May 27, 2026

THE rIGHT IS THE lEFT:

Dear conservatives, industrial policy is a dead end (Samuel Gregg, 26 May 2026, CapX)

Industrial policy is in fact already widespread in Western societies. State subsidies, special tax write-offs, outright capital grants and joint public-private enterprises are rife in developed economies. The differences are really about scale and form.

One reason why many governments have often been reluctant to acknowledge the degree to which they promote such practices are the well-documented economic and political problems associated with industrial policy.

Among other things, these include: 1) the fact that governments cannot know everything they would need to know if they were to design successful industrial policies; 2) the massive opportunity costs associated with diverting scarce resources to less productive economic sectors; 3) industrial policy’s inherently political nature and its consequent susceptibility to political machinations and rampant cronyism.

Then there is the reality that the world’s economies are littered with powerful examples of industrial policy failure. Japan was once considered the poster child for industrial policy success. In the 1980s, many American commentators insisted that unless the US imitated Japan’s extensive use of industrial policy, it risked being supplanted by Japan as the world’s economic superpower.

The irony is that from the early-1990s onwards, Japan started slipping into its ‘Lost Decades’ of stagnation, and there is little doubt that industrial policy played a leading part in facilitating that decline. Indeed, one of the most comprehensive studies of industrial policy’s long-term impact upon Japan concluded that it produced ‘little, if any positive impact on productivity, growth, or welfare’.

This track record should cause conservatives to be more wary of industrial policy, including the current Chinese variety.