« « Plan versus Market Explanations in Computer Industry (3)

Plan versus Market Explanations in Computer Industry (4)

How, then, do we reconcile these two apparently different points of view? The answer lies not in ideological arguments over free markets versus government planning. Rather, it lies in the details. Industrial policies have been effective in the computer industry when they move in concert with market forces, and when they are aimed at developing strong linkages with the global computer production system.

Governments can do a great deal to develop the capabilities necessary to support computer production, and governments can tip investment decisions by multinationals in their favor by providing the right incentives. Such policies have been effective in developing national computer industries in Singapore and Taiwan.

In contrast, policies that go against the grain of market forces have been ineffective or even counterproductive in Japan and Korea. Trade and investment barriers aimed at protecting domestic firms serve only to isolate a country and prevent the creation of strong linkages to the global production network and global markets.

They also raise prices and discourage use of computers in the local economy. The key issue, therefore, is not whether industrial policy is good or bad, but rather which industrial policies are effectiveand which are not.

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