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GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q3,2024weakness of the Chinese economy may have weighed on sentiment,as well as fears about the risk of a U.S.recession.The survey was completed before the Chinese authorities announced a pivot to a more aggressive policy stimulus.A sharp decline in confidence in the UK weighed heavily on the index for Western Europe,amid concerns about predicted tax rises in the upcoming Budget.Cost concerns remain elevated,but indicators of corporate stress are still not concerning.The proportion of respondents reporting increased operating costs remains elevated by historical standards in most regions(see Chart 5),suggesting central banks need to proceed quite cautiously with monetary easing,particularly given events in the Middle East.But concerns that customers and/or suppliers could go out of business remain close to historical averages and the proportion of global firms having problems accessing finance has moved lower amid easing global financial conditions(see Charts 7 and 8).The global risks section asked accountants to rank their top three risk priorities.Regulatory change was the top concern for the second quarter running for respondents in financial services,while the economy remained well out in front for those in the corporate sector.Both public sector entities and small and medium-sized practices(SMPs)put cybersecurity as their top priority,and for the first time since the risk survey started,climate change claimed a top three spot,with the public sector placing it third.Another first-ever was Western Europe being the only region to rank talent scarcity as its highest risk priority.GECS survey points to some slowing in global growth in Q3.The global economy has been quite resilient so far in 2024,but the latest survey of accountants points to some easing in growth at the current juncture.On a positive note,the increased policy stimulus should boost the Chinese economy over the coming months and quarters,and the move to rate cuts by the U.S.Federal Reserve,and many other central banks,will increasingly support global activity.That said,geopolitical risks are very elevated,with the conflict in the Middle East escalating.In addition to potentially weighing on confidence,any further spike in oil prices would clearly be problematic for central banks and consumers.Meanwhile,significant uncertainty about the upcoming U.S.election could increase corporate caution.Executive summary Confidence among global accountants declined in Q3 to its lowest since Q4 2023.CHART 1:GECS global indicators-60-50-40-30-20-100102030 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)IndexQ3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 20241 The median is used to calculate the averages.Confidence among accountants and chief financial officers(CFOs)declines.The ACCA and IMA Global Economic Conditions Survey(GECS)suggests that global confidence among accountants and finance professionals declined moderately in Q3.It is now at its lowest since Q4 2023 and slightly below its historical average.1 There was also a moderate decline in the forward-looking New Orders Index,and modest falls in the Capital Expenditure and Employment indices(see Chart 1).The message coming from the global CFOs in our panel was also more cautious.Confidence among CFOs fell moderately,and is now below its historical average,and there was a sharp deterioration in their assessment of new orders(see Chart 15).Some recovery in confidence in North America,but large falls in Asia Pacific and Western Europe.Confidence improved in North America(see Chart 2),although it recouped less than half of its Q2 fall,and the key indicators for the region look weak by historical standards.Growth in the U.S.economy is likely to slow over coming quarters,but a soft landing looks the most likely scenario.There was a marked decline in confidence in Asia Pacific,erasing most of the gains made earlier in 2024.Concerns about the continued Accountants and CFOs become more pessimistic on global economic prospects in Q3.21.Global and regional analysisThere was a wide divergence in the regional changes in confidence in Q3(see Chart 2).The largest rise was in the Middle East,and there were decent gains in South Asia and North America.The improvement in the latter was driven by quite a large rise in U.S.confidence after a huge fall previously.While less than half of the previous decline was recouped,it would suggest that fears about a potential U.S.recession may have eased somewhat.That said,the other key indicators look consistent with a slowing economy.Meanwhile,there was a huge decline in confidence in Asia Pacific,wiping out most of the gains made earlier in 2024.This may reflect growing concerns about the weakness of the Chinese economy,fears The Global New Orders Index declined moderately in the latest quarter(see Chart 3).It is now at its lowest since Q4 2020,albeit only slightly below its average over the surveys history.The declines in orders were quite broad-based across regions.The largest falls occurred in the key regions of Western Europe,North America,and Asia Pacific,with more modest declines in Africa and the Middle East.Bucking the trend was South Asia,with a small rise.Compared with their history,new orders are meaningfully below average in North America and Western Europe,but above average by varying degrees in Asia Pacific,Africa,South Asia,and the Middle East.Confidence fell sharply in Asia Pacific in Q3 and registered quite a large decline in Western Europe.There was some improvement in North America after the huge fall in Q2.CHART 2:Confidence change over the past quarter/year,by region-30-20-1001020CHART 3:GECS Orders change over the past quarter/year,by region-10-5051015South AsiaMiddle EastAfricaGlobalAsia PacificNorth AmericaWestern EuropeSource:ACCA/IMA(202324)Orders over the past quarter Orders over the past yearThe Global New Orders Index declined moderately in Q3,driven by falls in the key Asia Pacific,North America and Western Europe regions.Index pointsMiddle EastSouth AsiaNorth AmericaAfricaGlobalWestern EuropeAsia PacificSource:ACCA/IMA(202324)Confidence over the past quarter Confidence over the past yearIndex pointsabout the risk of a hard landing for the U.S.economy,and the recent weakening in the global manufacturing sector.The survey was carried out before the announcement of a more aggressive policy stimulus by the Chinese authorities.There was also quite a material decline in confidence in Western Europe,driven by a very sharp fall in the UK.Concerns about tax rises in the upcoming Budget and other policy changes appear to have been a key factor.Confidence is moderately below its historical average in North America,Western Europe,and Africa,and very slightly lower in Asia Pacific.Confidence is significantly above average in the Middle East,and meaningfully so in South Asia.There was some recovery in confidence in North America,but a sharp fall in Asia Pacific.3The proportion of global respondents reporting increased costs was largely unchanged in Q3 but remains elevated by historical standards(see Chart 4).At the regional level,cost pressures increased materially in Western Europe(driven by a very significant rise in the UK),rose slightly in the Middle East,and were largely unchanged in Asia Pacific.Cost pressures fell very sharply in South Asia,and to a much lesser extent in Africa and North America.Cost pressures remain elevated by historical standards in Western Europe,Africa,Asia Pacific,and North America(see Chart 5),suggesting that central banks enacting,or contemplating,monetary easing in those regions need to tread somewhat carefully.Cost pressures are around their historical averages in the Middle East and South Asia.Concerns about costs among CFOs declined meaningfully versus the previous quarter(see Chart 6),but over 60%are still reporting increased operating costs compared with a historical average of under 50%.The proportion of respondents reporting increased operating costs remained elevated by historical standards in Q3.CHART 4:Concerns about increased operating costs20304050607080Source:ACCA/IMA(201424)%of global respondents reporting increased costs Median over survey historyQ3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024%Cost pressures facing businesses remain elevated in Western Europe,Asia Pacific,North America,and Africa.CHART 5:Concerns about increased operating costs%of respondents reporting increased costs020406080North AmericaWestern EuropeMiddle EastAsia PacificSouth AsiaAfricaSource:ACCA/IMA(2024)Q3 2024 Median over survey historyThe proportion of CFOs experiencing increased operating costs declined materially in Q3 and is now similar to that of the broader panel.CHART 6:Global CFO concerns about increased operating costs020406080100%of respondents reporting increased costsMedian over survey historySource:ACCA/IMA(201424)Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 20244GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q3,2024Concerns globally that customers could go out of business rose slightly in Q3,while concerns about suppliers eased again.Neither of our two GECS fear indices look worrying by historical standards(see Chart 7).Meanwhile,global problems accessing finance eased for the second consecutive quarter,with only 14%of respondents reporting issues accessing finance,below the historical average of 20%.The recent decline likely reflects the improvement in global financial conditions since autumn 2023 and the beginning of rate cuts by the major global central banks.Global problems securing prompt payment also eased slightly and are below their historical average(see Chart 8).The easing in global financial conditions has been a helpful tailwind for the global economy,and monetary easing by central banks,particularly the U.S.Federal Reserve,is clearly very beneficial.Nevertheless,absent a sharp slowing in growth,interest-rate-cutting cycles are likely to be quite gradual and rates are still likely to remain high by the standards of the post-Global Financial Crisis period.Hence,firms and households that locked in very low interest rates in recent years are likely to experience a rise in borrowing costs when they come to renew their loans.CHART 7:GECS global fear indicesSource:ACCA/IMA(201424)01020304050 GECS:Index of concern about customers going out of business GECS:Index of concern about suppliers going out of businessIndexQ3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024Concerns globally that customers could go out of business edged up in Q3,but concerns about suppliers continued to ease.Neither series looks alarming by historical standards.Global problems accessing finance have eased quite materially in 2024 and are close to record lows.CHART 8:Problems securing prompt payment and accessing finance101520253035 GECS:Global problems accessing finance GECS:Global problems securing prompt payment%Source:ACCA/IMA(201424)Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 20245GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q3,2024NORTH AMERICAConfidence improved somewhat in Q3,albeit recouping less than half of Q2s decline(see Chart 9),and remains below its historical average.The New Orders,Capital Expenditure and Employment indices all declined by varying degrees and are well below their historical averages.Somewhat encouragingly,the proportion of respondents reporting increased operating costs eased to its lowest since Q1 2021,while remaining high by historical standards.All in all,while the increase in confidence is welcome,the key indicators are consistent with some slowing in the U.S.economy and significant caution on behalf of businesses.But with the job market showing resilience and the Federal Reserve beginning its rate-cutting cycle,the most likely scenario for the U.S.economy still looks to be a soft landing.Nevertheless,given the uncertainty faced by firms amid the election,and sharply heightened geopolitical tensions,one cannot rule out a sharper-than-expected slowdown.ASIA PACIFICConfidence fell very sharply in Q3,erasing most of the gains made earlier in the year,although it is only slightly below its historical average.There was also quite a meaningful decrease in the forward-looking New Orders Index(see Chart 10),but it remains well above average.The message coming from the Capital Expenditure and Employment indices was mixed.The former improved slightly and is above average,while the latter fell quite materially,but is close to its average.All in all,the key indicators point to a more downbeat backdrop for the region.The continued weakness of the Chinese economy was likely a factor,as well as concerns about the U.S.economy and signs of weakening in global manufacturing.The move to a more aggressive policy stimulus by the Chinese authorities,subsequent to the survey period,should help activity in the region,as will falling U.S.interest rates.The U.S.election and geopolitics remain important risks.WESTERN EUROPEThere was quite a large decline in confidence,which is now at its lowest since Q4 2023(see Chart 11).Similarly for the New Orders Index,which is now meaningfully below its historical average.More encouragingly,the Capital Expenditure Index edged slightly higher,and there was a decent gain in the Employment Index.The former is below its historical average while the latter is just above.Meanwhile,the proportion of respondents reporting increased operating costs jumped and remains well above its average.Much worse than expected,outturns for the UK heavily influenced the results.UK confidence fell markedly,and there was a meaningful decline in the New Orders Index.The proportion of UK respondents citing increased operating costs also soared.The UK results seem to fly in the face of the improving data this year,both on the activity and inflation front,and likely reflect business concerns about policy changes and tax rises at the Budget on 30 October.CHART 9:North America-60-40-200204060 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)CHART 10:Asia Pacific-70-60-50-40-30-20-1001020 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)CHART 11:Western Europe-60-40-200204060 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)IndexIndexIndexQ3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 20246GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q3,2024MIDDLE EASTConfidence in the region improved quite sharply in Q3,as did the Capital Expenditure and Employment indices(see Chart 12),all of which are now well above their historical averages.By contrast,there was a small fall in the New Orders Index,although it remains above average.The latest results were clearly encouraging and come despite conflict in the region and the fall in oil prices since the Q2 survey.The positive results likely reflect the continued resilience of the non-oil economies in key countries such as Saudi Arabia,as well as rising expectations of easier U.S.monetary policy,with many currencies in the region pegged to the U.S.dollar.Compared with Q2,survey respondents also became more optimistic on the prospects for increases in government spending over the next 12 months.On a note of caution,the survey was conducted before the latest intensification of hostilities in the region,which risk weighing on business and consumer sentiment,despite pushing oil prices higher.SOUTH ASIAConfidence registered a decent increase in Q3 it is now at its highest level since Q3 2022 and above its historical average.There was also a small improvement in the New Orders Index,which remains above its average(see Chart 13).There were solid gains in both the Capital Expenditure and Employment indices.The former is above its historical average,while the latter is at it.Meanwhile,the proportion of survey respondents reporting increased operating costs fell sharply and is now at its historical average.Overall,the key indicators are consistent with a quite positive backdrop for South Asia.The regions largest economy,India,should continue to be the worlds fastest growing major economy in both 2024 and 2025.It should benefit from strong infrastructure investment by the government,fast growth in the services sector,and the continued diversification of international supply chains.The job market remains an area of some weakness though.AFRICAAll the key indices declined by varying degrees in Q3(see Chart 14).The Confidence and New Orders indices both registered quite small falls.The former is below its historical average,while the latter is above it.The Capital Expenditure Index recorded a modest decline,but there was a larger retreat in the Employment Index.Both indices are below their historical averages,but not significantly.Meanwhile,the proportion of respondents reporting increased operating costs eased in Q3 while remaining elevated by historical standards.Inflation remains a major issue in the region,although the improving picture in some countries is allowing central banks to reduce policy rates.Monetary easing by the U.S.Federal Reserve should prove very helpful by reducing currency depreciation pressures,but geopolitical developments remain a major risk,given their potential impact on commodity prices.CHART 12:Middle East-80-60-40-200204060CHART 13:South Asia-80-60-40-2002040CHART 14:Africa-80-60-40-2002040IndexIndexIndex Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 20247GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q3,2024Confidence among CFOs declined in Q3,and there was a very sharp fall in the New Orders Index.CHART 16:GECS global indicators CFOsCHART 15:GECS global indicators CFOsSource:ACCA/IMA(201424)-80-60-40-2002040 Confidence Index Orders Index IndexThe message from the Capital Expenditure and Employment indices was mixed,with the former declining and the latter rising.The Capital Expenditure Index for CFOs fell moderately after a very large gain previously(see Chart 16).It remains below its historical average,although it has been materially lower on several occasions since Russia invaded Ukraine.It remains lower than the index for the broader panel,but not significantly.The Employment Index increased moderately and is above its average(see Chart 16)and well above that of the broader panel.Meanwhile,the proportion of CFOs experiencing increased operating costs declined by almost 10 percentage points but remains elevated by historical standards(see Chart 6).All in all,the latest results from CFOs point to some increase in caution in Q3,and are consistent with some slowing in global growth.The large fall in the proportion of CFOs reporting increased operating costs is a welcome development,nonetheless,and points to an inflationary backdrop that is becoming more conducive to a reduction in the magnitude of central banks policy restraint.That said,with cost concerns remaining on the high side historically,policymakers still need to tread carefully.Median over survey historySource:ACCA/IMA(201424)-80-60-40-20020 Capital Expenditure Index Employment Index IndexMedian over survey historyQ3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 2024Q3 2014Q3 2016Q3 2018Q3 2020Q3 2022Q3 20242.Chief Financial Officers(CFOs)Confidence among CFOs falls in Q3,amid a big decline in new orders.The indices reported in this section reflect the survey responses of CFOs who are part of our broader global panel of accountants and finance professionals.Confidence among CFOs recorded a moderate decline in Q3 and is now slightly below its historical average.The New Orders Index fell sharply,though,and is well below average(see Chart 15).The Confidence Index for CFOs is just below that of the broader panel(accountants,auditors,etc.,as well as CFOs),while the New Orders Index is meaningfully lower.8Financial ServicesCorporate SectorPublic sector not-for-profitSmall or medium-sized practice(SMP)Regulatory/compliance/legalEconomic inflation/recession/interest ratesTalent scarcity/skills gaps/employee retentionTechnology/data/cybersecurityClimate change/related regulation/its social and economic impactsInternational and geopolitical instabilityLogistics/supply chain disruption/supply shortages3.The ultimate year of national elections and geopolitical uncertaintiesWhile accountants around the world again ranked macroeconomics as the highest risk priority overall,differences across sectors painted a telling story about how the profession is making sense of todays landscape.Worldwide,more voters in history will have headed to the polls by the end of 2024,with at least 64 countries,plus the European Union,holding national elections,the results of which may prove consequential for years to come.With intensifying conflicts in the Middle East and the war between Russia and Ukraine,responses to the risk section of our third-quarter 2024(Q3 2024)GECS report reveal how challenging it has become for financial professionals to understand the economic impacts of this unprecedented combination of risks.By region,North America had the largest proportion of respondents to rank economic inflation,recession and interest rates as their top risk priority for Q3 2024.Answers to the open-ended question,what do you feel is the most underestimated risk facing your organisation?illustrate the degree of emerging threats facing businesses in todays poly-crisis environment.U.S.respondents pointed to a range of scenarios from trade tariffs to changing cybersecurity reporting requirements and artificial intelligence(AI)laws.A financial manager from a manufacturer in the Midwest said:the implications of these are hard to measure.Others also showed growing concerns about the shortage of skills,not least in the accountancy profession.A controller from another U.S.manufacturer replied more candidly about blind spots within her own company,saying that the biggest risks to my organisation are internal.With no consistent internal controls or centralised risk assessment,I believe there are things happening that could cause irreparable damage in the future.Bearish is the best way to describe risk survey responses from the UK,which accentuated what ACCAs chief economist wrote in the previous section about falling confidence despite long-awaited economic growth.The most underestimated risk for us is the reduction in charitable donations if the new government increases taxes,said an ACCA member from the not-for-profit sector.This respondent also said that the biggest impact the economy had on his business was scaling back investment in capital projects and staff.Most respondents expressed concerns about the upcoming Budget speech.One said that the most underestimated risk was uncertainty around changes to taxation and employment law and how that impacts recruitment,which is already difficult.I worry how we will be able to provide acceptable levels of support for our customers.Responses from those working at small-to-medium-sized enterprises(SMEs)also struck chords about the increasing risk overload and thinning capacity.One commented how higher taxation and increased workers rights are hitting small business employers hard while another ACCA member added,I have never seen such uncertainty since qualifying.Respondents from the corporate sector ranked macroeconomics as the highest risk priority,but responses from around the world showed how interconnected everything is.For example,one ACCA member in Australia,noted the increasing possibility of a global AI-triggered crash while also suggesting that automation will help eliminate inefficiencies.A finance director at a transportation company in the United Arab Emirates emphasised the web of risks facing multinational corporates:Geopolitical uncertainty is affecting global shipping in many ways,but were also exposed to volatile currency fluctuations,new cyber threats and talent retention problems,plus global freight and bunker charges variations that we have never seen before.As for financial services,challenges with sanctions compliance came up more,suggesting that many firms do not have dedicated teams or personnel with the necessary knowledge and skills to conduct effective screening.Its clear that many are struggling to keep up with the constantly evolving sanctions landscape and therefore finding it difficult to identify potentially costly risks.A Kenya-based CFO working in financial services said:There is a lack of capabilities of long-serving employees to understand risk in this new environment we operate in.Climate change and nature-related risks were also mentioned more than previously,with many suggesting that the economic implications are just as existential.An accountant in Ghana said:The rate at which the environment and water bodies are being destroyed through illegal mining is critical.Water could be a very serious problem in the near future,which for now is not on the hot plate for discussion.Another,from a retailer in Zimbabwe,pointed out the pervasiveness of fraud and underlined the sheer lack of trust in leadership seen across all sectors and regions:Fraudulent activities involving senior management and how theyre protected are underestimated given the existential risks we face.An internal auditor from financial services in Ireland summed it up:Environmental and social risks have become so political,it is hard to know where next for the economy and society at large.CHART 17:Top ranked risk priorities in Q3 2024 Financial Services vs Corporate Sector vs Public sector not-for-profit vs SMPsSource:ACCA/IMA Global Risks surveys(2024)9ACCA The Adelphi 1/11 John Adam Street London WC2N 6AU United Kingdom / 44(0)20 7059 5000 /IMA 10 Paragon Drive Suite 1 Montvale NJ 07645-1760 USA / 1(201)573-9000 /www.imanet.org The Association of Chartered Certified Accountants,Institute of Management Accountants,October 2024.About ACCA We are ACCA(the Association of Chartered Certified Accountants),a globally recognised professional accountancy body providing qualifications and advancing standards in accountancy worldwide.Founded in 1904 to widen access to the accountancy profession,weve long championed inclusion and today proudly support a diverse community of over 247,000 members and 526,000 future members in 181 countries.Our forward-looking qualifications,continuous learning and insights are respected and valued by employers in every sector.They equip individuals with the business and finance expertise and ethical judgment to create,protect,and report the sustainable value delivered by organisations and economies.Guided by our purpose and values,our vision is to develop the accountancy profession the world needs.Partnering with policymakers,standard setters,the donor community,educators and other accountancy bodies,were strengthening and building a profession that drives a sustainable future for all.Find out more at About IMA (Institute of Management Accountants)IMA is one of the largest and most respected associations focused exclusively on advancing the management accounting profession.Globally,IMA supports the profession through research,the CMA(Certified Management Accountant),CSCA(Certified in Strategy and Competitive Analysis),and FMAA(Financial and Managerial Accounting Associate)certification programs,continuing education,networking,and advocacy of the highest ethical business practices.Twice named Professional Body of the Year by The Accountant/International Accounting Bulletin,IMA has a global network of about 140,000 members in 150 countries and 350 professional and student chapters.Headquartered in Montvale,N.J.,USA,IMA provides localized services through its six global regions:The Americas,China,Europe,Middle East/North Africa,India,and Asia Pacific.For more information about IMA,please visit:www.imanet.orgAbout this reportThe Global Economic Conditions Survey(GECS),carried out jointly by ACCA(the Association of Chartered Certified Accountants)and IMA(Institute of Management Accountants),is the largest regular economic survey of accountants around the world,in both the number of respondents and the range of economic variables it monitors.The GECS has been conducted for over 10 years.Its main indices are good lead indicators of economic activity and provide a valuable insight into the views of finance professionals on key variables,such as investment,employment,and costs.Fieldwork for the 2024 Q3 survey took place between 3 and 19 September 2024,gathering 697 responses:476 from ACCA members and 221 from IMA members.ACCA and IMA would like to thank all members who took the time to respond to the survey.It is their first-hand insights into the fortunes of companies around the world that make GECS a trusted barometer for the global economy.Read the previous GECS reports hereContactsFor further information about the Global Economic Conditions Survey and the series of quarterly reports,please contact:Jonathan Ashworth Chief Economist ACCA Alain Mulder Senior Director Europe Operations&Special Projects IMA amulderimanet.orgThe section The ultimate year of national elections and geopolitical uncertainties was produced by:Rachael JohnsonHead of Risk Management and Corporate Governance for Policy&Insights ACCA
2024-11-07
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GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q2,2024 The Association of Chartered Certified Accountants,Institute of Management Accountants,July 2024.About ACCA We are ACCA(the Association of Chartered Certified Accountants),a globally recognised professional accountancy body providing qualifications and advancing standards in accountancy worldwide.Founded in 1904 to widen access to the accountancy profession,weve long championed inclusion and today proudly support a diverse community of over 247,000 members and 526,000 future members in 181 countries.Our forward-looking qualifications,continuous learning and insights are respected and valued by employers in every sector.They equip individuals with the business and finance expertise and ethical judgment to create,protect,and report the sustainable value delivered by organisations and economies.Guided by our purpose and values,our vision is to develop the accountancy profession the world needs.Partnering with policymakers,standard setters,the donor community,educators and other accountancy bodies,were strengthening and building a profession that drives a sustainable future for all.Find out more at About IMA (Institute of Management Accountants)IMA is one of the largest and most respected associations focused exclusively on advancing the management accounting profession.Globally,IMA supports the profession through research,the CMA(Certified Management Accountant),CSCA(Certified in Strategy and Competitive Analysis),and FMAA(Financial and Managerial Accounting Associate)certification programs,continuing education,networking,and advocacy of the highest ethical business practices.Twice named Professional Body of the Year by The Accountant/International Accounting Bulletin,IMA has a global network of about 140,000 members in 150 countries and 350 professional and student chapters.Headquartered in Montvale,N.J.,USA,IMA provides localized services through its six global regions:The Americas,China,Europe,Middle East/North Africa,India,and Asia Pacific.For more information about IMA,please visit:www.imanet.orgAbout this reportThe Global Economic Conditions Survey(GECS),carried out jointly by ACCA(the Association of Chartered Certified Accountants)and IMA(Institute of Management Accountants),is the largest regular economic survey of accountants around the world,in both the number of respondents and the range of economic variables it monitors.The GECS has been conducted for over 10 years.Its main indices are good lead indicators of economic activity and provide a valuable insight into the views of finance professionals on key variables,such as investment,employment,and costs.Fieldwork for the 2024 Q2 survey took place between 4 and 20 June 2024,and gathered 665 responses:463 from ACCA members and 202 from IMA members.ACCA and IMA would like to thank all members who took the time to respond to the survey.It is their first-hand insights into the fortunes of companies around the world that make GECS a trusted barometer for the global economy.ContactsFor further information about the Global Economic Conditions Survey and the series of quarterly reports,please contact:Jonathan Ashworth Chief Economist ACCA Alain Mulder Senior Director Europe Operations&Special Projects IMA amulderimanet.orgThe section The uncertainties keeping accountants up at night was produced by:Rachael JohnsonHead of Risk Management and Corporate Governance for Policy&Insights ACCAThe ACCA and IMA Global Economic Conditions Survey(GECS)suggests that global confidence among accountants and finance professionals improved slightly in Q2 2024 and is just above its historical average.1 There were also small gains in the Capital Expenditure,Employment,and New Orders indices(see Chart 1).The first of these is slightly below its average,while the other two are slightly above average.The key global indicators for chief financial officers(CFOs)all rose,with sharp gains in the New Orders and Capital Expenditure indices(see Charts 15 and 16).There was some notable divergence at the regional level(see Chart 2).Confidence among accountants registered another decent increase in Western Europe,consistent with continued recovery in the euro area and UK economies.There was a small rise in confidence in Asia Pacific,which came after a huge gain previously,and a marked increase in the New Orders Index.The region is benefiting from improvements in the global economy,including the manufacturing sector and technology cycle.By contrast,there was a large fall in confidence in North America,which was even more pronounced for the U.S.The U.S.economy has slowed from the heady pace of expansion in the second half of 2023,and the latest results raise the risk of some further moderation over coming quarters.The probability that the U.S.Federal Reserve will begin easing monetary policy after the summer has increased,although inflation developments over coming months will be crucial.Our global fear indices,which reflect respondents concerns that customers and/or suppliers may go out of business,both eased in the latest quarter and dont look particularly worrying by historical standards(see Chart 7).A similar story is evident for global problems accessing finance and securing prompt payment(see Chart 8).Global concerns about operating costs eased slightly but remain elevated by historical standards(see Chart 4).We also asked accountants to rank their top three risk priorities and,for the first time in a year,the economy is not the top concern for respondents working in financial services,although it is close to the highest it has ever been for those in the corporate sector.Responses to the question,what is the most underestimated risk?,suggest leaders are increasingly struggling to steer their enterprises through the accumulating waves of uncertainty this year,particularly as regards cybersecurity,which ranks as the third-highest risk priority for all sectors combined.All in all,the GECS points to some further improvement in the global economy in Q2.Further signs of a pickup in the important Western European and Asia Pacific regions are encouraging,although the decline in the North American and U.S.indices bear watching closely.Meanwhile,despite the resilience of the global economy so far in 2024,many important downside risks and challenges remain.Sticky inflation could limit central banks scope for monetary easing,while geopolitical and domestic political risks remain very elevated and will continue to create significant uncertainty.Executive summary CONFIDENCE AMONG GLOBAL ACCOUNTANTS AND FINANCIAL PROFESSIONALS IMPROVED AGAIN IN Q2 2024,DESPITE A BIG FALL IN NORTH AMERICA.Confidence among global accountants improved again in the second quarter,and there were also small gains in the other key indicators.CHART 1:GECS global indicators-60-50-40-30-20-100102030 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)IndexQ2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 20241 The median is used to calculate the averages.31.Global and regional analysisCONFIDENCE ROSE THE MOST IN WESTERN EUROPE,BUT FELL SHARPLY IN NORTH AMERICA.There was some notable divergence in the regional changes in confidence in Q2(see Chart 2).The largest gain was in Western Europe,which followed a decent rise in Q1.This is consistent with continuing recovery in the euro area and UK economies after the weakness in the second half of 2023.The increase in confidence in Asia Pacific was small but notable,because it came after a huge rise previously.The improvement in the global economy and manufacturing and semiconductor sectors is likely an important contributor to rising confidence in the region.By far the largest decline in confidence occurred in North America,erasing almost three-fifths of the gains made over the previous two quarters.The decline in confidence was even more pronounced in the U.S.,pointing to some slowing in economic growth.Confidence is significantly higher than its historical average in Asia Pacific,slightly above in the Middle East and Western Europe,at its average in South Asia,slightly below average in Africa,and well below average in North America.The GECS Global New Orders Index increased modestly again in the latest quarter(see Chart 3)and remains slightly above its average over the surveys history.There was quite a bit of divergence at the regional level.There was a very sharp increase in the New Orders Index in Asia Pacific,which is now significantly above its historical average.The largest fall was in the Middle East,although the index here remains meaningfully above its average.Among the other regions,compared with their history,new orders are comfortably above average in Africa and to a much lesser extent South Asia,and slightly below average in North America and Western Europe.The proportion of global respondents reporting increased costs eased in Q2,after rising in the previous quarter.As Chart 4 shows,while cost pressures are down from their peak,they remain elevated by historical standards.At the regional level,cost pressures eased somewhat in Western Europe,but were largely unchanged in Asia Pacific,North America,and the Middle East.Confidence rose globally in the second quarter but there was some interesting regional divergence.There was another decent gain in Western Europe but a sharp fall in North America.CHART 2:Confidence change over the past quarter/year,by regionIndex points-20-100102030Western EuropeAfricaGlobalAsia PacificSouth AsiaMiddle EastNorth AmericaSource:ACCA/IMA(201424)Confidence over the past quarter Confidence over the past yearCHART 3:GECS Orders change over the past quarter/year,by regionIndex points-20-1001020Asia PacificSouth AsiaGlobalWestern EuropeAfricaNorth AmericaMiddle EastSource:ACCA/IMA(201424)Orders over the past quarter Orders over the past yearThe Global New Orders Index rose modestly in the second quarter,but there was a very large gain in Asia Pacific.4Cost pressures rose again in South Asia,and to a lesser extent Africa.Cost pressures remain elevated by historical standards in all regions except the Middle East(see Chart 5),suggesting that those central banks enacting,or contemplating,monetary easing should tread very carefully.Concerns about costs among CFOs were largely unchanged since the previous quarter(see Chart 6),with over 70%currently experiencing increased operating costs compared with a historical average of under 50%.Concerns globally that customers and suppliers might go out of business eased in Q2.Neither of our two GECS fear indices look alarming by historical standards(see Chart 7).Digging below the global level,Asia Pacific and South Asia are the only regions where concerns about customers going Concerns about increased costs eased slightly in the second quarter but remain elevated by historical standards.CHART 4:Concerns about increased operating costs20304050607080Source:ACCA/IMA(201424)%of global respondents reporting increased costs Median over survey historyQ2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024%Cost pressures remain elevated in most regions,including North America and Western Europe.CHART 5:Concerns about increased operating costs%of respondents reporting increased costs020406080North AmericaWestern EuropeMiddle EastAsia PacificSouth AsiaAfricaSource:ACCA/IMA(2024)Q2 2024 Median over survey historyThe proportion of CFOs experiencing increased operating costs was largely unchanged in Q2 and remains elevated by historical standards.CHART 6:Global CFO concerns about increased operating costs020406080100%of respondents reporting increased costsMedian over survey historySource:ACCA/IMA(201424)Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 20245GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q2,2024out of business are above average,albeit not materially so.Concerns about suppliers going out of business are at their average in Asia Pacific,but below average elsewhere.Meanwhile,global problems with accessing finance and securing prompt payment declined in the latest quarter(see Chart 8),and both series are below their historical averages.In none of the major regions do problems accessing finance appear to be a particular issue,with only the series for Western Europe and South Asia being slightly above their averages.A similar story was largely evident in problems securing prompt payment,with only Western Europe and South Asia being modestly above their averages.The lagged impact of global monetary tightening is likely to affect countries,sectors,and firms to varying degrees over the coming quarters and years.The easing in global financial conditions since last autumn has been a helpful tailwind for the global economy,and the expected monetary easing by the major central banks,particularly the U.S.Federal Reserve,over coming quarters,will clearly be beneficial.Nevertheless,interest rates are still likely to remain high by the standards of the post-Global Financial Crisis period.CHART 7:GECS global fear indicesSource:ACCA/IMA(201424)01020304050 GECS:Index of concern about customers going out of business GECS:Index of concern about suppliers going out of businessIndexQ2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024Concerns globally that customers or suppliers could go out of business eased in the latest quarter and dont look alarming by historical standards.Global problems accessing finance and securing prompt payment declined and are below their historical averages.CHART 8:Problems securing prompt payment and accessing finance101520253035 ACCA Global problems accessing finance ACCA Global problems securing prompt payment%Source:ACCA/IMA(201424)Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 20246GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q2,2024NORTH AMERICAConfidence fell sharply in Q2 in North America(see Chart 9)and is now well below its historical average.There were also small declines in the New Orders and Capital Expenditure indices,although there was a decent increase in the Employment Index.All three indices are below their historical averages,employment and capital expenditure quite materially so.The results for the U.S.were much worse than for the continent as a whole,including a fall in confidence of 28 points,a large decline in the Capital Expenditure Index,and a small fall in the Employment Index.After the extremely robust expansion in the second half of 2023,U.S.economic growth slowed in the first half of 2024.The fall in our U.S.indicators reflects this and may augur some further moderation in growth.The probability is increasing that the Federal Reserve begins to ease monetary policy after the summer.Inflation developments over coming months will be key.ASIA PACIFICConfidence rose very modestly in Q2,after a huge gain previously,and remains significantly above its historical average.There was also a very large increase in the forward-looking New Orders Index (see Chart 10),which is at its second highest on record.Meanwhile,there was quite a large rise in the Capital Expenditure Index,which is now above its historical average.The Employment Index declined,however,although it remains well above average.All in all,the key indicators point to an increasingly positive backdrop for Asia Pacific.The export-oriented region is benefiting from the improving global economy,including the pickup in the manufacturing sector and global technology cycle.The sharp improvement has occurred despite the rather tentative recovery of Chinas economy amid continuing problems in its housing market.Key risks for the region are a more pronounced than expected slowing in the U.S.economy and rising protectionism.WESTERN EUROPEConfidence rose moderately for the second consecutive quarter in Q2 and is now at its highest since Q1 2023 and slightly above its historical average.Nonetheless,the picture for the other key indicators was mixed.The New Orders Index was largely unchanged and remains slightly below its average.The Capital Expenditure Index fell quite materially,while employment rose both are below their historical averages.Overall,the continued rise in confidence is consistent with a recovery in the economy of Western Europe,although the key indicators do not suggest a particularly robust expansion(see Chart 11).The euro area and UK economies are benefiting from improving real incomes among households amid the sharp fall in inflation and strong pay growth.Monetary policy is also beginning to become somewhat less restrictive.The European Central Bank cut interest rates in June and the Bank of England may follow suit over coming months.Nevertheless,monetary easing is likely to be cautious and gradual.CHART 9:North America-60-40-200204060 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)CHART 10:Asia Pacific-70-60-50-40-30-20-1001020 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)CHART 11:Western Europe-60-40-200204060 Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)IndexIndexIndexQ2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 20247GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q2,2024MIDDLE EASTConfidence declined somewhat in Q2 but remained slightly above its historical average.There were also reasonably large falls in the New Orders,Capital Expenditure and Employment indices(see Chart 12).The New Orders Index remains meaningfully above its historical average,the Employment Index is around its average,while the Capital Expenditure Index is well below average.Survey respondents have become noticeably less optimistic on the prospects for increases in government spending over the next year.All in all,the latest results were disappointing and paint a somewhat mixed picture for the region.The purchasing managers surveys have also recently pointed to some slowing in the non-oil private sectors in Saudi Arabia and the United Arab Emirates,although they remain consistent with solid growth.The beginning of rate cuts by the U.S.Federal Reserve should be helpful for the region,but geopolitical risks remain.SOUTH ASIAConfidence in South Asia declined very slightly in Q2 and is currently at its historical average(see Chart 13).The New Orders Index improved and is at its highest since Q3 2022 and above its average.There was also a small improvement in the Capital Expenditure Index,which is now at its historical average.Less encouragingly,there was a huge fall in the Employment Index,which lost its very large gains over the previous two quarters.It is now materially below its historical average,although its current level is certainly not unprecedented by historical standards and this can be a volatile index.Overall,the key indicators(save employment)remain consistent with a broadly reasonable backdrop for South Asia.The regions largest economy,India,should continue to be the fastest-growing major global economy over coming years:the International Monetary Fund(IMF)forecasts annual growth in excess of 6%through the end of the decade.AFRICAConfidence improved slightly again in Q2(see Chart 14)but remains just below its historical average.The New Orders Index declined modestly but remains meaningfully above average.There were decent increases in both the Capital Expenditure and Employment indices after sharp falls previously.The former is slightly below average,while the latter is above it.High inflation remains a major issue in the region.Concerns about increased operating costs rose again and remain elevated by historical standards,while 73%of survey respondents expect the rate of inflation to rise over the next three months in the country where they work,while only 14%expect a decline.Against such a backdrop,51%of respondents expect an increase in interest rates over the next three months in the country where they work,while only 14%expect a decline.The beginning of monetary easing by the U.S.Federal Reserve would be very helpful for the region,but geopolitical developments remain a major risk.CHART 12:Middle East-80-60-40-200204060CHART 13:South Asia-80-60-40-2002040CHART 14:Africa-80-60-40-2002040IndexIndexIndex Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)Confidence Index Orders Index Capital Expenditure Index Employment IndexSource:ACCA/IMA(201424)Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 20248GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q2,2024Confidence among CFOs improved in Q2,and there was a large rise in the New Orders Index.CHART 16:GECS global indicators CFOsCHART 15:GECS global indicators CFOsSource:ACCA/IMA(201424)-80-60-40-2002040 Confidence Index Orders Index IndexThe CFOs Employment Index improved slightly in Q2,while the Capital Expenditure Index increased sharply.Chief Financial OfficersKEY INDICES POINT TO GROWING OPTIMISM AMONG CFOS,BUT COST CONCERNS REMAIN ELEVATED.The indices reported in this section reflect the survey responses of the CFOs who are part of our broader global panel of accountants and other finance professionals.Confidence among CFOs recorded a decent increase in Q2 and is now slightly above its historical average.New orders improved sharply and are well above average(see Chart 15).The Confidence Index for CFOs is almost equal to that of the broader panel(accountants,auditors,CFOs,etc.),while the New Orders Index is materially higher than that for the broader panel.The Capital Expenditure Index for CFOs registered its third-largest gain on record and is now just below its historical average.It is now only slightly lower than that for the broader panel,after being significantly below in previous quarters.The CFOs Employment Index increased modestly and is now at its average(see Chart 16).It remains slightly higher than that of the broader panel.Meanwhile,the proportion of CFOs experiencing increased operating costs remains elevated by historical standards(see Chart 6).All in all,the across-the-board gains in the Confidence,New Orders,Capital Expenditure and Employment indices among CFOs are clearly encouraging,with the key indicators currently indicative of a broadly decent global economic backdrop.That said,continued elevated concerns about operating costs add a note of caution.Median over survey historySource:ACCA/IMA(201424)-80-60-40-20020 Capital Expenditure Index Employment Index IndexMedian over survey historyQ2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 2024Q2 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2 20249GLOBAL ECONOMIC CONDITIONS SURVEY REPORT:Q2,20242.The uncertainties keeping accountants up at nightFor the first time in a year,the economy is not the top risk priority for respondents working in financial services,although it is close to the highest it has ever been since the global risks survey was first carried out among accountants in the corporate sector.The global risks survey,initiated in November 2022 as part of ACCAs research series on Risk Culture:Building Resilience and Seizing Opportunities,was added as a new section in ACCA-IMAs GECS in 2023s Q2 report.One year on,it continues to shed light on the risk perspectives of financial professionals around the world and findings from the second quarter of 2024(Q2 2024)are particularly telling about the increasing lack of foresight among,and eroding trust in,business leaders.While economic inflation,recession,interest rates remained the top risk priority overall,its lead narrowed because fewer respondents from financial services ranked it in their top three and instead ranked regulatory,compliance,legal issues higher for the first time since Q4 2022.On the other hand,the corporate sector kept economic inflation,recession,interest rates as an even stronger first priority and put international and geopolitical instability back into the top three after dropping it down to fourth place in Q1 2024.We also continue to see how risk concerns vary across industries,quarter-to-quarter.For example,accountants in financial services put misconduct,fraud,reputational damage into the top three for the first time.This is interesting since,as discussed in previous reports,we found it to be a big blind spot,having consistently ranked at the bottom overall despite the rising number of fraud cases in both financial services and the corporate sector.Indeed,it was ranked as the lowest priority of all one year ago and is still the lowest-ranking priority for respondents in the corporate sector.The open-ended question,what do you believe is the most underestimated risk facing your organisation?,helps put all this into context.Certain key functions are exclusively in the hands of third parties,for example,our money transfer application.Various fraud incidents have been investigated,but controls are still not fully implemented,a respondent from Sierra Leone commented.From new monetary and fiscal policies to the perils and promises of artificial intelligence(AI)and intensifying impacts of climate change,respondents in Q2 2024 didnt hold back about the challenges they face given the unprecedented number of elections this year on top of already accelerating green and digital transformations.While cybersecurity has been a concern for financial institutions for years,the sophistication and frequency of cyberattacks,many state-run,continue to evolve and no one really understands the consequences or how to account for them,a respondent in the U.S.said.Another in India explained:Climate change,poor state of finances of local governments and increased taxes are all factors that need to be considered,but the most difficult problem is customer confidence in the economy and their own capacity to invest in things like housing.As talent scarcity,skills gaps,employee retention continues to fall down the ranks of concerns in financial services,our findings show that they are becoming ever more challenging for the corporate sector,with many respondents saying staff turnover is the biggest underestimated risk.Big or small,corporates are also naturally concerned with logistics,supply chain disruption,supply shortages and we see a growing lack of confidence in how boards and senior management tackle the interconnectedness of all these issues.The company is good at increasing prices of our products instead of finding ways to increase volumes,said one ACCA member.Senior managements drive to change for the sake of shareholder narrative,rather than true growth and exploitation of opportunities,is wasting capital on non-value-adding paths,added another.Additionally,as a respondent in Australia noted,My organisation has outdated technology that will limit progress going forward.Another,in the U.S.,concluded,We are at a high risk of being unable to bring in new business owing to changing buying habits;the question is,what are we doing about it?.CHART 17:Top ranked risk priorities change over the past year1015202530Economic inflation/recession/interest ratesTalent scarcity/skills gaps/employee retentionTechnology/data/cybersecurityRegulatory/compliance/legalInternational and geopolitical instabilityClimate change/related regulation/its social and economic impactsMisconduct/fraud/reputational damageLogistics/supply chain disruption/supply shortagesWithdrawal of fiscal measures/higher taxationCurrency,including crypto and digital assetsSource:ACCA/IMA Global Risks surveys(202324)Q2 2024 Q1 2024 Q4 2023 Q3 202310Links to previous Global Economic Conditions Survey(GECS)reports:Click on the covers to view previous reports online:GECS-Q2-2024ACCA The Adelphi 1/11 John Adam Street London WC2N 6AU United Kingdom / 44(0)20 7059 5000 /IMA 10 Paragon Drive Suite 1 Montvale NJ 07645-1760 USA / 1(201)573-9000 /www.imanet.orgACCA,IMA and the global economyGlobal economic conditions continue to dominate business and political life.News and debates on economic issues are almost constantly the focus of media attention.While most national economies are now growing once again,it is far from clear how sustainable this growth is or how long it will be before a sense of normalcy returns to the global economy.ACCA and IMA have been prominent voices on what the accounting profession can do to help turn the global economy around.Both bodies have published extensively on a range of topics,from the regulation of financial markets or the prevention of fraud and money laundering,to fair value or the role of international accounting standards,to talent management and the development of an ethical business culture.ACCA and IMA aim to demonstrate how an effective global accountancy profession contributes to sustainable global economic development;to champion the role of accountants as agents of value in business;and to support their members in challenging times.Both professional bodies believe that accountants add considerable value to business,and never more so than in the current environment.Accountants are particularly instrumental in supporting the small business sector.Small and medium-sized enterprises(SMEs)account for more than half of the worlds private sector output and about two-thirds of all employment.Both ACCA and IMA focus much of their research and advocacy efforts on articulating the benefits to SMEs of solid financial management and reliable financial information.WHERE NEXT?As countries around the world continue to consider strategies to promote stability and stimulate growth,the interconnectedness of national economies,and how they are managed and regulated,is now under close scrutiny.The development of the global accountancy profession has benefited from,and in turn contributed greatly to,the development of the interconnected global economy.The fortunes of the two are tied.ACCA and IMA will,therefore,continue to consider the challenges ahead for the global economy,and focus on equipping professional accountants for the uncertain future.TO FIND OUT MORE VISIT: www.imanet.org
2024-11-07
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Chamber pulse Global markets,local landscapes2024 editionPlease cite as:Chamber pulse:Global markets.
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Industrial Policy as Zombie Economics2024Steven GlobermanSeptember 2024 Fraser InstituteIndustrial Policy as Zombie EconomicsSteven Globermaniiifraserinstitute.orgContentsExecutive Summary 11.Introduction32.Overview of Industrial Policy43.Arguments For and Against Traditional Industrial Policy94.Some Evidence on the Effectiveness of Industrial Policy165.Features of New Industrial Policy and an Evaluation216.Concluding Comments25References27About the Author 31Acknowledgments31Publishing Information 32About the Fraser Institute 33Editorial Advisory Board 341fraserinstitute.orgExecutive SummaryRecently,many developed economies,including Canada and the US,haveimplemented major government programs to promote the growth of specificindustries and sectors including electronic vehicles(EVs)and the criticalinputs to manufacturing EVS such as batteries,semiconductors,and ArtificialIntelligence(AI).While not new,the resurgence of industrial policy reflects,in part,concernsabout Chinas competitive position in the so-called industries of the future.Italso reflects a renewed focus on the importance of growing the manufacturingsector to ensure self-sufficiency in the production of products such as pharma-ceuticals,medical supplies,and semiconductor chips.The key premise behind industrial policy is that the government can andshould promote the expansion of specific industries and activities that havethe greatest potential to increase societys standard of living.The corollary isthat the private sector,if left to itself,will underinvest in industries promisinglarge net social benefits.Most economists have criticized the underlying premise of industrial policy.In particular,critics of industrial policy argue that bureaucrats ordinarily donot have the knowledge or the incentive to reallocate productive resources soas to accelerate real economic growth.Case studies of industrial policy initia-tives tend to support this criticism.While supporters of industrial policy acknowledge the failure of many past in-itiatives,they argue that the underlying problems can be addressed by modi-fying the industrial policy process.In particular,they argue for embeddinggovernment in the private sector in what amounts to a public-private partner-ship to engage in transformative innovation.Public-private partnerships(PPPs)have been used for decades primarily inthe construction and operation of infrastructure assets such as roads,ports,and hospitals.The track record of PPPs is,at best,mixed.Specifically,manyPPPs have failed to deliver their anticipated net benefits because of hightransactions costs associated with assigning responsibilities,monitoring theperformance of the involved parties,and enforcing terms of the underlying2 Industrial Policy as Zombie Economicsfraserinstitute.orgcontractual agreement.Too often,the outcome is the termination of the PPP before its intended maturity.PPPs are usually structured around achieving specific explicit objectives.They also usually draw upon well understood technological and managerial prin-ciples.However,these conditions typically do not obtain apply in the case of transformative industrial policies which,by their nature,involve many more“partners”than do PPPs,as well as much greater economic and technological uncertainty.Given the problems that many PPPs have experienced,it seems unlikely that the complex cooperation and coordination between the public and private sec-tors as called for in new models of industrial policy will lead to more success-ful initiatives in the future than have been achieved in the past.3 fraserinstitute.orgIntroductionThe critical policy consideration is not whether states should organize their economies,but how they should be organized.US Senator Marco Rubio,quoted in Tucker(2019:43)In the aftermath of the COVID-19 pandemic,the long-standing debate surrounding the role and nature of industrial policy has strengthened.1 The debate has been reinvigorated in part by a concern that Western economies are losing their innovative edge,particularly relative to China.It has also come to the fore in part due to worry from the Western econ-omies about relying on political and military adversaries,again particularly China,not just for critical products in the green energy supply chain,but for semiconductors,phar-maceuticals,and precursors for medicines,among other high profile products.A grow-ing consensus that climate change requires an accelerated substitution of green energy sources for carbon-based fuels has also motivated renewed support for industrial policy in Canada,the US,and Western Europe.Both supporters and critics of the initiatives have identified major public policy ini-tiatives introduced recently by governments of wealthy countries,including the US and Canada,as contemporary examples of industrial policy.The most significant recent initia-tives are focused on helping to accelerate a transition away from the use of carbon fuels to sources of green energy.Prominent examples include major subsidies by federal and provincial governments in Canada to companies participating in different stages of the EV supply chain,as well as the Biden Administrations Inflation Reduction Act,which is largely focused on restructuring the US economy away from fossil fuels and toward green energy.2 Tariffs and related trade policy initiatives levied by the US and European governments against Chinese EVs and other products have also reemerged as prominent instruments of industrial policy.Ilyina,Pazarbasioglu,and Ruta(2024)used machine learning software to identify the dramatic growth in what the International Monetary Fund identifies as industrial policy interventions.Specifically,they found that a count of industrial policy initiatives increased consistently over the period 2010-2021,and that there were more than 2,500 industrial 1 See Agarwal(2023)for an overview of the recent renewal of interest in industrial policy by academics and policymakers.2 Both governments are also subsidizing domestic initiatives in the semiconductor chip and Artificial Intelligence sectors(see Bivens,2023).4 Industrial Policy as Zombie Economicsfraserinstitute.orgpolicy interventions worldwide in 2023 alone,which underscores a growing commitment by governments to industrial policies in the past few years.The authors conclude that competitiveness was the objective for one-third of all industrial policy measures in 2023.The remaining two-thirds of these measures were motivated by climate mitigation,supply chain resilience,and national security considerations.Different forms of subsidies and export-related initiatives together account for most of the industrial policy measures they identified.While industrial policy-related interventions and the debate surrounding industrial policy have a long history,a growing number of scholars and policymakers are calling for much more ambitious and systemic government intervention into the economy than did earlier proponents of industrial policy.The recent programs identified above,involving massive subsidies to specific participants in the EV supply chain,as well as subsidies to producers of semiconductor chips and AI software,underscore a seemingly renewed commitment to transformative industrial policy on the part of Western governments.The purpose of this paper is to identify how the nature of industrial policy and the debate surrounding its merits have evolved in recent years,and to consider whether the chang-ing nature of industrial policy is likely to make it more economically effective or,instead,whether industrial policy deserves to be characterized as a form of“zombie economics.”3The paper proceeds as follows.The next section identifies definitions and objectives of what might be called traditional industrial policy.Section 3 provides a discussion of the rationale for and objections to traditional industrial policy.Section 4 briefly reviews some of the available empirical evidence bearing upon the economic consequences of industrial policy.Section 5 presents and addresses claims that some recent proponents of industrial policy have made,specifically,that new models and planning that they put forward rep-resent a substantial improvement upon the traditional industrial policy model.Section 5 also includes an argument that the empirical literature on public-private partnerships provides relevant insights into the likely consequences of implementing what has been put forward as a new model of industrial policy.The section reviews some of the relevant evidence on the performance of public-private partnerships.The papers final section pro-vides concluding comments.3 Zombie economics is a derogatory descriptor of economic ideas that have been discredited but still survive in public policy debates.It was originally used to demean supply-side economics.For a discus-sion of applications of this term to economic theories,see Quiggin(2012).5 fraserinstitute.org2.Overview of Industrial PolicyFor centuries governments have practiced industrial policy.For example,in the late 1790s,then Secretary of the Treasury,Alexander Hamilton,argued successfully that the US should encourage the growth of manufacturing in the newly formed United States of America in order to diversify employment and to help the country become independent of foreign nations for military and other essential supplies.The Canadian National Policy of 1879-1895 was an instance of deliberate protection of infant industries;it used trade protection to spur the development of a domestic manufacturing sector.4 While government industrial policies may be centuries old,analysis of industrial pol-icy drawing on economic principles only started proliferating in the late 1970s and early 1980s.5 Numerous definitions of traditional industrial policy can be identified in the lit-erature,although there is a substantial degree of similarity in the definitions.Table 1 provides a summary overview of a set of definitions.6 The various definitions highlight the redistributive nature of traditional industrial policy,i.e.,it generally encouraged some activities and discouraged others.The activities can be industry-specific,firm-specific,and/or location-specific.The definitions also suggest that industrial policy is meant to improve upon the performance of the market system,either by encouraging specific activities that would otherwise not be undertaken or by promoting increased or decreased levels of spe-cific activities so as to achieve levels that are judged to be socially,if not privately,efficient.7 Table 2 identifies specific objectives of industrial policy from various sources.While the number of sources cited is necessarily limited,the information in the table leads to at least two observations.One is that earlier studies tend to emphasize the importance of 4 Kedrosky(2022),among others,argues that the promotion of import substitution came at relatively low cost to Canadian consumers.Harris,Keay,and Lewis(2015)provide some evidence that indus-tries receiving greater protection under Canadas 1879 National Policy experienced faster growth in output and productivity than other industries.However,Alexander and Keay(2018)suggest that a multilateral move to free trade would have resulted in the best welfare outcome for Canadians,a pos-ition that is supported by successive Canadian federal governments seeking to address long-standing productivity problems through global and regional trade agreements.5 Wraight(2024)asserts that arguments for industrial policy drawing on the concept of market failure emerged as the American lefts answer to supply-side economics.6 The summaries represent this authors interpretation and consolidation of the discussion in each of the studies cited.This is also how we prepared the summaries in table 2.7 Put differently,traditional industrial policy was primarily focused on correcting for market failures whereby the private sector would produce too much or too little of a specific good or service in the absence of government intervention.6 Industrial Policy as Zombie Economicsfraserinstitute.organticipating and promoting the growth of firms and industries that are technologically promising from a commercial perspective,while also helping workers transition from declining industries to sunrise industries.8 A second is that more recent studies identify ESG-related objectives as being important priorities for industrial policy.9 In particular,the recent literature on industrial policy highlights policies that encourage a transition away from fossil fuels to green energy.One also sees a greater number of direct and indirect 8 Wraight(2024)summarizes the objectives of industrial policy by advocates in the early 1980s as gov-ernment identifying so-called sunrise sectors with high potential to create productivity spillovers and supporting those sectors,while identifying sunset sectors and implementing longer term plans to modernize and restructure them.9 ESG is an acronym for corporate practices related to a companys environmental,social,and govern-ance performance.Dudash(2016)is arguably one of the earlier proponents of industrial policy to identify improving environmental standards as an objective of industrial policy along with boosting the growth prospects of specific sectors.Mazzucato(2015)calls for an entrepreneurial state to gener-ate new and innovative approaches to tackle pressing problems such as climate change mitigation and poverty alleviation.Table 1:Definitions of Industrial Policy1.Reich(1982):Industrial Policy favours business segments that promise to be strong international competitors,while promoting the adjustment of labour to structural changes in the world economy.2.Neely(1993):Industrial Policy is a set of policies designed to promote promising industries,while easing the fall of declining industries.3.Schultze(2016):Industrial policy aims to channel the flow of private investment towards some firms and industries and away from others.4.Tucker(2019):Industrial Policy encourages resources to shift from one industry or sector to another.5.Hufbauer and Jumg(2021):Industrial Policy encompasses government efforts to support and nurture favoured economic sectors.6.Lincicome(2021):Industrial Policy is trageted government intervention intended to achieve specific,market-beating industrial and commercial domestic outcomes.7.Agarwal (2023):Governemnt efforts to shape the economy by targeting specific industries,firms or activities.8.Siripurapu and Berman(2023):Government efforts to support particular industries that are considered stra-tegically important.9.Jukasz,et.al.(2023):Policies that explicitly target the transformation of economic activity in pursuit of some public goal.10.Wraight(2024):Government designates target industries and supports their growth.Industrial Policy as Zombie Economics 7fraserinstitute.orgreferences to policies targeted at addressing inequalities related to the location,occupation,or demographic status of specific sets of workers.10In summary,the main ostensible objective of traditional industrial policy is technol-ogy-led economic growth,with a related objective of mitigating the economic harm that workers in sunset industries suffer,primarily by providing temporary income support and retraining.While promoting innovation and economic growth is also a focus of newer models of industrial policy,the latter also highlight ESG-related objectives,particularly the transition to a green economy.Academic discussions of industrial policy identify a wide variety of policy tools.They include financial subsidies,tax incentives,protective trade barriers and regulations,gov-ernment-funded infrastructure,government-mandated buy-domestic programs,and research and development support.11 Earlier vintages of industrial policy tended to empha-size trade-related measures including protective tariffs and subsidies to so-called infant 10 A focus on addressing inequalities is embedded in the term“inclusive growth”explicitly used by Agar-wal(2023).In the context of a new industrial policy Tucker(2019)discusses selecting industries for favourable government treatment based partly on their employment of women and people of colour.11 See Tucker(2019)and Agrawal(2023)for a discussion of the range of tools.Table 2:Focus of Industrial Policy1.Reich(1982):Reduce the short-term costs of capital and labour for emerging industries and assist workers forced to retrain or relocate.2.Neely(1993):Promote the development of new technology with commercial possibilities and retrain workers displaced in declining industries.3.Schultze(2016):Provide direct and indirect assistance to existing firms and new entrants in cutting-edge sec-tors and support and rehabilitate major declining industries.4.Alternburg and Rodrik(2017):Reduce regional disparities;encourage labour-intensive industries and small businesses;promote environmental sustainability.5.Bivens(2023):Address climate change,the shortage of child and elder care and the fragility of supply chains.6.Agarwal(2023):Enhance national security;support job-rich and inclusive growth;revitalize left-behind com-munities.7.Siripurapu and Berman(2023):Promote industries critical for national security;encourage innovation.8.Van Reenan(2023):Promote transition to green energy.8 Industrial Policy as Zombie Economicsfraserinstitute.orgindustries,particularly directed at stimulating domestic manufacturing industries.12 More recent proponents of industrial policy tend to emphasize the role of the state in promot-ing innovation and entrepreneurship by shaping investments in technology,including through major R&D programs such as those that facilitated the US moon landing or the development of the Internet.13 While preferences regarding which specific tools of industrial policy work best differ over time,the differences are not as prominent in their implications as in the proposed scope of industrial policy,as well as the implied relationship between governments and private sector participants.In broad terms,traditional industrial policy did not encompass national economic planning.Indeed,one of the most well-known proponents of traditional industrial policy,Robert Reich(1982),argued that industrial policy was not national plan-ning but rather a process for making the economy more adaptable and dynamic.More recently,however,Tucker(2019)posits that it is impossible to have an effective industrial policy without an economy-wide planning process with a strong national mission at its centre.Tucker further argues that mission-oriented industrial policies must foster inter-action involving many different groups in society,so that formal and binding five-and ten-year indicative government planning is advisable.12 See Reich(1982)for a discussion of how US politicians saw Japans trade practices as a rationale for US import-substitution initiatives to promote domestic manufacturing industries.Juhsz,Lane,and Rodrik(2023)posit that government subsidies and export-related measures together account for most industrial policy interventions in recent years.Populist politicians in the US have returned to the theme that domestic manufacturing industries should be protected from“unfair”foreign competition.13 See,for example,Schwab and Malleret(2022).As noted above,trade protection seems to be returning as a prominent tool of industrial policy,particularly directed by western governments against Chinese products.9 fraserinstitute.org3.Arguments For and Against Traditional Industrial PolicyThe fundamental rationale for industrial policy is the same broad rationale for any form of government intervention into private market transactions,namely,that such intervention will improve social welfare.Both traditional and newer arguments for industrial policy draw upon presumed imperfections in private markets that lead to too much or too little of some specific activity being carried out from the perspective of societys overall welfare.Alternatively,the imperfection may be an undesirable geographic location of an activity or an undesirable unequal income distribution resulting from economic activity.14One specific market-failure-based rationale for industrial policy is the existence of public goods.These are goods or services characterized as being non-exhaustive and for which exclusion for non-payment is difficult or impossible.Non-exhaustive means that increased consumption of the good or service does not necessarily cause increased scar-city.Put differently,non-exhaustion refers to situations where increased consumption of the good or service by one group of consumers does not result in less of it being available to other consumers,holding total cost constant.National security is the classic example of a public good.By definition,securing a nation from external threats means providing security to its entire population.Increased security for one citizen does not translate into less for another.Government-funded basic research is another example of a public good,since fundamental scientific insights,once put into the public domain,are available for unlimited use.That is to say,the use of insights from basic science to advance the inno-vative process in one set of industrial activities does not diminish the availability of that same knowledge to advance innovations in another set of industries.Non-excludability means that it is not economically feasible to meter the use of a ser-vice in order to price its use and exclude non-payers from accessing the service.National security is again put forward as an example of the non-feasibility of using the price system 14 The decline of Rust Belt states in the United States and the accompanying concentration of technology clusters in coastal cities has been cited by some,including current Republican vice-presidential candidate J.D.Vance,as necessitating government industrial policies to promote investment in manufacturing industries in midwestern states.For some proponents of industrial policy,the“need”for industrial policy is premised on a multi-dimensional failure of private markets.For example,Altenburg and Rodrik(2017)argue that the unfettered market-based allocation of resources is unlikely to foster structural change in a socially optimal manner that allows for high-productivity,broad-based societal inclusion and environmental sustainability.10 Industrial Policy as Zombie Economicsfraserinstitute.orgto ration consumption and exclude non-payers.Since national security is supplied on an“all or nothing”basis,price has no obvious role to play in rationing consumption.Similarly,once basic scientific information is in the public domain,there is no economic justification for rationing its use,and it would be prohibitively costly to monitor and charge for its use even if it were desirable to do so.Few economists would dispute that financing and,in some cases,providing public goods is a potentially legitimate activity for government.However,most would argue that“supplying”national security or basic scientific knowledge should not be characterized as industrial policy,since the supply is not targeted at specific industrial sectors,geograph-ical regions,or segments of the population.For example,Lincicome(2021)argues that all government actions taken to advance the interests of the economy as a whole should not be understood as industrial policy.This would include not only public goods but also interventions such as free trade agreements or the distribution of vaccines to suppress epidemics such as COVID-19.Prominent supporters of industrial policy such as Bivens(2023)and Altenburg and Rodrik(2017)agree that supplying public goods should not be part of any academic debate about the merits of industrial policy,since industrial policy is mostly about“correcting”the private sectors misallocation of resources across product and geographic markets.Addressing income and wealth inequality as well as health care,food,and housing inse-curity is another prominent rationale for government economic intervention in wealthy countries(Bivens,2023).In most cases,income transfers are implemented through dedi-cated programs such as Old Age Security(OAS)in Canada or Medicaid in the US.However,in some cases,government programs to promote specific economic activities,such as starting new businesses,will have conditions or set-asides to advantage particular groups,such as women or Indigenous peoples.Whether income and wealth inequality should be characterized primarily as a market failure or a consequence of misfortune or some other non-market-related cause can be debated.Whatever the causes of income and wealth inequality,Lincicome(2021)and other industrial policy skeptics argue that it is an unrea-sonable extension of the concept of industrial policy to identify it with programs that are primarily aimed at redistributing income as opposed to promoting faster economic growth or higher real wages.Externalities are a second and more ubiquitous source of market failure associated with a misallocation of resources across economic sectors.Externalities arise when the private costs or benefits of specific market activities differ from the social costs or benefits.For example,calls for government policies to promote environmental sustainability are Industrial Policy as Zombie Economics 11fraserinstitute.orgdefended on grounds that unless such policies are implemented,market participants will ignore the environmental costs of their actions as they affect other segments of society.As a result,market participants will overestimate the net social benefits of their activ-ities and produce“too much”output from an overall social welfare perspective.Most economists accept the relevance of environmental externalities.Most also acknowledge a role for government in addressing environmental externalities.What is contentious is the appropriate form of government intervention,as well as when specific interventions constitute industrial policy.In this regard,critics such as Lincicome(2021)would not consider a carbon tax that is applied to all participants in an economy to be industrial policy,even though carbon-inten-sive activities would obviously be more affected by a carbon tax than would other activities.On the other hand,extending government financial subsidies to manufacturers of batter-ies for electric vehicles,or to companies that mine for minerals used to produce electrical vehicle batteries,would be characterized by most policy analysts as industrial policy,since the governments actions are explicitly targeted at specific sectors of the economy in order to address what it sees as an economy-wide issue.The key distinction is that in the case of a carbon tax,the reallocation of resources is in response to changes in relative prices,i.e.,the prices of carbon-intensive outputs would increase relative to non-carbon-intensive outputs,such that consumers will voluntarily shift their purchases away from the former and toward the latter,while producers would be motivated to implement less carbon-in-tensive production and distribution technologies into their business models.In the case of financial subsidies,government officials substitute their judgment regarding how to reduce environmental externalities for that of market participants responding to price signals.15 To my knowledge,there is no explicit discussion in the industrial policy literature per se focusing on why a carbon tax is inferior to government subsidies to participants in the green energy supply chain as a policy approach to reducing the use of carbon fuels.16 Alten-burg and Rodrik(2017)suggest one reason:they posit that consumers do not respond perfectly to price signals.Specifically,they assert that even when new products exist that are cheaper and better than existing products,many consumers stick to the“bad,old”alternatives because they do not understand the choice situation well or simply out of 15 In a later section,we will expand upon and address arguments that have been made for why bureaucratic decision-making is a more efficient mechanism than the price system to address externalities.16 McKitrick(2013)makes the case for a carbon tax being more efficient than what he characterizes as a mishmash of regulations.12 Industrial Policy as Zombie Economicsfraserinstitute.orgforce of habit.As a consequence,industrial policy is presumably preferable to waiting for markets to reward superior energy alternatives.Productivity spillovers are another prominent externality featured in debates about industrial policy.Productivity spillovers are a major contributor to external economies of scale.The latter arise when increases or decreases in economic activity in one segment or sector of the economy affect productivity growth in other segments or sectors.Bartelme,Costinot,Donaldson,and Rodriguez-Clare(2021)assert that the textbook case for indus-trial policy exists if some sectors are subject to external economies of scale,whereas others are not.In such cases,they argue that a prima facie conceptual case exists for government to subsidize the first group of sectors at the expense of the second.The productivity spillover concept as it appears most typically in the industrial policy literature encompasses so-called external(or agglomeration)economies that have been identified in studies of regional and urban innovation clusters.The basic notion underlying the relevance of geographical clustering is that as more activity of a specific type takes place in a geographical location,the more profitable it is(up to a point)for future activity to be undertaken in that location.While there are different sources of external economies,a major source is technology spillovers which exist when scientific,engineering,and organizational innovations imple-mented by one or more firms are adopted by other firms without the innovating organi-zations being fully compensated by the beneficiaries for the efficiency(and presumably profitability)gains that are generated by copying or reengineering the original innovations.The implication of external economies is that as more activity of a specific type takes place in a geographical location,the more profitable it is(up to a point)for future activity of that type to take place in that location.However,innovative organizations that are potential first movers may not make the necessary initial investments at scale given the risks asso-ciated with being a first mover,as well as the likely competition from fast followers who can be expected to copy or reengineer the new techniques or business practices introduced by the first movers.Since existing evidence suggests that technology spillovers tend to be confined to relatively circumscribed geographical areas,e.g.,a portion of a census metropolitan area such as downtown Toronto or the San Francisco Bay area,public policies to promote tech-nological change frequently intersect with regional development policies.17 However,what 17 For a discussion of the geographical scope of productivity spillovers with an empirical application to the Canadian software industry,see Globerman,Shapiro,and Vining(2002).Industrial Policy as Zombie Economics 13fraserinstitute.orgmakes industrial policy distinct from regional development policy is the notion that gov-ernment planners can identify economic activities characterized by significant external economies of scale and implement industrial policies that promote increased investment in those activities,thereby effectively moving productive resources from slower growing to faster growing industries and locations.The relatively strong empirical evidence in support of the relevance of technology spill-overs related to the geographical clustering of firms and skilled scientists and engineers is a potentially strong rationale for government intervention of some sort.Even so,a relevant point of contention between proponents and opponents of industrial policy con-cerns whether government intervention targeted at promoting specific sectors,regions,and producers will stimulate technological change more efficiently than policies focused on improving the environment for innovation broadly,i.e.,across all firms,industries,and locations,e.g.,through general tax policy,support for public education,intellectual property protection,and so forth.To extend the market-versus-bureaucrat decision-making dialectic,lower capital gains taxes,stronger intellectual property protection,increased supplies of skilled scientists and engineers,and private property rights effectively make innovation a more profitable market activity,either by lowering input prices and/or by increasing the net profit margin associated with innovating.This should encourage more innovation activity generally,and thereby increase technology spillovers,particularly in industrial sectors and geographical locations where entrepreneurs believe it is most efficient to carry out innovative activities.The industrial policy approach would have government officials extend direct subsidies or tax incentives to specific firms engaged in particular activities and in specific locations.A recent example of the latter is the hefty subsidization by the federal and provincial gov-ernments in Canada of EV battery production and mining of critical minerals in specific locations,e.g.,southwestern Ontario and Quebec,respectively.It is possible to debate whether and when economically significant external economies exist such that there is an opportunity to create net social benefits through industrial pol-icy.In this regard,a criticism of industrial policy is that policymakers employ exaggerated estimates of production externalities in many,if not all cases(see Bartelme et.al.,2024).As a result,government intervention often ends up having net costs to society.A related and important caveat is that secure private property rights can facilitate the internation-alization of potential technology spillovers.For example,transportation infrastructure creates economic opportunities for new businesses located near that infrastructure includ-ing property developers and retailers.Fees charged directly for the relevant transportation 14 Industrial Policy as Zombie Economicsfraserinstitute.orgservices will not fully capture the economic value created by the transportation infrastruc-ture,which has been an historical argument for governments to subsidize railroads,port facilities,and the like to encourage infrastructure investment.However,in many cases,companies developing infrastructure can potentially invest in activities that benefit from economic spillovers if they are not prevented from doing so by regulations or competition policies.To the extent that market solutions to internalizing spillovers are feasible and not restricted by laws or regulations,the spillover argument for industrial policy becomes more tenuous.A more general criticism of industrial policy is that government officials have insuf-ficient information to deliver net social benefits through selective industrial policy ini-tiatives.That is,policymakers are insufficiently informed about where major industrial growth opportunities exist in the economy.A related concern is that the reallocation of productive resources resulting from industrial policy will be unduly influenced by political lobbying such that productive resources are wasted,and governments will be captive to entrenched interests,often specific firms and industry groups,so that inefficient patterns of production created by industrial policy are perpetuated for long periods of time.18 Holcombe(2013)discusses the phenomenon of“crony capitalism”in which govern-ment relies on business expertise to design and implement regulations,as well as direct and indirect government subsidies to the private sector.Since industry participants have more information than do government bureaucrats about the industry,they will steer public policy in directions favourable to the industry and not to the general public.Fur-thermore,the increased profits from initial government policies will be capitalized in the prices of assets once they are sold by the original beneficiaries.The buyers of those assets will then have strong incentives to lobby for the continuation of policies that created the additional profitability in the first instance.This dynamic contributes to the perpetuation of lobbying for inefficient interventions into the private sector by government,as well as the perpetuation of the underlying policies.19Prominent advocates of industrial policy such as Altenburg and Rodrik(2017)acknowl-edge that policymakers are,at most,no better than entrepreneurs at anticipating com-mercial opportunities.Moreover,they concede that markets encourage the creativity of individuals who take personal risks in pursuit of profits.Nevertheless,they argue that“improved”models of industrial policy can address the acknowledged weaknesses of 18 For a discussion of these various criticisms of industrial policy,see Lincicome(2021)and Hufbauer and Jung(2021).19 Holcombe(2013)references an extensive literature on regulatory capture to support this line of argument.Industrial Policy as Zombie Economics 15fraserinstitute.orgtraditional industrial policy.We discuss and evaluate proposed new versions of industrial policy in Section 5.In the next section,we review some empirical evidence on the effec-tiveness of industrial policy.fraserinstitute.org 164.Some Evidence on the Effectiveness of Industrial PolicyThere is a substantial literature focused on evaluating industrial policy,and it is beyond the scope of this study to provide a comprehensive review of this literature.Table 3 pro-vides a brief review of some studies of industrial policy focused primarily on promoting specific industrial sectors and regional clusters.Specifically,table 3 summarizes a num-ber of studies that assess different government initiatives targeting specific industries,geographic locations,or firms.20 In the table,a plus or minus sign indicates whether the author(s)of the relevant study concludes that the industrial policy in question was an economic success or failure,respectively,given the policys objectives.A combined plus and minus sign indicates that the economic outcome of the policy in question was mixed or that the author offered an equivocal assessment of the policy.The broad takeaway from table 3 is that the evidence on the outcome of industrial policy is mixed,although the majority of studies summarized in the table offer a negative assessment.In particular,industrial policies promoting individual companies tend to fare badly(Hufbauer and Jung,2021).Table 3 identifies several assessments of attempts by governments to create a“national champion”in specific industries.Agarwal(2023)dis-cusses the cases of Airbus and COMAC.The Airbus consortium was created in Europe in the late 1960s and received direct government subsidies,as well as a government com-mitment to absorb financial losses.As is well known,Airbus became a formidable com-petitor to Boeing,although the company continued to receive subsidies for decades after it was established.Conversely,the Commercial Aircraft Corporation of China(COMAC),a state-owned company,has yet to have its commercial airliner certified by any major aviation authority outside of China,notwithstanding government investments of up to US$70 billion.Hufbauer and Jung(2021)identify the US governments financial support of Solyndra,a manufacturer of solar cells,as a notable failure at using financial incentives to promote an individual company.Conversely,Warwick and Nolan(2024)argue that the rise to prominence of the Korean electronics firms Samsung and LG in the 1990s can be 20 Warwick and Nolan(2014)note that most evaluations of industrial policy focus on industries or sectors.They also discuss in detail the challenges associated with evaluating the success or failure of industrial policies.It should be acknowledged that the studies summarized in table 3 might overrepresent or underrepresent evidence of successful industrial policy.However,the sample of case studies is relatively large and therefore likely to reflect a consensus in the literature.Industrial Policy as Zombie Economics 17fraserinstitute.orgtraced to financial support provided to those companies by the Korean government in earlier decades.A larger number of studies focus on sectoral industrial policies,especially as imple-mented by European and Asian governments,and particularly by Japan.Neely(1993)disputes the notion that industrial policy was primarily responsible for Japans economic success.Indeed,she highlights cases where industrial planning would have gotten things spectacularly wrong had it actually been implemented,such as the efforts of Japans Min-istry of International Trade and Industry(MITI)to discourage Honda from getting into the automobile industry and Sony from getting into the consumer electronics business.Lechevalier,Ikeda,and Nishimura(2010)discusses public programs aimed at supporting Table 3:Some Findings on the Impact of Industrial PolicyCountry LevelIndustry LevelFirm LevelAgarwal (2023)European ConsortiumAirbus COMAC Siripurapu,et.al.(2023JapanSteel Semiconductors South KoreaSemiconductors?TaiwanSemiconductors?Hufbauer&Jung(2021)U.S.Military Technology Research Triangle Park Steel Textiles Semiconductors Solar PanelsSolyndra Lincicome(2021)U.S.SemiconductorsSEMATECH Neely(1993)JapanSteel Oil Honda Sony Lechevalier,et al.JapanRobots /Stern,et al.(2013)SwedenCompetence Centres Program Martin,et al.(2011)FranceLocal Productive Systems Bellago,et al.(2013)SwedenPoles of Competitivenss Policy Nishimura and Okamura(2011)JapanIndustrial Cluster Project Engel,et al.(2012)GermanyBiotech Viladecano-Marsal,et al.(2012)SpainCluster Initiative /Danish Agency for Science(2011)DenmarkCluster Policies 18 Industrial Policy as Zombie Economicsfraserinstitute.orgthe emergence of next generation robots in Japan in the early 1990s.The programs appar-ently had a positive effect on the research productivity of participating firms but failed to stimulate the emergence of a Japanese robotics industry,other than in a few niche applications.Neely(1993)identifies steel and oil as two of the many Japanese industries that have received government financial support but that have been a drag on the Japa-nese economy.Nishimura and Okamura(2011)evaluated the impact of Japans Industrial Cluster Project on the R&D productivity of company participants.They concluded that participation in the initiative did not affect the R&D productivity of participants.More generally,Beason and Weinstein(1996)and Lee(1997)failed to find a clear association between government sectoral support and total factor productivity growth in Japan and Korea,respectively.Cohen and Noll(1991)examine six US federal government industrial policy programs originating in the 1960s and 1970s and found that none were successful.21 Similarly,Huf-bauer and Jung(2021)identify a number of US industries,including steel,textiles and apparel,automobiles,and semiconductors,that received trade protection and government financial support but could not meet foreign competition or improve productivity.To be sure,there are studies that identify successful industrial policy initiatives,par-ticularly policies designed to promote technology clusters.For example,Engel,Mitze,Patielli,and Reinkowski(2013)conclude that German government initiatives aimed at fostering inter-firm collaboration in the biotech sector gave rise to increases in biotech patent applications.22 Falck,Heblich,and Kipar(2010)evaluated the 1999 Bavarian High Technology Cluster initiative in Germany.This government program aimed to increase innovation and competitiveness in the region of Bavaria by stimulating co-operation between universities,businesses,and financial institutions in five target industries.The authors found that the initiative increased the probability that firms in a target industry would innovate.The Danish Agency for Science,Technology and Innovation(2011)eval-uated cluster policy in Denmark and found strikingly positive program impacts in terms of the increased probability of participating firms being innovative.Hufbauer and Jung(2021)identify the North Carolina Research Triangle Park and Floridas Biotech Center as successful examples of government policies to promote technology clusters.21 The six programs involved federal government financial support for the supersonic transport,the space shuttle,communications satellites,the breeder reactor,photovoltaics,and synthetic fuels.In the auth-ors opinion,the programs suffered from unsustainable annual budgets made worse by the fact that they continued to receive financial support long after they should have been terminated.22 Conversely,Wong(2011)discusses the billions of dollars that Korea,Taiwan,and Singapore poured into commercial development of biotech with no significant resulting commercial success.Industrial Policy as Zombie Economics 19fraserinstitute.orgConversely,Viladecans-Marsal and Arauzo-Carod(2012)assess a policy implemented in Barcelona,Spain,aimed at forming a cluster of knowledge-based firms.The authors found that the cluster initiative did increase the share of knowledge-based firms in the locality but only modestly.Moreover,the effect stagnated over time,and at least some of the positive effects might have come at the expense of neighbouring areas.Martin,Mayer,and Mayneres(2011)evaluated the Local Productive Systems in France which was aimed at supporting inter-firm cooperation across a range of economic sectors.The policy was found to have no effect on employment or exports.Nor did it reverse declining total fac-tor productivity in industries suffering from weak productivity growth.Also,the authors found no significant effect with regard to enterprise survival rates.France launched a subsequent policy that involved government financial subsidies for innovative projects managed collectively by the research departments of selected companies and universities.Bellago and Dortet-Bernadet(2013)assessed this policy.Their evaluation found that firms targeted by the policy increased their R&D spending more than similar firms not targeted.However,targeted firms did not enjoy increased sales,patents,or exports compared to other similar firms.Broad evaluations of industrial policies at the national level also offer conflicting con-clusions regarding their effectiveness.Again,a major focus of these broad evaluations is on East Asian countries.Juhsz,Lane,and Rodrik(2023)assert that many regional spe-cialists ascribe at least part of the East Asia regions economic success to the strong hand of the state during industrialization.23 However,most mainstream economists hold the view that industrial policies were,at best,ineffective and at worst harmful.In a similar vein,Siripurapu and Berman(2023)note that while many experts contend that industrial policy stoked the East Asian miracle,others maintain that the effects of industrial policy on economic growth are overstated or mistaken.For example,a number of economists have argued that the economic success of South Korea and Taiwan is the result of their embrace of international trade,not industrial policy.Cheang(2024)also questions the relevance of industrial policy to Singapores remark-able record of economic growth following its independence in 1965.While he does not reject the contribution of industrial policy,he highlights the importance of the govern-ments open international trade policy and its receptiveness to inward foreign direct investment as contributors to its success.He identifies the rule of law and a relatively 23 Juhsz and Lane(2024)specifically argue that South Koreas Heavy and Chemical Industry government program in the 1960s that set out to transform the nation into a heavy industry powerhouse drove increased output and export development in the targeted sectors.20 Industrial Policy as Zombie Economicsfraserinstitute.orgcorruption-free government as factors encouraging the capital investment that has been a major contributor to Singapores impressive economic growth.24South America also receives attention in the industrial policy literature.Siripurapu and Berman(2023)capture the broad conclusion of the relevant studies in their observation that governments in the region have sought to promote domestic industries by discour-aging the importation of manufactured goods through tariffs and other trade restrictions.Some new industries and successful companies have been formed,but industrial policy has also resulted in corruption,inefficiency,and unsustainable government deficits.25In summary,the empirical evidence regarding the economic benefits and costs of industrial policy is not definitive,although it provides strong grounds for skepticism about whether the current enthusiasm among Western governments for major industrial policy initiatives is justifiable as good public policy.26 Notwithstanding the empirical evidence discussed above,proponents of so-called“new”industrial policy argue that past failures of industrial policy reflect poor design and implementation,and that the shortcomings can be remedied.In the next section,we discuss and evaluate this argument.24 Chang cautions that to the extent industrial policy was successful in Singapore,that success might be specific to institutional features of Singapores economy.Others have raised similar cautions about drawing inferences about the success or failure of industrial policy based on the experiences of specific countries.25 Kedrosky(2022)identifies the Canadian National Policy of 18791895 as a successful instance of the deliberate protection of infant industries using tariff protection to develop a national manufacturing sector.However,in many secondary manufacturing industries in Canada,productivity performance has been relatively poor such that policymakers came to see trade liberalization with the United States,in particular,as a necessary remedy.On the latter point,see Head and Ries(1999).26 Juhsz,Lane,and Rodrik(2023)argue that new studies employing sophisticated econometric tech-niques provide more favourable support for industrial policy success than older studies,although they acknowledge that success is dependent upon the policys goals and the instruments used.Ilyana,Pazar-basioglu,and Ruta(2024)cite analysis by the International Monetary Fund(IMF)of industrial policy initiatives worldwide in 2023,which concludes that industrial policy is frequently captured by special interest groups,as critics of industrial policy warn.The IMF also found that policies implemented by individual countries lead to trade and subsidy-related retaliation by other countries.21 fraserinstitute.org5.Features of New Industrial Policy and an EvaluationWhereas traditional industrial policy was motivated primarily by perceived specific market failures that potentially justified government intervention,more recent arguments for industrial policy emphasize the prominent role that government plays in the economy by providing public goods,regulating specific business practices,financing and carrying out research and development,and so forth.It therefore makes sense for the extensive inter-actions between the public and private sectors to be coordinated with due consideration to the ongoing overall“competitiveness”of the private sector.27 In this regard,a notable distinction between traditional and new industrial policies is the latters embrace of public-private partnerships to promote social goals rather than top-down government directives.In an early example,Rodrik(2004)posits that the right model for industrial policy is not that of an autonomous government applying taxes,sub-sidies,and other policy instruments,but of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what types of interventions are most likely to remove them.He goes on to argue that the right way of thinking about industrial policy is as a discovery process where firms and government learn about underlying costs and opportunities and engage in strategic coordination.Altenburg and Rodrik(2017)characterize the collaboration between the private sector and government as“embeddedness,”whereby government policymakers maintain close relationships with the private sector and other stakeholders in order to acquire a deep understanding of how specific economic sectors function,what the business rationale of private actors is,and where bottlenecks exist to achieving optimal outcomes in the public interest.They go on to say that industrial policy is about facilitating stakeholder dialogues on the direction of structural change,moderating different viewpoints,finding compromise,and creating consensus on broadly defined development pathways.In short,industrial policy,in this newer formulation,should be perceived as a collaborative process in which public and private sector stakeholders closely interact and continuously negotiate 27 To be sure,references to addressing market failure through industrial policy still resonate in the recent literature on industrial policy,especially related to climate change as discussed earlier.See,for example,Altenburg and Rodrik(2017).22 Industrial Policy as Zombie Economicsfraserinstitute.organd adapt their contributions to industrial development and particularly to technological innovation and entrepreneurship.28 Altenburg and Rodrik(2017)acknowledge the risk that collaboration between pri-vate sector stakeholders and governments could encourage and facilitate rent-seeking by stakeholders that harms productivity and generates subsidies for narrow private sector interests at the taxpayers expense.However,they argue that governments can draw a line between collaboration in the public interest and favouritism by implementing clear and transparent rules regarding who makes what decisions and the criteria by which decisions are made.29 They also argue that policymakers can be held accountable for their industrial policies by disclosure requirements that can be audited by central auditing authorities and challenged in independent courts.It is difficult to criticize a suggestion that governments should be better informed about how specific laws and regulations will affect private sector activities.Nor is it par-ticularly controversial to posit that broad public policy goals such as reducing the use of carbon fuels in favour of wind and solar energy sources should be determined through the democratic process in which voters choose political representatives whose positions best align with theirs on specific policy goals.Rather,the relevant issue surrounding the new industrial policy is whether and to what extent stakeholder-government partnerships will enable government to more efficiently accelerate innovative and sustainable real economic growth by identifying and promoting specific industrial sectors and technologies rather than by broadly encouraging innovation and entrepreneurship through instruments such as the tax code,trade and investment agreements,funding and carrying out basic research,immigration and education policies,and so forth.In this regard,the experience of public-private partnerships(PPPs)can be informative.PPPs are partnerships between the public sector and the private sector for the purpose of developing a project or a service traditionally provided by the public sector.The claimed advantage of PPPs is that private sector managerial skills and financial acumen will create better value-for-money outcomes for taxpayers when proper cooperative arrangements 28 Mazzucato(2015)has been especially prominent in calling for a“developmental network state”in which government facilitates collaboration among a range of actors with diverse specializations and technical capacities to help generate new and inventive approaches to ensuring innovative growth.Juhsz and Lane(2024)acknowledge that effective collaboration likely requires substantial investments in creating administrative capacity.29 Altenburg and Rodrik(2017)suggest using independent scientific and engineering expertise to evalu-ate proposed industrial policy initiatives as one safeguard against specific interest groups“capturing”government policies.See,for example,Hufbauer and Jung(2021).Industrial Policy as Zombie Economics 23fraserinstitute.orgbetween the private and public sectors exist.They involve the type of embeddedness of government in private sector activity that is a feature of new industrial policy.To be sure,PPPs are much less ambitious than industrial policy that aspires to trans-form whole sectors of the economy,as the former are typically focused on specific and well-defined projects such as building a road or a port facility.30 They also involve fewer stakeholders than the transformative agendas that are featured in initiatives such as Green New Deals.Hence,to the extent that PPPs are not generally successful in generat-ing enhanced value for taxpayers money,there is ample reason to be skeptical about how successful ambitious industrial policies will be in achieving accelerated rates of innovation and real economic growth on an economy-wide basis.As in the case of industrial policy,the literature on PPPs provides an ambiguous assess-ment.For example,Casady,Verweij,and van Meerkerk(2022)review a number of studies evaluating PPPs in different industrial sectors and across a range of countries.They con-clude that the evidence for a cost-performance advantage for PPPs is mixed.However,there is clearer evidence that PPPs have a performance advantage in time and service quality.Wang and Zhao(2018)also highlight a mixed result for a sample of five Virginia PPP high-way projects.Specifically,the projects were successful in accessing innovative finance,but their performance was largely unsatisfactory in terms of reducing contracting cost risk.Ontario 360(2023)provides a less equivocal evaluation of PPPs.This report notes that for the past two decades,PPPs have been the favoured model for delivering large-scale infrastructure in Canada,including public transit lines,highways,bridges,and hospitals.It asserts that PPPs have become synonymous with some of the worst performing infra-structure projects in the country.In particular,projects in the transit sector increasingly appear to be unaccountable and unmanageable.31 Vining,Boardman,and Poschmann(2005)present and discuss a model that identifies the serious challenges to successful collaboration between the public and private sectors for PPPs.Specifically,PPPs can often be prone to conflict between the contracting parties,as well as high contracting costs and opportunism,where the latter phenomenon refers 30 The“counterfactuals”are also different when comparing PPPs to industrial policy.In the former case,the counterfactual is the government sector financing and operating the relevant infrastructure asset(s).In the case of industrial policy,the counterfactual is that investment and innovation decisions are directed by market forces and not by consultation with government accompanied by direct or indirect government financial incentives.31 Chong,Huet,Saussier and Steiner(2006)examine a database of 5,000 French local authorities to explore the impact of PPPs focused on water distribution where the performance measure is consumer prices.They conclude that conditional on the choice of a PPP,consumer prices are higher on average for PPPs than for government financed and managed systems.24 Industrial Policy as Zombie Economicsfraserinstitute.orgto one or the other party to a collaboration seeking to renegotiate more favourable terms to the original agreement.They provide case study evidence from six major infrastructure projects in Canada,as well as a summary analysis of PPPs for prison systems in the US.The cases cited confirm the difficulties associated with cooperation based around contracting,particularly in the presence of complexity,uncertainty,and the requirement for one or another party to invest in assets that are specific to the project in question.Asset specific-ity creates the potential for opportunism which,in turn,often undermines the necessary ongoing cooperation between the contracting parties.The challenges associated with public-private sector coordination in pursuit of indus-trial policy goals such as transformational innovations or eliminating the use of carbon fuels or remedying income inequality across gender and racial lines,are orders of mag-nitude greater than those facing conventional PPPs of the types briefly reviewed above.As discussed earlier,proponents of a new approach to industrial policy characterize it as a process of discovery through close interaction between public and private sector par-ticipants who must continuously negotiate and adapt their contributions to industrial development and/or to achieving broad environmental or social goals.The need for even periodic renegotiation of terms of agreement between parties to PPPs is a major hurdle to the success of PPPs,even when the projects objective is well defined and the underlying technology is well understood.The broader and less easily measured goals of recent and suggested industrial policies compared to PPPs,along with the increased number of likely participants,and the much greater technological and eco-nomic uncertainty surrounding so-called“moonshot”public policy initiatives,make it very unlikely that many of the relevant initiatives will be successfully and efficiently carried out.25 fraserinstitute.org6.Concluding CommentsIndustrial policy,while not always identified as such,has been practiced by governments for decades if not centuries.The focus and specific features vary over time,but the endur-ing principle underlying industrial policy is that the government should,directly or indi-rectly,promote the expansion of specific activities(e.g.,Artificial Intelligence)or broad sectors of the economy(e.g.,the Electric Vehicle supply chain),while“cushioning”or facilitating the orderly contraction of other,less economically promising or otherwise undesirable activities or sectors(e.g.,oil and gas exploration,extraction,and refining).Historically,industrial policy has focused on encouraging the growth of specific manufac-turing and advanced technology sectors.More recently,a major focus of industrial policy in developed countries is to encourage the electrification of their economies in pursuit of climate change goals,although populist politicians in the US have made the reshoring of manufacturing a prominent recent feature of their support for industrial policy.An enduring criticism of industrial policy is that capital markets and not government officials are best positioned and have the greatest incentives to determine how financial capital and other productive inputs should be allocated in order to promote real economic growth and higher standards of living.Private investors,including operating businesses,have the incentive to identify and finance economic opportunities in pursuit of increased wealth,and to defund investments that prove to be financially unpromising.While pro-ponents of industrial policy argue that bureaucrats can be made financially accountable to taxpayers in the same way that companies and investment managers are accountable to their shareholders and clients,the fact that government employees have no residual claim on any net economic benefits linked to their decisions regarding resource allocation is a critical feature of government funding that distinguishes it from private investing.In fact,proponents of new approaches to industrial policy do not argue for displacing private sector decision-making with decision-making by government officials.Rather,they argue that the public and private sectors should effectively act as partners to identify opportunities for transformational innovation and economic development,as well as to identify and implement broad initiatives and specific actions that will ensure that financial and other productive resources are made available for the expansion of prioritized sectors and activities.They further argue that while embedding the public sector into private sector decision-making presents challenges,the resulting partnership can improve upon the autonomous decisions and actions taken by private sector managers and investors.26 Industrial Policy as Zombie Economicsfraserinstitute.orgThe limited success of PPPs,which are far more narrowly focused in their objectives and circumscribed in scope compared to the transformational changes envisioned for recent industrial policy initiatives or in calls for future attempts at moonshot innovations,is a reason for strong skepticism about whether new industrial policies will be any more suc-cessful than earlier versions.In particular,the broader,less well-defined,and more complex the tasks that must be defined and accomplished,the more likely it is that the parties to the relevant activities will be less accountable and act more opportunisticallywhich is a recipe for policy failure.27 fraserinstitute.orgReferencesAgarwal,Ruchir(2023).Industrial Policy and the Growth Strategy Trilemma.International Monetary Fund.,as of August 30,2024.Alexander,Patrick,and Ian Keay(2018).A General Equilibrium Analysis of Canadas National Policy.Explorations in Economic History 68(April):115.,as of August 30,2024 paywall.Altenburg,Tilman,and Dani Rodrik(2017).Green Industrial Policy:Concepts,Policies,Country Experiences.UN 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Partnerships(Edward Elgar Publishing):1-26.Cheang,Bryan(2024).Chapter 1:An Overview of Singapores Development and Public Policies.In Steven Globerman(ed.),Meritocracy,Personal Responsibility and Encouraging Investment:Lessons from Singapores Economic Growth Miracle.Realities of Socialism series.(Fraser Institute):732.,as of August 30,2024.Chong,Eshien,Freddy Huet,Stephane Saussier and Faye Steiner(2006).PublicPrivate Partnerships and Prices:Evidence from Water Distribution in France.Review of Industrial Organization 29:149-169.,as of August 30,2024.Cohen,Linda R.,and Roger G.Noll(1991).The Technology Pork Barrel.Brookings Institution.28 Industrial Policy as Zombie Economicsfraserinstitute.orgDadush,Uri(2016).Industrial Policy:A Guide for the Perplexed.Policy Brief number PB-16/05.OCP Policy Center(Morocco).,as of August 30,2024.Danish Agency for Science,Technology and Innovation(2011).The Impacts of Cluster Policy in Denmark An Impact Study on Behaviour and Economic Effects of Innovation Network Denmark.Danish Agency for Science,Technology and Innovation.,as of August 30,2024.Engel,Dirk,Timo Mitze,Roberto Patielli,and Janina Reinkowski(2013).Does Cluster Policy Trigger R&D Activity?Evidence from German Biotech Contests.European Planning Studies 21,11:1735-1759.,as of August 30,2024 paywall.Falck,Oliver,Stephan Heblich,and Stefan Kipar(2010).Industrial Innovation:Direct Evidence from a Cluster-Oriented Policy.Regional Science and Urban Economics 40,6(November):574-582.,as of August 30,2024 paywall.Globerman,Steven,Daniel Shapiro,and Aidan Vining(2002).Clusters and Intercluster Spillovers:Their Influence on the Growth and Survival of Canadian Information Technology Firms.Industrial and Corporate Change 14,1:27-60.,as of August 30,2024.Harris,Richard,Ian Keay,and Frank Lewis(2015).Protecting Infant Industries:Canadian Manufacturing and the National Policy,1870-1913.Explorations in Economic History,Vol.56(April):15-31.,as of August 30,2024 paywall.Head,Keith,and John Ries(1999).Rationalization Effects of Tariff Reductions.Journal of International Economics 47,2(April):295-320.,as of August 30,2024 paywall.Holcombe,Randall G.(2013).Crony Capitalism:By-Product of Big Government.The Independent Review 17,4(Apring):541-559.,as of August 30,2024 paywall.Hufbauer,Gary C.,and Euijin Jung(2021).Lessons Learned from Half a Century of U.S.Industrial Policy.Realtime Economics.Peterson Institute for International Economics.,as of August 30,2024.Ilyina,Anna,Ceyla Pazarbasioglu,and Michele Ruta(2024,April 12).Industrial Policy is Back,But the Bar to Get It Right is High.Blog.International Monetary Fund.,as of August 30,2024.Juhsz,Rka,and Nathan Lane(2024).A New Economics of Industrial Policy.Finance and Development Magazine F&D(June):66-70.International Monetary Fund.,as of August 30,2024.Juhsz,Rka,Nathan J.Lane,and Dani Rodrik(2023).The New Economics of Industrial Policy.Working Paper 31538.National Bureau of Economic Research.,as of August 30,2024.Kedrosky,Davis(2022,July 25).Protectionism in One Country:How Industrial Policy Worked in Canada.Great Transformations Substack blog.,as of August 30,2024.Lechevalier,Sebastien,Yukio Ikeda,and Junichi Nishimura(2010).The Effect of Participation in Government Consortia on the R&D Productivity of Firms:A Case Study of Robot Technology in Japan.Economics of Innovation and New Technology 19,8:669-692.,as of August 30,2024 paywall.Lee,Jong-Wha(1997).Government Interventions and Productivity Growth in Korean Manufacturing Industries.Journal of Economic Growth 1,3:391-414.,as of August 30,2024.Lincicome,Scott(2021).Industrial Policy:A Bad Idea Is Back.Cato Policy Report.CATO Institute.,as of August 30,2024.Martin,Philippe,Thierry Mayer,and Florian Mayneris(2011).Public Support to Clusters:A Firm-Level Study of French Local Productive Systems.Regional Science and Urban Economics 41,2:108-123.,as of August 30,2024.Mazzucato,Mariana(2015).The Innovative State.Foreign Affairs(JanuaryFebruary).,as of August 30,2024 paywall.McKitrick,Ross(2013).An Evidence-Based Approach to Pricing CO2 Emissions.The Global Warming Policy Foundation.,as of August 30,2024.Neely,Michelle Clark(1993,April 1).The Pitfalls of Industrial Policy.Regional Economist.Federal Reserve Bank of St.Louis.,as of August 30,2024.Nishimura,Junichi,and Hiroyuki Okamura(2011).R&D Productivity and the Organization of Cluster Policy:An Empirical Evaluation of the Industrial Cluster Project in Japan.Journal of Technology Transfer 36,2:117-144.,as of August 30,2024 paywall.Ontario 360(2023).PublicPrivate Partnerships:Is a Reassessment Underway?Policy Papers(November 30).Ontario 360.,as of August 30,2024.Quiggin,John(2012).Zombie Economics:How Dead Ideas Still Walk Among Us.Princeton University Press.30 Industrial Policy as Zombie Economicsfraserinstitute.orgReich,Robert(1982).Why the U.S.Needs an Industrial Policy.Harvard Business Review(January):58-71.,as of August 30,2024.Rodrik,Dani(2004).Industrial Policy for the Twenty-First Century.John F.Kennedy School of Government,Harvard University.,as of August 30,2024.Schwab,Klaus,and Thierry Malleret(2022).Mariana Mazzucato on Rethinking the State to Improve Partnerships.The Great Narrative for a Better Future.World Economic Forum.,as of August 30,2024.Siripurapu,Anshu,and Noah Berman(2023).Is Industrial Policy Making a Comeback?Backgrounder.Council on Foreign Relations.,as of August 30,2024.Tucker,Todd(2019).Industrial Policy and Planning:What It Is and How to Do It Better.Roosevelt Institute.,as of August 30,2024.Viladecans-Marsal,Elisabet,and Josep-Maria Arauzo-Carod(2012).Can a Knowledge-Based Cluster Be Created?The Case of the Barcelona 22 District.Papers in Regional Science 91,2:377-301.,as of August 30,2024 paywall.Vining,Aidan R.,Anthony E.Boardman,and Finn Poschmann(2005).PublicPrivate Partnerships in the US and Canada:“There Are No Free Lunches.”Journal of Comparative Policy Analysis:Research and Practice 7,3:199-220.,as of August 30,2024 paywall.Wang,Yin,and Zhirong Jerry Zhao(2018).Performance of Public-Private Partnerships and the Influence of Contractual Arrangements.Public Performance and Management Review 41,1:177-200.,as of August 30,2024 paywall.Warwick,Ken,and Alistair Nolan(2024).Evaluation of Industrial Policy:Methodological Issues and Policy Lessons.OECD Science,Technology and Industry Policy Papers number 16.OECD Publishing.,as of August 30,2024.Wong,Joseph(2011).Betting on Biotech:Innovation and the Limits of Asias Developmental State.Cornell University Press.Wraight,Tom(2024).Rethinking the American Industrial Policy Debate:The Political Significance of a Losing Idea.Journal of Political History 36,2:191-214.,as of August 30,2024 paywall.Industrial Policy as Zombie Economics 31fraserinstitute.orgAbout the AuthorSteven Globerman is a senior fellow and Addington Chair in Measure ment at the Fraser Institute.Previously,he held tenured appointments at Simon Fraser University and York University and has been a visiting professor at the University of California,Univer-sity of British Columbia,Stockholm School of Economics,Copenha-gen School of Business,and the Helsinki School of Economics.He has written more than 200 academ ic articles and monographs and is the author of the book The Impacts of 9/11 on Canada-U.S.Trade as well as a textbook on international business management.He served as a researcher for two Canadian Royal Com missions on the economy as well as a research advisor to Investment Canada on the subject of foreign direct investment.He earned his BA in economics from Brooklyn Col-lege,his MA from the University of California,Los Angeles,and his PhD from New York University.AcknowledgmentsThe author thanks three reviewers for many helpful comments on an earlier draft.Any remaining errors or oversights are the sole responsibility of the authors.As the researcher has worked independently,the views and conclusions expressed in this paper do not nec-essarily reflect those of the Board of Directors of the Fraser Institute,the staff,or sup-porters.This publication in no way implies that the Fraser Institute,its directors,or staff are in favour of,or oppose the passage of,any bill;or that they support or oppose any particular political party or candidate.32 Industrial Policy as Zombie Economicsfraserinstitute.orgPublishing InformationDistributionThese publications are available from in Portable Document Format(PDF)and can be read with Adobe Acrobat or Adobe Reader,versions 8 or later.Adobe Reader DC,the most recent version,is available free of charge from Adobe Systems Inc.at .Readers having trouble viewing or printing our PDF files using applications from other manufacturers(e.g.,Apples Preview)should use Reader or Acrobat.Ordering publicationsTo order printed publications from the Fraser Institute,please contact:e-mail:salesfraserinstitute.org telephone:604.688.0221 ext.580 or,toll free,1.800.665.3558 ext.580 fax:604.688.8539.MediaFor media enquiries,please contact our Communications Department:604.714.4582 e-mail:communicationsfraserinstitute.org.CopyrightCopyright 2024 by the Fraser Institute.All rights reserved.No part of this publication may be reproduced in any manner whatsoever without written permission except in the case of brief passages quoted in critical articles and reviews.Date of issueSeptember 2024ISBN978-0-88975-799-8CitationSteven Globerman(2024).Industrial Policy as Zombie Economics.The Fraser Institute.Industrial Policy as Zombie Economics 33fraserinstitute.orgAbout the Fraser InstituteOur mission is to improve the quality of life for Canadians,their families,and future gen-erations by studying,measuring,and broadly communicating the effects of government policies,entrepreneurship,and choice on their well-being.Notre mission consiste amliorer la qualit de vie des Canadiens et des gnrations venir en tudi-ant,en mesurant et en diffusant les effets des poli tiques gouvernementales,de lentrepreneuriat et des choix sur leur bien-tre.Peer review validating the accuracy of our researchThe Fraser Institute maintains a rigorous peer review process for its research.New research,major research projects,and substantively modified research conducted by the Fraser Institute are reviewed by experts with a recognized expertise in the topic area being addressed.Whenever possible,external review is a blind process.Updates to previously reviewed research or new editions of previously reviewed research are not reviewed unless the update includes substantive or material changes in the methodology.The review process is overseen by the directors of the Institutes research departments who are responsible for ensuring all research published by the Institute passes through the appropriate peer review.If a dispute about the recommendations of the reviewers should arise during the Institutes peer review process,the Institute has an Editorial Advisory Board,a panel of scholars from Canada,the United States,and Europe to whom it can turn for help in resolving the dispute.34 Industrial Policy as Zombie Economicsfraserinstitute.orgMembersPast membersEditorial Advisory BoardProf.Terry L.AndersonProf.Robert BarroProf.Jean-Pierre CentiProf.John ChantProf.Bev DahlbyProf.Erwin DiewertProf.J.C.Herbert EmeryProf.Jack L.GranatsteinProf.Herbert G.GrubelDr.Jerry JordanProf.Ross McKitrickProf.Michael ParkinProf.Friedrich SchneiderProf.Lawrence B.SmithDr.Vito TanziProf.Armen Alchian*Prof.Michael Bliss*Prof.James M.Buchanan*Prof.Stephen Easton*Prof.James Gwartney*Prof.Friedrich A.Hayek*Prof.H.G.Johnson*deceased;nobel laureateProf.Ronald W.Jones Prof.F.G.Pennance*Prof.George Stigler*Sir Alan Walters*Prof.Edwin G.West*
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