Industrial policy: Always dismissed, always deployed

Industrial policies are interventions by public authorities with the purpose of influencing the sectoral (or locational) structure of an economy. Authorities could have a multitude of objectives in mind. With the rising geopolitical tensions between the US and China, IP experienced a revival. Supply chain bottlenecks in the wake of the COVID-19 pandemic reinforced this trend, as did the attack of Russia on the Ukraine. Mitigating the risks of dependence, gaining strategic autonomy, became a political priority (near-shoring, friend-shoring). However, while regularly dismissed, IP has always been deployed. Often in a defensive mode, to protect firms challenged by international competition. But also in a forward-looking manner, to support innovation, building on basic research and R&D, directing technological change. Externalities, creating a wedge between private and social values and leading to under provision of goods or over usage of resources, have been the standard justification for IP interventions. In addition, trade- and competition-related arguments are used to defend policy interventions of an allocative type (infant industries and steep learning curves, Airbus vs. Boeing). Redistributive versions of IP support regions left behind or industries in decline. National security (geopolitics) became again a major driver of IP (US CHIPS and Science Act). IP is implemented in a variety of national forms.