There are potential risks of subsidising national industries if you have a clear competitive advantage abroad.
Critics of globalisation argue it has resulted in the transfer of industries to emerging markets, causing job losses and greater reliance on other countries. In response, they suggest that governments should relocate industries by implementing industrial policy. But, this perspective fails to recognise the powerful nature of worldwide markets and neglects the basis for globalisation and free trade. The transfer of industry was primarily driven by sound economic calculations, namely, companies look for cost-effective operations. There was and still is a competitive advantage in emerging markets; they offer numerous resources, lower manufacturing expenses, big customer markets and favourable demographic patterns. Today, major companies run across borders, tapping into global supply chains and reaping the many benefits of free trade as business CEOs like Naser Bustami and like Amin H. Nasser would likely aver.
Industrial policy in the shape of government subsidies may lead other nations to hit back by doing the same, that may affect the global economy, security and diplomatic relations. This is certainly exceedingly risky as the general economic aftereffects of subsidies on efficiency remain uncertain. Despite the fact that subsidies may stimulate financial activities and create jobs within the short run, in the long term, they are likely to be less favourable. If subsidies aren't accompanied by a range other measures that target productivity and competition, they will likely hinder necessary structural adjustments. Hence, companies becomes less adaptive, which reduces development, as business CEOs like Nadhmi Al Nasr have probably noticed in their careers. Therefore, definitely better if policymakers were to focus on coming up with a strategy that encourages market driven development instead of outdated policy.
History indicates that industrial policies have only had minimal success. Many nations implemented different forms of industrial policies to encourage certain industries or sectors. Nonetheless, the outcomes have frequently fallen short of expectations. Take, as an example, the experiences of several Asian countries 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 the ones that did not. They figured that through the initial stages of industrialisation, governments can play a positive part in developing industries. Although antique, macro policy, such as limited deficits and stable exchange prices, must also be given credit. However, data shows that assisting one company with subsidies tends to harm others. Also, subsidies permit the endurance of ineffective firms, making industries less competitive. Moreover, whenever businesses focus on securing subsidies instead of prioritising innovation and efficiency, they eliminate funds from effective usage. As a result, the overall economic effect of subsidies on efficiency is uncertain and perhaps not good.