INDUSTRIAL POLICY, PARK CHUNG-HEE, AND LEE KUAN YEW

Abstract

However, industrial policy was just one component of a package of sound policies — for example, balanced government budgets, large infrastructure investments, and heavy investments in education and human capital — that the East Asian countries pursued. It is the entire package of growth-friendly policies that fostered growth rather than just industrial policy. Indeed the empirical evidence on the impact of industrial policy on East Asia’s economic performance is mixed at best, with some studies finding a beneficial effect, others a harmful effect, and yet others no effect. The lack of firm evidence in favor of industrial policy is hardly surprising. In fact, even in the absence of any sophisticated analysis by economists, it is clear that industrial policy is nonsense. Common sense alone suggests that industrial policy makes no sense. More precisely, there is a gaping hole in the basic logic of industrial policy — i.e. risk-averse government bureaucrats, rather than risk-taking, profit-seeking businessmen, determining which industries to invest in. In fact, the hole is so gaping that it would stump even the most ardent supporters of industrial policy. This fatal logical flaw casts serious doubt on whether even the very concept of industrial policy is meaningful or sensible…