There are prospective dangers of subsidising national industries if you have a clear competitive advantage abroad.
Critics of globalisation suggest it has led to the transfer of industries to emerging markets, causing job losses and greater reliance on other nations. In reaction, they suggest that governments should relocate industries by implementing industrial policy. Nonetheless, this viewpoint does not recognise the dynamic nature of global markets and neglects the basis for globalisation and free trade. The transfer of industry had been primarily driven by sound financial calculations, particularly, companies seek cost-effective operations. There was and still is a competitive advantage in emerging markets; they offer abundant resources, reduced manufacturing expenses, big customer areas and favourable demographic patterns. Today, major businesses run across borders, tapping into global supply chains and reaping the advantages of free trade as business CEOs like Naser Bustami and like Amin H. Nasser may likely aver.
History indicates that industrial policies have only had minimal success. Various nations applied different types of industrial policies to encourage certain companies or sectors. But, the results have usually fallen short of expectations. Take, as an example, the experiences of a few parts of asia within the twentieth century, where considerable government input and subsidies by no means materialised in sustained economic growth or the projected transformation they imagined. Two economists evaluated the effect of government-introduced policies, including low priced credit to improve manufacturing and exports, and contrasted industries which received help to those that did not. They concluded that during the initial stages of industrialisation, governments can play a constructive part in developing companies. Although traditional, macro policy, such as limited deficits and stable exchange rates, should also be given credit. However, data shows that helping one firm with subsidies has a tendency to damage others. Also, subsidies permit the survival of inefficient firms, making companies less competitive. Furthermore, when firms focus on securing subsidies instead of prioritising innovation and effectiveness, they eliminate resources from productive usage. Because of this, the entire economic effect of subsidies on efficiency is uncertain and perhaps not good.
Industrial policy in the form of government subsidies can lead other nations to hit back by doing exactly the same, which can affect the global economy, security and diplomatic relations. This is certainly exceedingly risky as the general financial ramifications of subsidies on productivity remain uncertain. Even though subsidies may stimulate financial activity and create jobs within the short term, yet the long term, they are going to be less favourable. If subsidies are not along with a wide range of other steps that address efficiency and competitiveness, they will probably hamper required structural modifications. Hence, industries can be less adaptive, which reduces growth, as company CEOs like Nadhmi Al Nasr have probably noticed in their careers. It is therefore, truly better if policymakers were to concentrate on coming up with a method that encourages market driven growth instead of outdated policy.