Industrial policy is back in fashion. Governments across the world are embracing the belief that individual governments can pick winners among industries to foster and restore international competitiveness.
This is a futile pursuit in a fragmented global economy. What is required instead is a global industrial development strategy. In the absence of this, single-nation policies are likely to prove hugely costly and ineffective for taxpayers and investors alike, as Japan is likely to discover soon.
Industrial policy as it is now being construed often comes along with narrow nationalism and protectionism as distinct from a global or multilateral vision and an ability to think beyond national borders. In short, it is a recipe for conflict.
It represents an attempt to turn back the clock in some parts of the world while ignoring the fact that times have changed in other parts, and it ignores the need to come to terms with change. The global clock needs to be reset.
In Japan, Prime Minister Sanae Takaichi has unveiled a long-term vision for economic development. It features massive investment in artificial intelligence and semiconductors as well as other key sectors. The plan calls for investing more than 370 trillion yen (US$2.3 trillion) from public and private sector sources in the 14-year period ending in March 2041, with 101.6 trillion yen earmarked for artificial intelligence (AI) and chips spending alone.
Some of these areas – not least semiconductors and AI – are the same ones that the United States and China are competing in fiercely to the tune of hundreds of billions or even trillions of dollars of collective investment. Europe and others are also increasingly involved.