Targeted industrial policies: theory and evidence

Abstract

At some point in the next decade, the U.S. will probably adopt an explicit industrial policy. This policy may include general incentives for capital formation, R&D, retraining of labor, and so on, but it will also almost surely involve "targeting " of industries thought to be of particular importance. By targeting I mean an effort to change the allocation of investment- as opposed to its overall level- so as to favor particular industries in which the private market is believed to underinvest. There may be other.concepts of targeted industrial policy, but the question of the government's role in the allocation of investment is surely the most important and controversial one. Support for some kind of targeted industrial policy comes from a remarkably wide political spectrum. The idea is favored by nearly all Democrats and many Republicans, nearly all liberals and many conservatives, nearly all unions and many businesses. The only fairly unified opposition comes from professional economists. It is a tribute

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