge. Would you trust the Indian, Sri Lankan, or Indonesian bureaucracies and politicians to be competent in picking winners, even if you think the Americans are?

Down to the Wire
Thomas Bleha
From Foreign Affairs, May/June 2005

Summary: Once a leader in Internet innovation, the United States has fallen far behind Japan and other Asian states in deploying broadband and the latest mobile-phone technology. This lag will cost it dearly. By outdoing the United States, Japan and its neighbors are positioning themselves to be the first states to reap the benefits of the broadband era: economic growth, increased productivity, and a better quality of life.

Thomas Bleha, the recipient of an Abe Fellowship, is completing a book on the race for Internet leadership. Previously, he was a Foreign Service officer in Japan for eight years.

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