We propose theoretical foundations of industrial policy, namely that a) some economic activities are superior to others, b) the free market will not always optimize same, and c) state interventions can encourage such activities. We denominate superior economic activities "advantageous economic...

The theory of comparative advantage is widely misunderstood to demonstrate the universal superiority of free trade. In fact, the theory depends upon a number of key assumptions and fails if they are relaxed. Empirically, many of these assumptions are highly questionable, if not demonstrably...