Competition-friendly industrial policy

Industrial policy, essential for addressing market failures, encounters concerns regarding protecting inefficient firms. We advocate for competition-friendly industrial policies, underscoring the complementary relationship between industrial and competition policies and the benefits of targeted sector-specific subsidies. We emphasize the significance of market competitiveness for sustainable industrial development, drawing from theoretical models and empirical evidence from China. We argue that Europe’s productivity decline relative to the United States since the 1990s can be partly attributed to the absence of a European counterpart to the United States’ Advanced Research Projects Authorities (“ARPAs”), which foster frontier innovation. Their success, exemplified by the rapid development of COVID-19 vaccines through the Biomedical Advanced Research and Development Authority (BARDA, now ARPA-Health), underscores the importance of targeted sector-specific subsidies in overcoming coordination challenges. While the European Union has progressed in vaccine procurement, a genuine European ARPA equivalent remains lacking, hindering breakthrough innovation in strategic sectors.

CPI Antitrust Chronicle, 3438