23 Things they don't tell you about Capitalism

Free-market economists are typically skeptical of the government’s ability to pick winners and losers through industrial policy since the government is not bound by market forces. Instead, they suggest, it’s best to let the market work itself out.

Chang asserts that governments are sometimes in the perfect position to promote winning industries. For example, in the 1960s, Korea was a poor country with lots of labor but little capital. Despite this, and against the advice of the World Bank, the Korean government set up a steel production company as a state-owned enterprise. Over the next few decades, this company became one of the world’s largest and most efficient steel production facilities. During the same period, the Korean government pressured certain private firms to enter particular industries, with some notable successes, including LG’s entry into electronics and Hyundai’s shipbuilding business.

While acknowledging some failures of government-sponsored enterprise, such as France and Great Britain’s Concorde project, Chang points out that governments have helped pick winners in countries throughout the world. In the US, for instance, the government has heavily subsidized research and development in high-tech industries. The governments that tend to be most successful at picking winners have the best communication with businesses, allowing for effective joint efforts. Even though some failures are inevitable in any risk-taking endeavor, assuming that all government interventions are doomed to fail is a mistake.