A 'Good' Industrial Policy is Impossible: With an Application to AB5 and Contractors

Journal of Law, Economics, and Policy. Vol. 17, No. 3, forthcoming September 2022.

Law & Economics Center at George Mason University Scalia Law School Research Paper Series No. 22-007

41 Pages Posted: 3 Nov 2021 Last revised: 6 Jun 2022

See all articles by Michael C. Munger

Michael C. Munger

Duke University - Department of Political Science; Duke University - Department of Economics; Institute for Corruption Studies

Date Written: June 4, 2022

Abstract

Capitalist systems have a built-in “industrial policy,” based on profits and losses as signals of the desirability of investment, sectoral growth, and also elimination of wasteful activities. But a recurrent theme of more dirigiste industrial policies is the need to “manage” industry through affirmative picking of winners and losers, and the use of taxes, subsidies, and highly calibrated regulation of price and output to direct the economy. The “Public Choice” argument that motivates a considerable part of the critique of activist industrial policies centers on problems of information (state actors have a knowledge problem, if they lack information on profit and loss) and incentive (state actors face crippling problems of political constraints, organized interests, and collective action). Surprisingly, a close reading of the historical literature advocating industrial plans baldly concedes the incentive problem, and is frankly focused on insulating bureaucrats from democratic forces. It is argued that a “good” industrial policy—one that embodies all the goals of an omniscient despot—is impossible in a democracy, because political incentives will cause actual policies to diverge from the ideal.

Keywords: industrial planning, market failure, public choice

Suggested Citation

Munger, Michael C., A 'Good' Industrial Policy is Impossible: With an Application to AB5 and Contractors (June 4, 2022). Journal of Law, Economics, and Policy. Vol. 17, No. 3, forthcoming September 2022. , Law & Economics Center at George Mason University Scalia Law School Research Paper Series No. 22-007, Available at SSRN: https://ssrn.com/abstract=3950782 or http://dx.doi.org/10.2139/ssrn.3950782

Michael C. Munger (Contact Author)

Duke University - Department of Political Science ( email )

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Duke University - Department of Economics

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