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China’s Industrial Policies Work — Gabriel Wildau

Summary:
Until recently, mainstream economists and policymakers largely dismissed state-led industrial policy – a form of government intervention in the free market – as wasteful and ineffective. Government bureaucrats, the argument went, lack the ability to effectively pick winners among companies or industry sectors. The task is better left to venture capitalists and stock market investors. Moreover, a politicized process of distributing public money is inherently susceptible to rent-seeking and corruption. If this view is correct, then the US has little to fear from Chinese industrial policy. Let Beijing waste public resources and distort capital allocation, while Washington sticks to its free-market principles, confident that this approach will produce a more competitive economy in the long

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Until recently, mainstream economists and policymakers largely dismissed state-led industrial policy – a form of government intervention in the free market – as wasteful and ineffective. Government bureaucrats, the argument went, lack the ability to effectively pick winners among companies or industry sectors. The task is better left to venture capitalists and stock market investors. Moreover, a politicized process of distributing public money is inherently susceptible to rent-seeking and corruption.
If this view is correct, then the US has little to fear from Chinese industrial policy. Let Beijing waste public resources and distort capital allocation, while Washington sticks to its free-market principles, confident that this approach will produce a more competitive economy in the long run.
Today, however, appraisals of China’s trade and commercial practices implicitly grant that its industrial policies are effective. And many economists now agree that this approach can succeed in promoting national leadership in strategic industries. If so, then it’s unreasonable to demand that China abandon policies to promote indigenous development – especially when the US government is actively blocking key Chinese companies like Huawei Technologies Compamy from accessing American-made technology.
The US is becoming anti-competitive.

Bill Totten's Weblog
China’s Industrial Policies Work — So Copy Them
Gabriel Wildau, Bloomberg (November 17 2019)
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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