(Roughly) Daily

“The question isn’t ‘what can an economy produce today?’, but ‘what can it learn to produce?'”*…

… and how we do we create the conditions to encourage that learning? Industrial policy, one possible answer, is making a comeback. But as Henry Farrell explains, that raises another challenge…

… For decades, economists have argued that state policy makers lack the requisite knowledge to intervene appropriately in the economy. Accordingly, decisions over investments and innovation ought be taken by market actors. Now, the “market knows best” paradigm is in disrepair. It isn’t just that “hyperglobalization” has devoured its own preconditions, so that it is increasingly unsustainable. It is also that some goals of modern industrial policy are in principle impossible to solve through purely market mechanisms. To the extent, for example, that economics and national security have become interwoven, investment and innovation decisions involve tradeoffs that market actors are poorly equipped to resolve. There are good reasons why Adam Smith did not want to see defense policy handled through the market’s division of labor.

What we now face is a quite different kind of knowledge problem. We lack the kinds of expertise that we need to achieve key goals of industrial policy, or to evaluate the tradeoffs between them. This lack of knowledge is in large part a perverse by-product of the success of Chicago economists’ rhetoric. Decades of insistence that economic decisions be handed off from the state to markets has resulted in a remarkable lack of understanding among government policy makers about how markets, in fact, work. This has a variety of consequences. Policy mistakes are more likely. Market actors find it easier to manipulate the understanding of government policy makers, e.g. as to the extent and kind of subsidies required in particular sectors or for particular purposes.

One way to remedy this is to rethink the kinds of specialist education that public administrators receive, both to ensure that low and mid-level functionaries are better equipped to take the decisions they need to take, and to signal increased prestige for non-traditional forms of policy knowledge. As the sociological literature suggests, elite US policy schools such as the Harvard Kennedy School, Johns Hopkins School of Advanced International Studies and Georgetown University (to name three entirely random examples) play a key role not simply in directly imparting knowledge through education, but in disseminating norms about the kinds of knowledge that are considered to be appropriate for policy decisions. These schools have by and large converged on a framework derived from a watered down version of neoclassical [indeed. one might suggest, neoliberal] economics. I argue that new skills, including but not limited to network science, material science and engineering, and use of machine learning would be one useful contribution towards solving the new knowledge problem…

Assuring access to the right tools and techniques: “Industrial policy and the new knowledge problem,” from @henryfarrell in @crookedtimber.

* Joseph Stiglitz (@JosephEStiglitz)


As we retool, we might send thoughtfully calculated birthday greetings to Paul Collier; he was born on this date in 1949. An economist who specializes in development, he is a professor at Oxford and director of the International Growth Centre.

Collier is a specialist in the political, economic and developmental predicaments of low-income countries, and is probably best known for his 2007 book, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. His philosophy, developed there and in his 2010 The Plundered Planet, is encapsulated in his formulas:

  • Nature – Technology + Regulation = Starvation
  • Nature + Technology – Regulation = Plunder
  • Nature + Technology + Regulation (good governance) = Prosperity 


Written by (Roughly) Daily

April 23, 2023 at 1:00 am

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