Background
“Picking winners” refers to an industrial and economic strategy where government bodies identify specific businesses or sectors to receive targeted financial and technical support with the aim of promoting economic development.
Historical Context
This approach has seen varied usage across the globe, particularly in the post-World War II era, when many countries sought to boost economic growth. Notable use of this strategy can be found in the histories of Japan, South Korea, and more contemporaneously, in China.
Definitions and Concepts
“Picking winners” involves a government selecting particular projects, industries, or companies to receive special support such as subsidies, tax incentives, direct funding, or technical assistance. This contrasts with a laissez-faire approach where government intervention in specific industries is minimized.
Major Analytical Frameworks
Classical Economics
Classical economists generally argue against market intervention, believing that free markets are more efficient at allocating resources than governments.
Neoclassical Economics
Neoclassical economics emphasizes market equilibrium and efficiency, often critiquing government attempts to pick winners as potentially distorting markets.
Keynesian Economics
Keynesians may support picking winners during economic downturns to stimulate growth and employment, advocating for strategic government intervention where market failures exist.
Marxian Economics
Marxist perspectives might argue that capitalist governments are likely to support industries that benefit the ruling class, though socialist regimes might employ similar strategies to develop state-controlled sectors.
Institutional Economics
This framework might examine the role institutions play in the success or failure of picking winners, stressing that robust and less corrupt institutions can conduct better project selection.
Behavioral Economics
Behavioral economists might study the biases and heuristics that influence government officials in selecting winners, potentially informing strategies to mitigate poor decision-making.
Post-Keynesian Economics
Post-Keynesians could support selective intervention but might stress the need for robust demand management policies alongside industrial strategies.
Austrian Economics
Austrian economists often criticize any form of central planning or market intervention, viewing picking winners as prone to failure due to information and incentive problems.
Development Economics
Proponents in development economics might argue that for rapidly developing nations, selective industry support can help leapfrog stages of economic development.
Monetarism
Monetarists typically oppose interventionist policies like picking winners, advocating for stable monetary policy instead.
Comparative Analysis
The success of picking winners can vary markedly; East Asian economies have shown some success, while Western experiments like the U.S. solar industry have both overload with successes and notable failures. The comparative effectiveness often hinges on the execution quality and judging long-term appropriateness of projects.
Case Studies
Examples of countries employing this strategy effectively include South Korea’s support for the chaebols (large conglomerates) during the late 20th century, contributing significantly to its economic miracle.
Suggested Books for Further Studies
- The East Asian Miracle: Economic Growth and Public Policy by The World Bank
- State-directed Development: Political Power and Industrialization in the Global Periphery by Atul Kohli
- Kicking Away the Ladder: Development Strategy in Historical Perspective by Ha-Joon Chang
Related Terms with Definitions
- Industrial Strategy: Government policies aimed at developing specific sectors of the economy to boost overall national economic performance.
- Market Intervention: Actions taken by a government to affect market outcomes.
- Selective Subsidies: Financial aids provided to selected industries or companies to promote their growth.