This book has presented and examined the main economic theories relevant to industrial policy. It has also analysed how the strategies enacted by various countries can be applied in specific policy domains. It is thus targeted squarely at both an academic and policymaking audience. For students and academics, the aim has been to show how economic principles can be practically applied in a real-world setting, and how the effects vary by time and place, and are mediated by institutions. On the other hand, for policymakers interested in how their interventions affect the economy, understanding some of the theoretical concepts may help them appreciate what is feasible and desirable, and provides some underlying reasons for why these interventions sometimes go wrong.

This concluding chapter offers some final practical observations. These are directed at policymakers in particular but are also a way of rounding off the theoretical discussions. The chapter ends with some suggestions for further reading.

1. Have a strategy and stick to it. This book has described many specific industrial policies. But governments looking to intervene effectively in their economies should develop an industrial strategy. This involves an understanding of both means and ends, and how they can be reconciled. Even at a basic level, industrial policies – for example, those concerned with correcting market failures in say, innovation policy – should be conducted as part of an overarching plan for raising competitiveness, rather than ad hoc interventions. At the most complex and ambitious levels, for example when tasked with addressing systemic issues like decarbonization, careful strategizing informed by clear objectives is even more important.

Approaching industrial policy systemically, via a (coherent) strategy, also encourages policymakers to think about how policies are actually put into effect, in terms of the responses they elicit from firms and other actors over the short and long terms. Successful practitioners of industrial policy understand that it is more important to create a climate of collaboration between government and the private sector than just to provide financial incentives and hope for the best.

Government itself is an important actor, and its credibility is always on the line here.

This chapter examines industrial policy in the light of economic theory and unpacks some of the assumptions about the operation of modern economies that underly its use. Even though many of its theoretical precepts are largely accepted, industrial policy lacks a dedicated set of economic theories to explain it. Economists interested in the topic have tended to participate in debates about government intervention in the economy on an ad hoc basis, and there is no “school” of industrial policy in economics as such. Nevertheless, a number of distinct theoretical positions have emerged, which are explored in more detail here. These mirror how neoclassical assumptions about perfect and imperfect competition have been supplemented over the last 40 years with more holistic explanations of the workings of economies that emphasize their underlying capabilities and the dynamics of structural change.

The chapter is divided into two main parts. The first part examines two related controversies surrounding industrial policy which have been a feature of economic thought since Adam Smith’s day. The first of these concerns the relationship between the government and the market and, specifically, whether policymakers should intervene in markets or leave them to their own devices. Having concluded that intervention is justifiable in principle, the second section examines the nature of economic growth itself and the extent to which intervention via industrial and other policies is practical or desirable.

The second part of the chapter is more granular and divides theoretical approaches to industrial policy into three broad families, which are examined in turn. The first of these is the concept of market failure grounded in neoclassical economics, which provides a broad rationale for intervention in the economy to correct specific wrinkles in the operation of markets. The second family is one that advances the market failure framework to suggest that these failures can take the form of coordination problems which inhibit whole groups of firms from entering into new markets. The third takes a more structural view of economies and deals with attempts to alter their development path by intervening in the underlying drivers of growth and the composition of industrial bases.

The question of the government’s role in market societies has loomed large since at least Adam Smith’s day. There is a wide political and academic consensus today that well-designed economic policies delivered by the state or its agents can increase the well-being of societies through higher growth rates and greater efficiency. However, it is not always clear what these policies are, or should be, and how they can be put into effect.

This book explores some of these economic and policy questions through an examination of one particular strand of economic policymaking known as “industrial policy”. Industrial policy is a distinct policy domain which includes a wide range of measures aimed at developing productive and technological capabilities in industry and related sectors, building and supporting new industries, and increasing the productivity and competitiveness of the economy generally.

Industrial policies are separate from macroeconomic policy, which is concerned with the broad balance and direction of whole economies through tools like interest rates. But they are not necessarily synonymous with microeconomic policies either, as they can be directed at altering the structure of the productive sector of the economy by nudging domestic industries towards certain activities and developing broad attributes, such as higher productivity or greater R&D intensity.

Depending on circumstances, the objectives of industrial policy can include export promotion, development of linkages between firms in an industry and support for upstream technology development. Policy tools for achieving these objectives can include infrastructure spending, tax incentives for R&D, creation of intermediary institutions such as institutes for applied technology, vocational training programmes focused on high-technology, and direct intervention to protect or promote specific industries and even individual firms.

Done successfully, industrial policy can have a significant effect on economic well-being. Britain, the industrial pioneer, used industrial policies to nurture and guide its nascent manufacturing industries from the mid-eighteenth century (contrary to persistent myths that its industrial take-off was an entirely free-market affair; see Figure 1.1). South Korea went from being one of the world’s poorest countries in the 1950s to an advanced industrial nation in little more than 30 years through judicious use of industrial policy to develop its economy through planned, export-led growth.

The previous chapter compared how different countries have used industrial strategies to shape their economies, emphasizing the diversity of approaches to tackling common problems. This chapter focuses on some emerging future challenges which comprehensive and forward-thinking strategies can be deployed to tackle.

The first section deals with the task of getting to net zero emissions of greenhouse gases (GHGs). A number of countries have committed to ambitious carbon reduction programmes. Greening and transforming domestic industries plays an important part in all of these. Industrial policies are therefore being recast as combined developmental and emissions reduction programmes. The key challenge here is not necessarily technical. Many of the technologies needed for decarbonization are already available, although there is still a key role for innovation to make them cheaper and more scalable.

A much more difficult task for policymakers is achieving the momentum to reorganize entire economies built since their foundation around consumption of fossil fuels. There are two key problems here. First is the asset-specificity of many industries, which makes reconfiguring them along more sustainable lines an expensive and difficult project. This is due to the significant sunk costs in carbon-intensive industries, as well as potential resistance from workers who will need to be reskilled. The second problem, stemming from the first, is a time-inconsistency issue. Decarbonization entails large upfront costs for benefits that mainly lie in the future. Devising policies to focus minds on this can be difficult, given other pressing demands on funding and government attention. With this in mind, what do “green” industrial policies look like?

The second section covers globalization and, latterly, deglobalization. The decomposition of production into global value chains (GVCs) has meant lower prices for consumers, but at the price of job losses and greater insecurity of supply. Domestic discontent is combining with trade wars and hostility between China and the US to lead to their partial unravelling. This will affect both rich and poor countries, as each lie at opposite ends of GVCs. What should their governments do in response?

The third section covers the role of industrial strategies in dealing with the impact of technology and the “fourth industrial revolution”.

This book is intended as a brief, but hopefully interesting and informative, guide to industrial policy for students, academics and policymakers. As such, it covers the main economic theories relevant to the topic, but also shows how policies have been, and can be, applied in concrete settings to tackle a host of familiar economic challenges as well as emerging ones like decarbonization.

Although at times controversial, almost every economically successful country became so through deploying industrial policies at some point or other, whether their governments admit to doing so or not. Examining how such interventions are done, in particular policy domains, and by different countries at different times, is therefore an important and useful exercise.

Being a short book that tries to cover a lot, there are necessarily some gaps in coverage. I have mainly focused on the policies and strategies of relatively advanced countries in Europe, North America and East Asia, as these have mostly gone through the early stages of industrialization and now face common problems of adjusting to an increasingly technologically sophisticated future. This unfortunately means glossing over the challenges of how low-income countries can achieve initial industrial take-off.

I would like to thank my publisher at Agenda, Alison Howson, and several reviewers, especially Bob Hancké, who provided valuable feedback at various stages, although any errors are mine alone. David Britto provided valuable help with some of the data and charts. The book itself is fondly dedicated to Sunita and Lucas.

This chapter examines the practical application of industrial policy through five country case studies: the UK, South Korea, the US, France and China. The purpose of this comparison is to show how industrial policy is actually done, in a real-world setting, and to showcase the different economic, historical and institutional settings in which this takes place. The chapter also includes brief surveys of industrial policies of the European Union and a number of Latin American countries.

Two of the cases, the UK and the US, exemplify developed liberal-market economies with relatively small public sectors and an ideological attachment to free markets which have, nevertheless, also pursued active, sector-specific industrial policies promoting key industries at various times. However, dominance of market-based relationships between actors has often complicated the task of managing widespread intervention beyond a few sectors. A bias towards sets of industrial policies, rather than overarching strategies has been one result of this, although this is changing. The different approaches taken by the two countries to surmount this problem are compared and contrasted.

Another two, France and South Korea, possess stronger central states with accompanying ambitions to direct comprehensive industrial strategies from the centre. Both embody a “big-firm capitalism” of national champion firms with strong political links. They also highlight how governments try to reconcile the state operating through private sector actors alongside the ever-present danger of state capture.

South Korea, along with the final example of China, are later-developing East Asian rather than European countries which both intervened heavily to develop their economies after the devastation of war and revolution. However, they used very different strategies – South Korea’s focus on export of finished products initially behind a high tariff wall, versus China’s insertion of itself into the supply chains of TNCs. Of the two, only the former has so far reached an advanced country per capita standard of living. China’s big challenge is managing the transition from low-cost producer to a more technology-based economy as its labour costs rise.

The EU text box (3.2) offers an examination of how industrial policies can be coordinated by a supranational body (the European Commission), while the Latin American text box (3.3) groups together countries where politicization of industrial policy has most undermined its success.

Introduction

Consumer-facing firms in affluent countries have become de facto regulators of working conditions around the world. Through ethical sourcing policies, codes of conduct, compliance auditing and capacity-building initiatives, large retailers and brands in the apparel, electronics, food and home furnishing industries routinely “push” rules for safe and decent work through their GPNs. Although this began in the 1990s as a strategic response to high-profile scandals and anti-sweatshop activism, it has become a well-institutionalized feature of transnational corporations and GPNs. For instance, all the world's 25 most valuable brands (as ranked by Interbrand in 2020) have rules pertaining to labour conditions in their GPNs. Some firms rely on their own policies, while others use standards developed by industry groups such as the Responsible Business Alliance or multi-stakeholder initiatives such as the Ethical Trading Initiative or Fair Labor Association (FLA).

These rules are rarely implemented fully (Amengual, Distelhorst & Tobin 2020; Locke 2013) and are far from sufficient guarantees of safe and decent work (Anner 2019; LeBaron, Lister & Dauvergne 2017). Nevertheless, they represent a form of transnational private regulation (TPR) in which lead firms in GPNs adopt, and to some degree enforce, rules for suppliers’ employment practices. Supplier factories and farms are the targets of this type of regulation, and they are typically asked to demonstrate compliance or face the risk of losing orders.

For many proponents, TPR has the potential to establish norms of decency in otherwise cut-throat industries, bypass captured or corrupt governments and create an alternative to inter-governmental organizations that have been reluctant to set international labour standards (Abbott & Snidal 2009). Many of these optimistic accounts are animated by what one of us (Bartley 2018) calls a “hope of transcendence”. This hope rests on the idea that market demands can, essentially, lift particular sites of production out of their local contexts and up to the level of global best practices. If this is true, then TPR could represent a profoundly important structuring force in the global economy, introducing alternative norms and production practices, even if these are not always fully implemented.

In this chapter, we illustrate one way in which this “hope of transcendence” is mythical.

Introduction: Questions, Framing and Methodological Implications

This chapter discusses some of the methodological challenges in undertaking labour regime research and analysis. It draws upon the research design and process deployed in a four-year research project: Industrial Development, Construction and Employment in Africa (IDCEA). The main focus of the research was a comparative analysis of differences in labour outcomes across leading firms of different national origins, including Chinese, domestic and other foreign companies in two sectors that have been growing or emerging in different parts of Africa, with Angola and Ethiopia exemplifying contrasting cases.

The research questions of this study were organized around three blocks. First, there was a desire to ascertain contributions to direct job creation, and particularly the extent to which Chinese firms “localized” their workforces or not and why – an issue that has attracted much attention in the Africa– China literature (Lee 2017; Oya & Schaefer 2019). Second, the project aimed to ascertain whether wages and work conditions differed between the leading firms operating in the infrastructure construction and manufacturing sectors in Angola and Ethiopia, with particular attention to comparisons between Chinese firms, other foreign firms and leading domestic firms. In this regard, this study probed the popular claim (especially but not only in media reporting) that Chinese firms “exported” their “exploitative” labour practices as an expression of a continuous “race to the bottom” (Gadzala 2010; Bah & Jauch 2009), which is problematic for a number of reasons. First, it assumes that labour regimes in China and in Chinese firms are intrinsically more exploitative than labour regimes in African countries. Second, it implicitly assumes Chinese exceptionalism in labour relations, an issue already questioned by a growing body of research on labour in China (Chan 2015; Lee 2017; Lüthje, Luo & Zhang 2013). Third, such claims thrive in approaches driven by “methodological nationalism” and its concomitant empirical reductionism, which gives primacy to national characteristics in exploring socio-economic outcomes, including labour outcomes (Lee 2017; Silver 2003). In short, the study worked with the hypothesis that Chinese firms did not or could not simply “export” labour practices from whatever concrete sector and geographical setting in China that they operated in.

A third set of research questions concerned the contributions of different firms to skill development, and, more broadly, to labour force upgrading.

Introduction

This book has sought to explore and develop the potential of the labour regime concept for understanding the position and latent power of workers within the contemporary global economy. This is an analytical-cum-olitical project that involves placing workers centrally in our analyses of global production, without underestimating the challenges for workers’ prospects in the context of the intersecting dynamics of capital, state and society in which they are embroiled. In Chapter 1, we started our journey through the antecedents and the early and current development of labour regime analysis by asking a series of questions. How can we theorize labour regimes in the context of long-run historical processes of capitalist globalization? To what extent do labour regime concepts enable the development of comparative analyses across industries and places? How do labour regimes develop differentially in relation to contrasting global production systems? How do we make sense of the reproduction and control of specific labour processes in discrete places and industries? And to what extent can labour regime analysis provide a synthetic framework for understanding the political economy of contemporary capitalism?

The chapters in this volume have made considerable headway in tackling these questions. In developing the idea of labour regimes as temporary, place-specific stabilizations of capital– labour relations embedded in wider, multi-scalar dynamics, they have served to sharpen our understanding of what constitutes such regimes, and our knowledge of how and why they vary across industries, space and time. We have also seen how labour regimes both shape and are reshaped by the variegated landscapes of labour agency across the global economy, and how they are constituted beyond the traditional workplace by processes of social reproduction and household economies that are, typically, highly gendered. In turn, the chapters have also offered methodological reflections on how to undertake grounded labour regime analysis.

In this concluding chapter, our goal is not to synthesize and summarize the contributions of all the preceding chapters. Labour regime thinking is clearly a work in progress, and the commonalities across the chapters are also accompanied by important differences – concerning, for instance, which spatial scales and actors to foreground – that will continue to be debated and refined as the agenda develops.