Managerial Economics 2nd Edition by William Boyes

Exercise 17

Industrial or Innovation Policy
Industrial policy refers to the government essentially picking winners and losers in business and subsidizing or developing winners and not helping losers. It is currently being argued that the government must invest in new industries because it is prohibitively expensive for firms to do it. They point to the Defense Advanced Research Projects Agency (DARPA), which supported creation of ARPANET, the predecessor of the Internet. If the government had not created ARPANET, we would not have the Internet today. Companies were reticent to invest in the new field of computer networking because the sums required were enormous and the technology was so far from potential commercialization that companies were unable to foresee how to monetize potential investments. And they point out that this situation pertains today to a range of emerging infrastructure technologies such as biotechnology, nanotechnology, and robotics. The levels of investment required to research and develop emerging technologies is so great that the private sector cannot support it alone. Thus, government must increasingly assume the role of partner with industry in managing technology research projects.
Companies such as IBM, Google, Oracle, Akamai, Hewlett-Packard, and many others may not have even come into existence-and certainly would not have prospered to the extent they have-if the U.S. government had not either been an early funder of R D for the technologies they were developing or a leading procurer of the products they were producing. The government has a role to play in thoughtfully, strategically, and intentionally placing strategic bets on nascent and emerging technologies that have the potential to turn into the industries, companies, and jobs that drive an economy two to three decades hence. This requires policies and investments in industries such as robotics, nanotechnology, clean energy, biotechnology, synthetic biology, high-performance computing, and digital platforms such as the smart grid, intelligent transportation systems, broadband, and Health IT.
What objections to the industrial policy suggested in the essay do you have? If no objections, how do you support a government selecting losers and winners when the free market does that type of thing so well?