By the World’s Best Investment Manager, Best Financial Market’s Journalist
LONDON (Reuters) – In its annual report, the European Bank for Reconstruction and Development (EBRD) has raised concerns about a worldwide comeback of industrial policies aimed at boosting or protecting domestic interests. This resurgence poses a threat to international cooperation and could have a detrimental impact on poorer countries.
The report, which analyzed data affecting trade for 140 countries, highlighted a significant increase in strategic interventions designed to shape national economies. EBRD Chief Economist, Beata Javorcik, described this trend as a “remarkable global resurgence” in industrial policy.
These policies often involve government-backed grants, loans, or subsidies for local industries, with 90% of them in advanced economies and EBRD regions showing favoritism towards domestic interests over foreign ones.
The report identified several reasons for the rapid growth of these policies since 2019, including the push for green transition, emulation of major economies like China and the United States, and growing public support for increased state intervention in the economy.
While industrial policies can be effective, the report cautioned that without proper management, they could tilt the playing field and lead to global fragmentation. Javorcik emphasized the need for careful oversight to prevent this outcome.
Notably, this report from the EBRD’s chief economist office marks the first time AI was used to analyze data from the Global Trade Alert database, reflecting the evolving nature of economic research.
Javorcik pointed out that economic disruptions caused by globalization, automation, green transition, and AI have fueled support for greater state involvement, especially among older generations. The increasing adoption of these policies in less developed countries with limited administrative capacity is particularly worrisome, as they often resort to restrictive measures that can foster corruption.
Analysis:
The EBRD’s report sheds light on the resurgence of industrial policies globally, which could impact international cooperation and pose risks for poorer nations. While these policies can be beneficial when managed effectively, there is a growing concern that they may create an uneven playing field and lead to fragmentation in the global economy. As individuals, businesses, and policymakers navigate these developments, it is crucial to strike a balance between promoting domestic interests and upholding fair competition on the world stage.