industrial policies are too often perceived solely through the lens of the sectors they target. With respect to practical design and implementation, this orientation is to some extent necessary and desirable: at some level, any industrial policy true to its name will involve identifying and prioritizing certain strategic sectors and capabilities. At the same time, industrial policy must not lose sight of the underlying economic issues that prompt intervention in the first place, and these problems are not always industry-specific. In other words, it is necessary to address the failure of the private sector and financial markets to direct sufficient investment to critical sectors and technologies. Industrial policy, especially those designed to foster the sustainable industrial ecosystems that Mazzucato and her colleagues describe, cannot succeed in sectoral steering unless it also targets these systemic obstacles.
In the abstract, it is easy to identify various externalities and free-rider problems that prevent firms from investing sufficiently in basic research or worker training or allow them to ignore national security and environmental considerations. But economic theory offers at best an incomplete picture of the specific reasons why the United States lost its lead in semiconductor manufacturing to Taiwan’s TSMC, for example, or why it abandoned the manufacturing of telecom equipment, solar panels, and other key traded sector goods, despite their economic importance and security implications.