Industrial policy has staged a remarkable comeback in Washington. Once a term used with caution, if not embarrassment, it’s now embraced across the political spectrum as a tool to reindustrialize America and outcompete China. Whether it’s semiconductor manufacturing, rare earth mining, or green energy technologies, federal policymakers increasingly believe that strategic government intervention is not only justified but necessary.
Yet for all the rhetoric, the case for industrial policy remains stubbornly weak. Historical and contemporary evidence—from China to South Korea, and even the US itself—indicates that these interventions often fail to deliver lasting benefits. Instead of driving innovation or sustainable growth, they frequently distort markets, politicize economic decisions, and misallocate resources. Even in the best-case scenarios, the returns are modest: estimates from international manufacturing data suggest that, in highly-open economies with significant scale elasticities, the welfare gains from even optimally-designed industrial policy are underwhelming.
However, these statistics do not dampen support for industrial policy. Nowhere has the enthusiasm for industrial policy been greater than in the push for “green growth.” As climate change has climbed the global agenda, governments have turned to industrial planning to decarbonize their economies through massive public investments. In the US, the Inflation Reduction Act has channeled billions into clean technologies, aiming to ignite a new era of innovation and manufacturing revival. …
The alternative is not laissez-faire complacency. As Jwa and Lee (2018 ) argue, a pro-market industrial policy—one that supports the environment in which firms operate rather than the firms themselves—may offer a more constructive path. Rather than picking winners, the state can streamline regulation, and enable dynamic markets. This framework acknowledges that economic development is not merely about allocating capital—it’s about shaping incentives. It is the institutional and behavioral conditions under which firms operate that matter most. Misguided industrial policy, especially when cloaked in moral rhetoric like “green growth,” risks substituting political hope for economic logic.
The renewed appetite for industrial policy in the US reflects legitimate concerns: international competition, climate change, and strategic vulnerabilities. But the answer cannot be a nostalgic reversion to postwar-style planning. History—and contemporary experience—show that industrial policy is no panacea. It is costly, politically fragile, and often economically ineffective.
Instead of romanticizing the state as an entrepreneur, we should focus on building a dynamic, competitive, and innovation-friendly environment. That means resisting the urge to centrally plan the future, no matter how urgent the geopolitical stakes. In economic development, as in evolution, survival and success are not achieved through decree—but through disciplined selection, adaptive behavior, and market feedback.
It looks to me like this author is saying that centralized planning is not the way to go. But, we already knew that, didn’t we? He suggests that instead of planning to the company level that loosening restrictions and regulations on an industry may be the better answer to the problems, especially the ones we face. Since there is a lot of lobbying and crony capitalism that is as bad as central planning, setting the industries free by loosening the noose of regulation from around their necks is a better choice because then, the marketplace will choose the winners and losers, not the bureaucrats. Don’t you think this would work better than what we are doing now?