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Topics on Industrial Policy

Paper Session

Saturday, Jan. 6, 2024 8:00 AM - 10:00 AM (CST)

Marriott Riverwalk, Alamo Ballroom Salon B
Hosted By: Union for Radical Political Economics
  • Chair: Ignacio González, American University

The Return of Industrial Policy in Data

Simon Evenett
,
University of St.Gallen
Adam Jakubik
,
International Monetary Fund
Fernando Martín
,
Global Trade Alert
Michele Ruta
,
International Monetary Fund

Abstract

This paper introduces the New Industrial Policy Observatory (NIPO) dataset and documents key stylized facts on the return of industrial policy in 2023. The data show that the recent wave of new industrial policy activity is primarily driven by advanced economies, and that subsidies are the most employed instrument. Trade restrictions on imports and exports are more frequently used by emerging market and developing economies, possibly reflecting more limited fiscal space to engage in subsidy competition. Strategic competitiveness is the dominant motive governments give for these measures, followed by climate and supply chain resilience. In exploratory regressions, we find that implemented measures are correlated with the past use of measures by other governments in the same sector, indicating the tit-for-tat nature of industrial policy. Furthermore, domestic political economy factors, fiscal space, and macroeconomic conditions correlate with the use of industrial policy. We intend for the NIPO to be a public resource to help monitoring the evolution and effects of industrial policies.

Planning Our Way Out of The Climate Crisis: Keynes and the Revival of Industrial Policy

Mark Paul
,
Rutgers University

Abstract

Climate Economics ignores key insights from Keynesian economics. The resulting challenges are twofold: integrated assessment models assume that economies are always on the efficiency frontier, and thus climate spending is costly; and economists assume pricing the externality of pollution is sufficient to address what Lord Nicholar Stern has called the “greatest market failure of all time.” This diverges substantially from recent policy debates that have centered planning and industrial policy as essential to address the crisis at speed and scale. In this paper we focus on the second challenge: the need for a broad array of policies to transition the economy to meet global warming targets. Drawing from the rich empirical work conducted by engineers, who often center government planning in transition analysis, and the theoretical work of Keynes, we explore the role of planning and industrial policy in transitioning away from fossil fuels. Contrary to neoclassical theory, pricing is not the most efficient way to transition the economy, and indeed the key challenge is not one of economic scarcity, but of solving coordination challenges, thus requiring government planning.

A Public Equity Stake as a Corporate Guardrail in Industrial Policy

Lenore Palladino
,
University of Massachusetts-Amherst

Abstract

U.S. politicians are actively “marketcrafting”: the passage of the Bipartisan Infrastructure Law, the
CHIPS and Science Act, and the Inflation Reduction Act mark a new moment of robust
industrial policy. However, these policies are necessarily layered on top of decades of shareholder
primacy in corporate governance, in which corporate leaders have prioritized using
corporate profits to increase the shareholder wealth. The Administration and Congress has an
opportunity to use industrial policy to encourage a broader reorientation of U.S. businesses away
from extractive shareholder primacy and toward innovation and productivity.
A public equity stake is one mechanism for active participation by the public in companies receiving investment due to industrial policy. Yet the substantive implementation questions for proactive public participation in corporate decision-making are manifold. Public equity stakes could mean the federal government receives a variable financial return on an investment, but what kinds of shares should be issued to the government and what dividend rights should they have? Public equity stakes could enable involvement in governance, including the ability to veto certain company actions, and accompany both economic and governance rights. How should the public interest be defined in terms of the federal government’s responsibilities in voting?
This article examines the potential impact of a public equity stake in private companies as well as other discrete opportunities for including corporate guardrails to prevent public funds from flowing mainly to shareholders, to encourage gain-sharing with multiple corporate stakeholders, and to ensure that the public interest embedded in industrial policy is actually met.
JEL Classifications
  • L5 - Regulation and Industrial Policy
  • O2 - Development Planning and Policy