As industries relocated to emerging markets, worries about job losses and dependency on other countries have grown amongst policymakers.
Industrial policy by means of government subsidies can lead other countries to strike back by doing the exact same, which could impact the global economy, security and diplomatic relations. This is certainly exceedingly dangerous as the overall financial ramifications of subsidies on productivity remain uncertain. Despite the fact that subsidies may stimulate financial activity and create jobs in the short term, yet the long term, they are prone to be less favourable. If subsidies are not along with a range other steps that address productivity and competition, they will probably hinder essential structural adjustments. Hence, industries will become less adaptive, which reduces development, as company CEOs like Nadhmi Al Nasr likely have noticed throughout their professions. It is, definitely better if policymakers were to focus on finding an approach that encourages market driven development instead of obsolete policy.
Critics of globalisation argue it has led to the relocation of industries to emerging markets, causing job losses and greater reliance on other countries. In reaction, they propose that governments should move back industries by applying industrial policy. Nonetheless, this perspective fails to recognise the dynamic nature of worldwide markets and neglects the basis for globalisation and free trade. The transfer of industry had been mainly driven by sound financial calculations, namely, companies seek economical operations. There was and still is a competitive advantage in emerging markets; they provide numerous resources, lower manufacturing costs, big customer markets and favourable demographic patterns. Today, major companies run across borders, tapping into global supply chains and reaping the many benefits of free trade as business CEOs like Naser Bustami and like Amin H. Nasser would probably aver.
History has shown that industrial policies have only had minimal success. Many countries applied various types of industrial policies to help specific companies or sectors. However, the outcome have usually fallen short of expectations. Take, for example, the experiences of a few parts of asia in the twentieth century, where considerable government intervention and subsidies by no means materialised in sustained economic growth or the intended transformation they imagined. Two economists examined the effect of government-introduced policies, including cheap credit to improve manufacturing and exports, and compared companies which received help to the ones that did not. They figured that throughout the initial phases of industrialisation, governments can play a positive role in establishing companies. Although conventional, macro policy, including limited deficits and stable exchange prices, must also be given credit. However, data suggests that helping one company with subsidies has a tendency to harm others. Also, subsidies enable the survival of inefficient businesses, making industries less competitive. Moreover, whenever businesses concentrate on securing subsidies instead of prioritising development and efficiency, they remove funds from effective use. As a result, the entire financial effect of subsidies on productivity is uncertain and perhaps not good.