Industrial Policy

Abstract

If the concept of competition policy is a little vague, the precise meaning of the term ‘industrial policy’ is almost invisible; one writer has indeed described it as ‘more a state of mind than a self-explanatory prescription for action’. Yet, like the elephant, while difficult to define it is unmistakable when encountered; in fact almost all governments have some form of industrial policy — even if it consists of no more than letting industry decide its own destiny. Without attempting any sophisticated semantics, the expression will be used here to refer to any measures adopted by governments with a view to promoting the efficient development of its industries. In particular, such measures may be directed at either the structure of individual firms, regardless of their industrial classification, or the restructuring of specified industries. The former usually apply to situations in which potential gains from economies of scale or more rapid technological development require changes in the size or structure of a firm, changes which for one reason or another unaided market forces fail to bring about. They might also apply, however, where it is desired to encourage the establishment or growth of small firms for social or technological reasons. The restructuring of industries, rather than individual firms, is involved when growth potential is inadequately exploited by unassisted market forces or, alternatively, when the process of industrial decline involves human or physical losses which cannot reasonably be left uncompensated.