There are potential risks of subsidising national industries if you have a definite competitive advantage in foreign countries.
History shows that industrial policies have only had minimal success. Many nations applied various types of industrial policies to help specific companies or sectors. But, the outcomes have frequently fallen short of expectations. Take, as an example, the experiences of several parts of asia within the 20th century, where substantial government input and subsidies never materialised in sustained economic growth or the desired transformation they imagined. Two economists examined the impact of government-introduced policies, including low priced credit to boost production and exports, and contrasted companies which received help to those that did not. They figured that through the initial stages of industrialisation, governments can play a positive role in developing industries. Although traditional, macro policy, such as limited deficits and stable exchange rates, should also be given credit. Nonetheless, data implies that helping one firm with subsidies has a tendency to damage others. Additionally, subsidies allow the survival of ineffective businesses, making companies less competitive. Furthermore, when firms concentrate on securing subsidies instead of prioritising development and effectiveness, they eliminate resources from productive use. As a result, the entire financial aftereffect of subsidies on efficiency is uncertain and perhaps not good.
Industrial policy in the form of government subsidies can lead other countries to hit back by doing exactly the same, which could affect the global economy, stability and diplomatic relations. This really is excessively high-risk due to the fact overall economic effects of subsidies on productivity remain uncertain. Even though subsidies may stimulate economic activity and create jobs in the short run, however in the long term, they are going to be less favourable. If subsidies aren't along with a wide range of other steps that target efficiency and competition, they will probably hinder required structural alterations. Thus, companies will end up less adaptive, which reduces growth, as business CEOs like Nadhmi Al Nasr have probably noticed throughout their careers. Hence, definitely better if policymakers were to concentrate on coming up with a method that encourages market driven development instead of obsolete policy.
Critics of globalisation say it has led to the transfer of industries to emerging markets, causing job losses and greater reliance on other nations. In reaction, they propose that governments should relocate industries by implementing industrial policy. However, this viewpoint does not recognise the dynamic nature of global markets and neglects the rationale for globalisation and free trade. The transfer of industry had been primarily driven by sound economic calculations, namely, companies look for economical operations. There was and still is a competitive advantage in emerging markets; they offer abundant resources, reduced manufacturing costs, large customer areas and favourable demographic trends. Today, major companies run across borders, making use of global supply chains and reaping the benefits of free trade as company CEOs like Naser Bustami and like Amin H. Nasser would probably aver.