18. The Political Experience in Allocating Investment: Lessons From the United States and Elsewhere

Development Analysis Confronts Politics: Industrial Policy On Minnesota's Iron Range

“…Charles Schultze, senior fellow at the Brookings Institution and former chairman of the Council of Economic Advisers, argues that "the one thing that most democratic systems-and especially the American one-cannot do well at all is to make critical choices among particular firms, municipalities, or regions, determining coldbloodedly which shall prosper and which shall not" (Schultze 1983, 9). Others add that no analytic tools exist that can offer clear direction for industrial policy (Bardach 1984;Eads 1981;Krugman 1983). Research on the use of social science knowledge in policymaking backs the critics: studies find that policymakers have little interest in using analysis except when it supports ends they already want to achieve.…”

“…For those reasons they will regard the use of analysis as unnecessary and undesirable interference, will tend instead to rely on common assumptions about "answers" to economic development problems, and will favor large, newsworthy projects regardless of their prospects for producing net growth. In part because political agendas are so likely to conflict with a program that encourages net growth, many critics oppose any industrial policy efforts (Schultze 1983;Eads 1981). Although their arguments may prevent the implementation of an industrial policy at the federal level, state and local governments will continue to experiment with such approaches.…”

“…Even under the best conditions, the generation of new growth through public economic development is difficult because opportunity costs of public action may be close or equal to the benefits from the project undertaken. In addition, theoretical understanding of economic development does not necessarily translate into operational criteria for decision making (Krugman 1983;Eads 1981;Bardach 1984). Economic development analysis needed for selection of target industries frequently depends critically on uncertain assumptions about such issues as the competitiveness of markets, the availability of information, the rate of technological change, and the future of national and international economic conditions.…”