The political economy of industrial policy: Structural interdependencies, policy alignment and conflict management

• Published in: Structural change and economic dynamics 2019-03, Vol.48, p.136-150
• Main Authors: Andreoni, Antonio, Chang, Ha-Joon
• Format: Article
• Language: English
• Subjects: Conflict management; Industrial policy; Institutions for industrialisation; Policy alignment; Strategic coordination and policy package matrix; Structural interdependencies
• ISSN: 0954-349X; 1873-6017
• DOI: 10.1016/j.strueco.2018.10.007

•The ‘history of economic analysis’ of industrial policy is critical in debunking the current mainstreaming of the industrial policy debate.•Industrial policy deals with structural interdependencies, tensions and dualism, arising in the industrialisation process.•Industrialisation depends on different varieties of institutions and policies, their alignment and effective implementation.•Alongside its entrepreneurial function, the government has a key role in conflict management.•The Policy Package Matrix helps in the strategic coordination of packages of interactive industrial policy measures. Industrial policy is back in the mainstream debates. The paper provides a long-term analytical perspective of the industrial policy debate, and it critically assesses the current mainstream phase of the debate in light of three fundamental theoretical insights that developed along several decades of industrial policy theory and practice. These are related to the (i) structural interdependencies, tensions and dualism arising in the industrialisation process; (ii) variety and types of institutions for industrialisation and the importance of policy alignment; (iii) conflict management role of the government, alongside his entrepreneurial function, and the importance of government organisational capabilities. Building on this theoretical analysis, the last section of the paper provides a framework for the strategic coordination of packages of interactive industrial policy measures. The Policy Package Matrix is introduced as an operationalisation of the framework and a tool for effective industrial policy making.