[LINK] "The U.K.'s Industrial Policy Is Bound to Backfire"

[rfmcdonald]

Victoria Bateman's Bloomberg View article arguing that the post-Brexit United Kingdom's proposed economic policies aren't likely to work out well, at all, feels plausible.

Industrial Strategy is making a comeback. One of Theresa May's first acts as prime minister was to create a new "Department for Business, Energy and Industrial Strategy." That may sound impressive, but history is littered with equally well-intentioned but unsuccessful industrial strategies. For every case of success one can find more than one case of failure.

Previous attempts at industrial strategy in Britain include disastrous interventions during the 1920s and 1930s. An “Industrial Transference Scheme,” aimed at moving unemployed industrial workers to new jobs in expanding regions. Other policies sought to encourage mergers to help “rationalize” industry and exploit economies of scale, all with the aim of catching-up with the U.S. From 1932, a 10 percent general tariff on imports (later raised to 20 percent) was imposed. The policies arguably provided some short-term relief, but they stored up competitiveness problems for the future.

New interventions followed World War II: more state-supported mergers in everything from shipbuilding to computing, industrial subsidies, a public campaign to "buy British", a policy to create "national champions" and nationalization. The result was a 50 percent Anglo-German productivity gap and a rapid decline in Britain's share of world manufacturing exports to 9 percent by 1973 from 25 percent in 1950. By the end of the 1970s, a shakeout of inefficient resources was required, one which set the stage for Margaret Thatcher's showdown with the trade unions.

Most if not all of these past strategies would today run afoul of the European Union's state aid rules or the World Trade Organization's Agreement on Subsidies and Countervailing Measures. Subtler tools, however, remain, including support for research and development and support for companies in declining regions, policies that most economists feel are justified by “market failures.” But what is often forgotten is that a similar defense was used in the past to justify all other kinds of interventions. Getting it right is no easier today.