Do We Need National or European Champions?

Abstract

This chapter reviews the main arguments for and against industrial policies that promote national or European champions. The arguments may be organized in three groups: static (extracting monopoly rent abroad; protecting employment); political-economy; and dynamic ones (innovative champions; spillovers, clusters, and poles). From the perspective of global welfare, it is argued that these three types of arguments are bad, bad, and mostly bad, respectively. The beggar-thy-neighbor type arguments of the static models of imperfectly competitive markets are, in general, bad from a global perspective, because they are aimed at “stealing” rents from other countries. The political-economy type arguments in favor of champion-promoting policies tend to be bad from any perspective other than those of politicians (and the protected firms). The infant-industry type arguments of the dynamic models of innovation and growth may be interpreted as suggesting that policies that try to prop up national champions are “mostly bad.” There are exceptions, however, and situations can be identified where temporary or targeted champion-promoting policies can be beneficial.