Sustained growth and long-term development require the creation of a “learning society”. But there are significant “market failures” and industrial policy plays an important role in correcting these market failures. Governments can’t and shouldn’t stop thinking about the impact of public policies on the industrial structure and learning capabilities of a society.
Economic discipline recognizes that markets alone are not enough and don’t create efficient production and dissemination of knowledge (Arrow). Therefore, the role of knowledge as a common good must be acknowledged, externalities must be assessed in creating policies and we must remember that innovation is risky and risk markets are imperfect. Government policies can be improved, and industrial and commercial policies are key to creating the “learning society”. But many factors can delay or block learning. Not always neoliberal policies are the best recipes – because they are often based on a static resource allocation that prevents learning and can be counter-productive, with negative effects on growth. Some exchange rate interventions and (sometimes) industrial protection policies can bring benefits to both industries and society as a whole. For example, South Korea has succeeded in supporting a learning and catching-up policy, an industrial policy that has allowed some industries to develop frontier technologies and innovations while protecting their industries. This is because knowledge does not move freely between borders or between companies. Policies can be developed to reduce the gap in knowledge and to transform knowledge into production. Governments can therefore play an important role in any economy by correcting market failures, but above all by creating the conditions for a “learning society” and a “creative economy”.