LIndustrial policy, consisting of government action programs aimed at reinvigorating domestic industries, has become popular again in advanced countries. The US Inflation Reduction Act, 2022) with unprecedented tax credits or active subsidies launched by the Biden administration embodies this renewed favorability.
Industrial policy has returned as a privileged instrument of public action. This marks a major break with the previous era during which it had become, in advanced economies, intellectually outdated, inefficient, and contrary to the principles of the market economy.
Industrial policy, first of all, involves a lot of investment, therefore very strong capital needs. The stated objectives are multiple. This is about ensuring economic security by responding to China’s proactive policies in what are considered “strategic” sectors.
Building standalone semiconductor capabilities in the West will cost hundreds of billions of dollars. It is also about financing an energy and climate transition which will require the profound renewal of infrastructure, the installation of new production capacities, the decommissioning of certain others, and the renovation of millions of homes.
Sustainable rise in long-term interest rates
It will be necessary to invest massively in emerging technologies, first and foremost artificial intelligence, which is extremely capital-intensive; Finally, it will be necessary to finance increased civil and military research in a geopolitical context where a race is raging between economic superpowers like the United States, China and the European Union. For emerging and developing countries, it is essential and urgent to strengthen their infrastructure, in particular to improve access to electricity for their population and invest in human capital.
At the moment when it appears essential, capital also becomes more scarce, for at least three reasons.
First, the dynamism of global savings, which has been growing strongly for four decades, will slow down or reverse itself. The main reason for this is the aging of the world’s population, which is not always accompanied, in many countries, by the development of protective social systems.
Second reason, the rise in public debts, which have never been so high in advanced countries in times of peace.
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