Industrial Policy for National Champions

Industrial Policy for National Champions

Oliver Falck
Christian Gollier
Ludger Woessmann
Copyright Date: 2011
Published by: MIT Press
Pages: 224
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  • Book Info
    Industrial Policy for National Champions
    Book Description:

    Governments around the world are deeply divided about the proper role of industrial policy, with some politicians arguing for hands-off governance and others supporting government intervention to promote "national champions"-- firms that receive government support for both political and economic reasons. In this volume, prominent economists present the pros and cons of government support for national champions. The contributors use the rigor of economic models in their studies, offering a quantitative perspective that complements and extends existing qualitative studies, and focus on issues emerging from the European Union's substantial degree of market integration. Many arguments in favor of champions-promoting policies are made in a dynamic context, so the book first presents chapters that take a dynamic economy view, then presents chapters that examine the political economy of the decision process, and finally, offers "classical" static equilibrium arguments. The richness of the different models provides a deeper understanding of industrial policy than could any model alone. What becomes clear from these different perspectives nevertheless is that it is difficult to make a general case in favor of policies promoting national champions on purely economic grounds and that these policies are best understood in political terms.

    eISBN: 978-0-262-29865-0
    Subjects: Business, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Series Foreword
    (pp. vii-viii)

    This book is part of the CESifo Seminar Series. The series aims to cover topical policy issues in economics from a largely European perspective. The books in this series are the products of the papers and intensive debates that took place during the seminars hosted by CESifo, an international research network of renowned economists organized jointly by the Center for Economic Studies at Ludwig-Maximilians-Universität, Munich, and the Ifo Institute for Economic Research. All publications in this series have been carefully selected and refereed by members of the CESifo research network....

  4. Acknowledgments
    (pp. ix-x)
  5. Contributors
    (pp. xi-xii)
  6. I Introduction
    • 1 Arguments for and against Policies to Promote National Champions
      (pp. 3-10)
      Oliver Falck, Christian Gollier and Ludger Woessmann

      Governments around the world, and particularly within the European Union, are deeply divided about the proper role of industrial policy, with preferences ranging from neoliberal approaches to strong government support for national champions. Some politicians argue that hands-off governance facilitates the sellout of national economies, while others suggest that interventionist governments only hurt themselves when creating huge and inefficient corporations. Some arguments are based on national interest that comes at the detriment of foreign interest, which would call for a transnational coordination and supervision of industrial policies that foster national champions. Others argue that the world as a whole may...

  7. II Analyses in Dynamic Settings
    • 2 Some Thoughts on Industrial Policy and Growth
      (pp. 13-30)
      Philippe Aghion

      In the aftermath of WWII, many developing countries have opted for policies aimed at promoting new infant industries or at protecting local traditional activities from competition by products from more advanced countries. Thus several Latin American countries advocated import substitution policies, whereby local industries would more fully benefit from domestic demand. East Asian countries like Korea or Japan, rather than advocating import substitution policies, would favor export promotion, which in turn would be achieved partly through tariffs and nontariff barriers and partly through maintaining undervalued exchange rates. For at least two or three decades after WWII, these policies, which belong...

    • 3 National Champions and Economic Growth
      (pp. 31-62)
      Kathy Fogel, Randall Morck and Bernard Yeung

      Schumpeterʹs (1912, 1942) view that economic growth arises through an ongoing process ofcreative destruction, as developed in theNew Endogenous Growth Theoryof, for example, Aghion and Howitt (1998), is increasingly solidly validated by empirical work. Bower and Christensen (1995), Christensen (1997), and others painstakingly document numerous case studies of the disruptive effects on existing businesses of many new technologies that nonetheless ultimately advance overall productivity. Fogel et al. (2008), noting that creative destruction implies the more extensive destruction of staid established firms by creative upstarts, find faster long-term economic growth in countries where large firmsʹ long-term survival odds...

    • 4 Subsidizing National Champions: An Evolutionary Perspective
      (pp. 63-88)
      Cécile Aubert, Oliver Falck and Stephan Heblich

      One mission of the EU Lisbon Strategy is to make Europe ʺthe most competitive and dynamic knowledge-based economic region in the world.ʺ Although there are many different ways to reach this goal, the idea of an industrial policy that promotes European or national champions as the best way to compete in a globalized world has become (again) en vogue among European politicians.

      While the desirability of promoting champions is the object of much discussion, it is not always clear what a champion is, nor what type of champion will receive the most attention from politicians (Maincent and Navarro 2006). In...

  8. III Political-Economy Analyses
    • 5 Mergers and National Champions
      (pp. 91-118)
      Massimo Motta and Michele Ruta

      In recent years a number of mergers (sometimes between firms located in the same country, sometimes between firms located in different countries) have attracted a lot of media attention because of alleged protectionist positions taken by politicians and authorities of the countries that in one way or another have been involved in such mergers. The European Commissionʹs Directorate General for Competition has often had to intervene, either with declarations or by taking formal actions, asking member states not to hinder mergers involving foreign firms and perceived as undesirable from the point of view of national interests.

      During the first two...

    • 6 The Hidden Costs of Political Sponsorship of Industrial Firms
      (pp. 119-132)
      Paul Seabright

      When in the spring of 2005 the Airbus A380 made its maiden flight, there was an upsurge of enthusiasm in Europe about the Airbus project as a testimony to the virtues of publicly supported, internationally collaborative industrial policy. This enthusiasm was not confined to France, but it found particularly heady expression there: President Chirac described the flight as ʺa magnificent result for European industrial cooperation and an encouragement to pursue this path of building a Europe of innovation and progress.ʺ¹ At the A380ʹs unveiling three months earlier, in an even more lyrical flight of prose, he had hailed ʺthe success...

  9. IV Analyses in Static Settings
    • 7 National Champions under Credit Rationing
      (pp. 135-154)
      Christian Gollier and Bruno Jullien

      Oligopoly pricing yields a deadweight loss for society. The policy implication is to maintain competitive market conditions, providing the rationale for strong European laws which have been implemented to prohibit national governments from protecting national firms. However, over the last few years, there has been a strong tendency for governments to adapt their industrial policy to encourage the emergence of national champions. These firms have strong monopoly power in their home market, despite the absence of any obvious natural monopoly argument.

      Air France provides a clear example of a national champion. The firmʹs market share recently reached 96 percent in...

    • 8 Market Integration with Regulated National Champions: Winners, Losers, and Cooperation
      (pp. 155-176)
      Sara Biancini

      Historically monopoly regulation has been a response to market failures, such as increasing returns to scale and externalities. In most countries government intervention took the form of the creation of public monopolies. More recently the poor performance of public enterprises has motivated widespread reforms introducing partial privatization and liberalization. However, regulation remains important when market failures impede the development of pervasive competition, as in the case of increasing returns to scale industries (e.g., telecommunications, energy, transports, and the water industry). In these markets the national leader typically stays dominant even after the reforms. This dominance can be challenged by the...

    • 9 Economic Patriotism, Foreign Takeovers, and National Champions
      (pp. 177-198)
      Jens Suedekum

      In a recent paper Suedekum (2010) argued that globalization may buttress government aversion toward attempts of foreign corporations to acquire large domestic firms. In his model the government recognizes the positive aspects of cross-border mergers, particularly for domestic consumers who benefit from cost reductions due to merger synergy effects. However, governments also often entertain a bias against foreign takeovers of domestic target firms, and falling transport costs can initially reinforce this bias. Suedekum (2010) shows that even a biased government may accept a foreign takeover if transport costs are sufficiently high, essentially because the consumer gains are then substantial, but...

  10. Index
    (pp. 199-206)