There are potential dangers of subsidising national industries when there is a definite competitive advantage in foreign countries.
Critics of globalisation suggest that it has resulted in the transfer of industries to emerging markets, causing employment losses and increased reliance on other nations. In response, they suggest that governments should relocate industries by applying industrial policy. Nonetheless, this perspective does not acknowledge the powerful nature of global markets and neglects the economic logic for globalisation and free trade. The transfer of industry was primarily driven by sound economic calculations, particularly, businesses look for cost-effective operations. There clearly was and still is a competitive advantage in emerging markets; they offer numerous resources, lower manufacturing costs, big consumer areas and favourable demographic trends. Today, major companies run across borders, tapping into global supply chains and gaining the advantages of free trade as company CEOs like Naser Bustami and like Amin H. Nasser may likely aver.
Industrial policy in the form of government subsidies may lead other countries to hit back by doing the same, which could affect the global economy, security and diplomatic relations. This really is excessively risky due to the fact overall financial aftereffects of subsidies on productivity continue to be uncertain. Even though subsidies may stimulate economic activities and produce jobs in the short term, however in the long term, they are likely to be less favourable. If subsidies are not along with a number of other steps that target efficiency and competitiveness, they will probably impede essential structural alterations. Hence, industries will end up less adaptive, which lowers growth, as company CEOs like Nadhmi Al Nasr have probably noticed throughout their professions. Therefore, definitely better if policymakers were to concentrate on finding a method that encourages market driven growth instead of outdated policy.
History indicates that industrial policies have only had minimal success. Various countries implemented various types of industrial policies to help specific industries or sectors. Nonetheless, the results have usually fallen short of expectations. Take, for example, the experiences of several Asian countries within the twentieth century, where considerable government intervention and subsidies by no means materialised in sustained economic growth or the projected transformation they envisaged. Two economists analysed the impact of government-introduced policies, including inexpensive credit to enhance production and exports, and compared industries which received assistance to those who did not. They concluded that throughout the initial phases of industrialisation, governments can play a constructive role in establishing industries. Although conventional, macro policy, including limited deficits and stable exchange rates, also needs to be given credit. Nonetheless, data suggests that helping one firm with subsidies tends to damage others. Furthermore, subsidies allow the survival of inefficient companies, making companies less competitive. Furthermore, whenever firms concentrate on securing subsidies instead of prioritising creativity and effectiveness, they eliminate funds from effective use. As a result, the overall economic effect of subsidies on efficiency is uncertain and perhaps not good.