Define industrial policy

Industrial policy is the name used for the elements of government policy that aim to make industries,markets, and firms within the markets function better. Industrial policy is microeconomic rather than macroeconomic. From the 1950s until 1979, UK industrial policy was interventionist rather than antiinterventionist,reflecting the Keynesian and mixed-economy assumption that, left to themselves,markets are prone to market failure (see Chapter 10). The Keynesians believed that government intervention to subsidise and protect industries, particularly in the fields of research and development and regional location, generally made markets function better.

However, ever since the free-market revival in the 1970s, government intervention to prop up uncompetitive industries (often called ‘lame ducks’, ‘hospital cases’, ‘geriatric industries’ or ‘sunset industries’) has gone out of fashion. The free-market view is that business people, rather than civil servants, know best, and that, far from creating a level playing field for domestic firms to compete with foreign rivals, government aid to industry results in the waste of taxpayers’ money and government failure caused by picking losers rather than winners.

UK industrial policy is administered by the Department for Business, Enterprise and Regulatory Reform (BERR), until recently known as the Department of Trade and Industry (DTI). Over the years,and in response to the pro-free-market anti-interventionist view, the money spent on UK industrial policy by the BERR has fallen and is now only a very small part of total government spending.

Immediately after the 2005 general election, a rather odd sequence of events occurred. In its third term of office, the New Labour government decided the DTI (as it was then called) needed rebranding as the Department of Productivity, Energy and Industry (DPEI). However, this name lasted only a few days. The government realised it would be difficult to justify spending hundreds of thousands of pounds renaming government buildings and reprinting office stationery. However, this unfortunate experience did not prevent the department being rebranded as the BERR in June 2007.