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A Review of Industrial Policy Books

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A Review of Industrial Policy Books

November 16, 2021

Below you can find part of our review of the literature on industrial strategy, developmental states, and innovation policy. The list of essays and texts ranges from more academic works to historical overviews of countries that succeeded in economic development. Hopefully these works can provide a starting point for others interested in learning about industrial policy, including its successes, failures, and limitations.

You can find links to reviewed titles below, as well as additional titles on Lincoln's new page.


Alexander Hamilton, The Report on the Subject of Manufactures

The foundation of the American system and the 3rd treasury report of Alexander Hamilton, it is a general overview of the state of manufacturing in America, and ways to ensure future American industrial prosperity.

Hamilton's theme across the entire report was that America needed to have a policy to ensure its infant manufacturing industries could develop, via the usage of infant tariffs to protect these new industries from at the time British manufacturing. Beyond tariffs Hamilton supported public infrastructure, which he called "internal improvements' ', which ranged from canals to roads which would make it easier to conduct commerce across the United States.

The latter is understandable as prior to the American revolution, one of the British policies regarding its colonies was to use the colony's as markets for manufactured goods, and try to stop industrialization in its colonies, to create a market for it's advanced goods and ensure that the UK had a supply of raw goods to create said manufactured goods to send back. Alexander Hamilton did not want the case that despite being independent, that America could be an economic vassal of the UK due to the UK producing advanced goods and America only sending raw goods.

Friedrich List, The National System of Political Economy

A German Economist during the middle of the 19th century, Friedrich List studied the industrialization of the United States to bring the same practices back to his native Germany, to ensure when the various disunited German states in the future became one German nation, they would be able to industrialize and not be dependent on other countries like the United Kingdom for complex goods.

A key point expounded on is that letting one's country be directly at the whims of free-market forces is perhaps not the greatest idea during the foundational stages of industrial development. Protective measures like tariffs can be used to ensure the growth of infant industries, but one has to be careful to ensure that these companies do not become too dependent on subsidies, and collapse on outside pressure.

And a historical irony is, for much of the 19th century, free trade was typically something one did not do of their own volition. From the collapse of Indian industry due to the import of cheap British industrial goods to the enforcement of free trade and the sale of opioids in Qing China to the opening of Japan, free-trade, while in the aggregate good, is not so good when it is enforced at gunpoint and leads to various negative externalities.

James Stuart Olson, Saving Capitalism: The National Reconstruction Finance Committee

The National Reconstruction Finance Committee was a little-known agency founded by President Hoover at the onset of the Great Depression to provide loans to banks, railroads, and other major industries hit hard by the Great Depression to help spur a return to normalcy within these firms. FDR expanded the scope of the National Reconstruction Finance Committee to be the de facto bank of the New Deal. From projects like the CCC to the TVA to provide loans to small businesses across the nation, it was the National Reconstruction Finance Committee that provided the necessary capital to get these projects started.

It goes to show how Industrial Policy is intrinsically tied to financial policy, as industrial projects such as the TVA require a source of capital to successfully operate. And also, that despite common beliefs, a government agency can manage to produce a profit and follow its mission.

US | WWII-Present

Ha Joon-Chang, Bad Samaritans

From 2007, a bit before the recent interest in industrial policy, the book is a primer into how free-trade extremism overall is not only ahistorical when compared to pre-1945 economic practices in the United States, but in general across the world. For example, explaining how one of the reasons that Irish wool manufacturing collapsed was due to the Wool Act preventing wool exports.

Another thing noted is the state intervention into firms is not just an Asian Tiger phenomenon. Exceptions in economic policy if the exception is in practice far more widespread. From Finnair to Volkswagen's plurality owner being Lower Saxony to the first years of Embraer, the state having a more interventionist role in company formation is an international phenomenon.

Matthew C. Klein and Michael Pettis, Trade Wars are Class Wars

Klein and Pettis's book goes over how trade policy for the past thirty years has enriched a selected few vs the American middle class due to political decisions to decide how international trade is organized and made it harder to understand the supply chains of the world, with a variety of consequences, such as tax avoidance making it hard to figure out where the true home of a company actually is.

Again, a common theme in industrial policy is that it is not only important for the actual infrasture to exist, but change how finance policy is conducted not just locally, but globally as well to make possible the investments for an industrial policy. They advocate changing who in America borrows due to financial inflows from the rest of the world to the United States from individual borrowers to the government. As the US government has to absorb a permanent financial account surplus, it would be preferable given low interest rates for the government to use this money to invest in public infrastructure and other projects. Unfortunately, we can not quite control all of this from our end, as much of the issue is from countries that have a trade surplus due to repressing internal consumption.

Mariana Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myth

Mazzucato covers how many foundational technologies got their start due to government support. Examples include the GPS, which was started by the Department of Defense. While civilians and corporations have access to it now, making things like Google Maps possible, it is still the federal government through satellites it maintains that keeps GPS running for the United States and the rest of the world.

There are some quibbles to keep in mind when reading the book. At some points, Mazzucato leans too much into the direction in the state doing everything. This issue is noticed particularly in the section with the iPhone. Despite the government having a hand in the technologies required to make an iPhone, there is a reason why in the end, it took a private company to create the actual iPhone. The invention of technologies often requires the synthesis of other technologies that may not be obvious to their initial creators. Another example is Semi-Conductors. While the government through the buyer of first resort programs at NASA played a part in bringing Semiconductors to market, it was still through innovations in engineering that firms like Fairchild or Intel did in manufacturing said semiconductors.

East Asian Development

Byung-Kook Kim and Ezra Vogel, The Park Chung Hee Era

A collection of academic essays about South Korea during the rule of General Park Chung Hee, the middle sections on economics cover much of the many economic policies that General Parked enacted, from the distinct credit policies used to fuel the South Korean chaebol, the learning by doing that helped create the first native South Korean car, the Pony, to the usage of Five Year plans to orchestrate industrial development in critical industries, from electricity production to steel.

The industrialization of Korea is truly miraculous if you put it into its 1964 context. It was first thought that due to the prevalence of heavy industry, coal, and greater support that North Korea would end up the richer of the two Koreas. Additionally, few may know this, but back then, Ghana had a higher GDP per capita than South Korea and the IMF declared South Korea to be a basket case of a country that would never expand beyond being an agricultural nation.

It also importantly covers the political context of Park’s Korea. The authors keep in the mind the political situation of South Korea and explain that despite the economic growth, there were plenty of reasons why discontent over his regime developed.

Ezra Vogel, Deng Xiaopeng and the Transformation of China

A biography of Deng Xiaopeng covering his life from his first days in the CPC, his various denouncements during the cultural revolution, to his leadership of China and enactment of economic reforms.

The specific section to keep in mind would be the latter sections of the book, where the economic experiments in capitalism in Guangdong are explored. These experiments range from the first Special Economic Zone (SEZ) in Shenzhen to rural agriculture reform to de-collectivize agriculture and return household agriculture to successfully reform the production and sale of crops in China. Importantly, the allowance of TVE's (Town and Village Enterprises) and Individual Household Enterprises led to the gradual return of a type of market-based economy, even in small bits, which helped cut down on unemployment.

Something we can take from the experiments in differing economic policies for reasons, as we can use federalism not only as a laboratory of democracy but as a laboratory of economic policy, to more effectively figure out what policies may or may not work before rolling them out nationally.

Joe Studwell, How Asia Works

A general primer on East Asian economic development, one of the benefits of How Asia works is the more foundational factors that make or break successful industrial development.

For example, East Asian countries that had successfully managed to grow economically had enacted land reform programs that made the distribution of land more equitable versus ones that declared that they were enacting land reform, but for reasons of incompetence or corruption did not engage in full scale land reform.

Studwell also goes over cases where economic growth did not end up happening for various reasons. From the Philippines, whose practically feudal latifundia farm holdings did not effectively get reformed, to the outstanding corruption of the Marcos presidency, economic growth depends on having a state that is nominally competent and not actively stealing from it's people.

Additionally, while successes of industrial policy are cataloged, industrial policy failures are also noted as well. Malaysian industrial policy shows that while protecting infant industries is important, one still has to subject them to competition to ensure when they grow they are able to compete domestically and internationally, so they can be weaned off of government protection with little fuss.

Lee Kuan Yew, The Singapore Story

A contrast to General Park and Deng Xiaopeng, Lee Kuan Yew's memoirs on how he managed to propel Singapore to First World status show how in practice free-market policies can be statist in implementation. The status of being a major financial center, while starting by having a liberal environment for foreign investors, the Monetary Authority of Singapore compared to Hong Kong was far more rigid in looking for discrepancies. The MAS rigidness helped on several occasions when prestigious investors tried to get into Singapore, got denied, and a few years later their books turned out to be fraudulent.

Industrial Policy also includes policy regarding the cultivation of human capital. Unlike some of the other countries listed here, Singapore being a city-state means it does not have a large local talent pool to cultivate talent from. From trying to ensure that university graduates stay in Singapore with job offers vs leaving to the west, to a government culture of competence in exchange for accountability. Economic development is not just the development of factories. If one does not have the expertise to manage those factories or the culture to do so in an uncorrupt fashion, any industrial policy will be hobbled from the start.

Chalmer Johnson, MITI and the Japanese Miracle

A history of MITI, the Japanese Ministry of International Trade and Investment, from its origin to its role in the industrialization of Japan post-WW2. Part of the challenge of creating a modern industrial state is the creation of a modern bureaucracy that is not dependent on patronage. There was nothing particularly "Japanese" in the reforms taken. Having a functioning bureaucracy that could successfully manage the import of foreign technology to improve the quality of exports is a policy in theory any country could take.

A lesson to be learned from the industrial development of Japan compared to other Asian economies is the importance of developing a competitive internal economy through any means necessary. While MITI rolled out policies such as low-interest funds to targeted industries or exclusion on duties for critical technologies, along with specific policies regarding foreign corporations, such as MITI establishing certain guidelines that IBM had to follow when entering the country, to try to get access to IBM's computer technology to kick start a Japanese computing industry. One might argue that we have forgotten these lessons, as Samuel Slater was how the United States got its first start in the industrial revolution.

Joel D. Aberdach et al., The Role of the State in Taiwan's Development

A collection of essays on Taiwanese economic development from various perspectives. In the collection of essays, there is something for everyone regarding Taiwanese Economic development. There is a chapter, for example, covering the initial foundations of the Taiwanese semiconductor industry and the creation of TSMC, the ​​first dedicated semiconductor foundry in the world. There are also comparative economics chapters that compare Taiwan's economic development practices to other Asian Tigers, such as South Korea or Hong Kong.

What is helpful in this book is the writers ensure not to be biassed towards a one-size-fits-all approach to how industrial development occurs. While the industrial policy in Taiwan like a heavy industry build-up was attempted, unlike in Korea due to a lesser private sector buy-in they were not as successful in doing this method of industrialization. One can not do industrial policy on a flip of a switch, one needs buy-in from not only political leadership, but from the private sector and the bureaucracy to ensure it doesn’t descend into rent-seeking.

Reda Cherif and Fuad Hasanov, The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy

From the IMF, the paper goes over the economic and reputational history of Industrial Policy through the ages, from the success of the Asian Tiger economies to the failure of ISI in India were due to the license raj innovation depended far more on being able to procure licenses and deal with the government than innovate. Some countries like Chile or Malaysia are in the middle, where according to them they branched out into new industries, but these industries are still dependent on foreign technology. This would be an incomplete industrial policy, as while a new industry exists, it is dependent on importing technology that is unable to be natively produced. Ideally, it would be possible to produce the given technology for industries at home to produce the needed infrastructure for a given industry without outside technological dependence.

They theorize about three kinds of industrial policy, ones that solve individual market failures, ones that are more interventionist, and those that would create industries from scratch where the state plays a master rule versus leaving it to the market.

Clayton Christensen, The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business

A classic, Clayton Christensen comes up with the theory of “disruptive innovation” that differs from typical innovation as the latter doesn’t change market structure while the former changes an entire market structure entirely. Something to note is oftentimes it’s not the technology that is disruptive but the social practices that surround the technology. Cars only become a truly disruptive technology when with the Model T, they can be mass-produced. Until then, they were an expensive luxury. While the car was an innovation, the real disruption occurred when the masses had easy access to automobiles due to reduced costs.

Another note is the usage of the S-Curve to showcase how a firm engaging in disruptive innovation can go after an incumbent firm. While first versions of a new product may be of lower quality than the new product compared to the incumbent, the disrupter can rapidly innovate on its product offerings until the incumbent firm notices too late that the disrupter's formerly lower-tier product has increased quite a bit in quality and loses market share to the new company.

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