Commentary on Gregory Tassey’s “Rationales and mechanisms for revitalizing US manufacturing R&D strategies”

Abstract

Opinions have long been divided on what this implies for industrial and innovation policy. Towards the end of Margret Thatcher’s premiership in the UK, her newly appointed industry minister, Nicholas Ridley, famously said that he had nothing to do and thousands of officials to help him do it. His view was that market forces should be left to operate without any interference whatever. A few year later, by contrast, his successor in that post, Michael Heseltine, promised on his appointment that he would intervene ‘‘before breakfast, dinner and tea’’ to help British companies. It seems to me that this ambivalence stems from the rather lukewarm case for policy intervention to be found in mainstream economics. As all readers of this journal will know, the mainstream argument is that policy intervention can be justified if there is clear evidence of market failure and a convincing case that government intervention can actually make things better. The traditional diagnosis lists three generic causes of market failure: externalities, information asymmetries and increasing returns. Some would extend that list to include coordination problems and other possible causes. But even if it is quite plausible to expect that such phenomena exist and do cause some degree of market failure, it is quite another thing to design the ‘optimum’ policy response and by no means trivial to design a welfare enhancing response. For a start, it is no mean task to establish the exact magnitude