When does industrial policy fail and when can it succeed? Case studies from Europe

When does industrial policy succeed and fail in advanced economies? Most approaches to these questions concentrate on policy design and state power. Instead, we draw attention to the historical legacies, industrial structures, and institutional arrangements that shape industrial policy outcomes. We use insights from historical institutionalism and international business to develop a relational argument based on two first-order conditions: a critical mass of firms with sufficient capabilities to leverage the resources resulting from industrial policy, and the alignment between industrial policy goals and national institutional systems. Industrial policy could succeed, given the important second-order conditions that many have examined, when one of these conditions is present and public intervention produces the other. But industrial policy is certain to fail when both conditions are absent. Using a most different systems design, we assess our framework through short case-studies of industrial policy success and failure in Europe in the past 6 decades.