Reluctance Over Free-Market Policies Could Slow Growth, Economists Warn

In response to US and Chinese attempts to shield domestic companies, France, Germany, and Italy have promised to implement a coordinated economic strategy. A recent analysis found that the number of industrial policies implemented last year was over 2,500, about three times the amount in 2019. The wealthiest and most developed nations, often believed to be the first to condemn such policies, have instead enacted most of these measures. Some world leaders and experts are worried about this trend because they believe that economic interventions from high might eventually slow down global growth.

Guests to the following spring meetings of the World Bank and the International Monetary Fund may anticipate hearing all sides of the argument. Unless there are exceptional conditions, the argument for government involvement is weak, said Kristalina Georgieva, managing director of the International Monetary Fund. The primary free market, hands-off government philosophy that the capitalist strongholds have championed over the last several decades is at odds with the new policy movement.

In addition to development and efficiency, many capitals have prioritized security, resilience, self-sufficiency, and economic policy. Washington and Brussels are increasingly following Beijing’s lead and launching climate change and crucial technology-focused industrial programs that will cost billions of dollars.

However, many economists still think industrial reforms will do more harm than good by slowing economic growth. The International Monetary Fund has revised its recommendations for the timing and implementation of industrial policy in light of the most recent round of interventions.

Last year, out of the 2,500 interventions launched, the most significant portion was safeguarding domestic industries, with climate change and supply chain strengthening closely following. The lowest proportion of measures were motivated by concerns about national security. Despite internal disagreements, the European Union seems intent on implementing more concerted economic initiatives in response to growing concerns about Europe’s competitiveness relative to China and the US.