Encouraging new economic enterprises

Supporting new industries
Protecting infant industries
Soliciting new economic enterprises

Context

One means of supporting newly developing industries, as in high technology for example, is to protect the national industry against imports from abroad. Reasons put forward for such protection include: the need to assist new industries through the learning period (when the local industry cannot compete with already established foreign firms); the advantages arising from external benefits such as technical spin-offs.

Claim

Provided governments are well informed and pursue the public well-being in a disinterested way, their judgement on spin-offs is necessarily superior to markets because market prices cannot capture genuine externalities.

Counter-claim

If an industry cannot attract adequate capital to see it through its learning period there is either a weakness in the capital market or investors evidently cannot be convinced that the industry offers a competitive rate of return. It is implausible that the capital markets of the industrial nations suffer from such weakness. Investors can make mistakes, because of misinformation or inadequate information, but there is no reason why governments should be less likely to do so, when their economic vision may be clouded by political requirements.