Industrial Policy Practice: Canada and Her Competitors

Abstract

The pervasive divergence between private and social returns due to externalities have historically led countries to underwrite industrial risk. The approaches to this have varied widely across countries as have the articulated rationales and the results have been mixed, with some successes but also many failures. This paper provides a concise review of the theoretical case for industrial policies and the empirical evidence concerning their role and effectiveness in economic development. The nature and use of industrial policies in Canada is reviewed and compared to practice in the United States, Europe (including separately in France, Germany and the United Kingdom), East Asia and India. The paper finds that industrial policy use has been widespread – including both formally declared industrial policies and various other policy interventions that are not so labelled – and have had important effects in shaping industrial development in both the advanced and developing economies. What is notable in the recent re-appraisal of the history of economic development is the absence of success without public underwriting of industrial risk at some point in the industrialization process. With governments worldwide re-engaging in industrial policies, typically supporting “future technologies,” the question for Canada, is whether it can stay out of the fray.