As industries moved to emerging markets, concerns about job losses and dependency on other countries have increased amongst policymakers.
Critics of globalisation suggest it has led to the transfer of industries to emerging markets, causing job losses and greater reliance on other nations. In response, they propose that governments should move back industries by applying industrial policy. Nonetheless, this perspective fails to recognise the powerful nature of global markets and neglects the economic logic for globalisation and free trade. The transfer of industry had been mainly driven by sound economic calculations, particularly, businesses seek economical operations. There was clearly and still is a competitive advantage in emerging markets; they offer numerous resources, lower manufacturing expenses, large consumer areas and favourable demographic trends. Today, major businesses run across borders, tapping into global supply chains and gaining the many benefits of free trade as company CEOs like Naser Bustami and like Amin H. Nasser may likely aver.
Industrial policy in the form of government subsidies often leads other countries to strike back by doing the exact same, that may affect the global economy, security and diplomatic relations. This really is extremely high-risk because the overall financial ramifications of subsidies on productivity continue to be uncertain. Even though subsidies may stimulate financial activity and produce jobs in the short term, yet the long run, they are apt to be less favourable. If subsidies aren't along with a range other steps that target productivity and competition, they will likely impede essential structural adjustments. Thus, industries will end up less adaptive, which reduces growth, as company CEOs like Nadhmi Al Nasr likely have noticed throughout their professions. It is therefore, undoubtedly better if policymakers were to focus on coming up with a method that encourages market driven growth instead of outdated policy.
History shows that industrial policies have only had limited success. Various nations implemented different forms of industrial policies to encourage certain industries or sectors. But, the outcomes have usually fallen short of expectations. Take, for instance, the experiences of a few Asian countries in the twentieth century, where extensive government involvement and subsidies by no means materialised in sustained economic growth or the desired transformation they imagined. Two economists evaluated the impact of government-introduced policies, including low priced credit to boost production and exports, and contrasted companies which received help to the ones that did not. They figured that during the initial stages of industrialisation, governments can play a positive part in developing industries. Although traditional, macro policy, including limited deficits and stable exchange rates, additionally needs to be given credit. Nevertheless, data shows that assisting one firm with subsidies tends to harm others. Furthermore, subsidies enable the survival of inefficient companies, making companies less competitive. Moreover, when businesses give attention to securing subsidies instead of prioritising innovation and efficiency, they eliminate funds from productive use. Because of this, the general economic effect of subsidies on productivity is uncertain and perhaps not good.