NAFTA and other trade agreements prevent adoption of independent industrial policy

November 15, 2002

(OTTAWA) International trade agreements and other market-driven reforms in recent years have stripped nation-states of many tools to implement the activist industrial policies needed to promote domestic industries, economic growth, and living standards.

That's the key message in The Future of Industrial Policy in a Globalizing World: What are the Options?, a new Briefing Paper on Trade and Investment by CCPA economist Marc Lee.

"Industrial policy is too important to be left to the market," says Lee. "The prevailing neoliberal orthodoxy that favours minimal freedom for government and maximum freedom for corporations has little basis in history and little support from empirical evidence.

"Efforts to constrain states with legally binding international rules serve only to maintain the existing hierarchy of power and development, and further marginalize the poorest countries. Instead, the path forward should be to capture the best elements of an activist state for industrial policy, while immersing it in deeper democratic participation and development."

The paper describes industrial policy as a process through which "people together create the institutions and organizations that support a high standard of living. Industrial policy is thinking democratically about the economy and about seeing economic and political institutions as capable of being changed by an engaged and effective citizenry."

Lee concludes by urging governments to use the industrial policy tools still available to maximum effect, brushing up against trade challenges if necessary. The public sector can and should play a major role through the use of public services, Crown corporations and non-trade distorting subsidies.

"The biggest obstacle," he says, "may be finding the political will to act."